Document:

Exhibit 4.5

 

Execution Copy

 

 

 

8.875% Senior
Notes due 2019

 

GUARANTEE

from

PRINCIPAL FINANCIAL SERVICES, INC., as Guarantor

to

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee

Dated as of May 21, 2009

 

 

 

 

GUARANTEE

 

This Guarantee (this “Guarantee”) is
made and entered into as of May 21, 2009, from PRINCIPAL FINANCIAL
SERVICES, INC., a corporation duly organized and existing under the laws of the
State of Iowa, as guarantor (herein called the “Guarantor,” which term
includes any successor hereunder), to THE BANK OF NEW YORK MELLON TRUST
COMPANY, N.A., a national banking association incorporated and existing under
the laws of the United States of America, as trustee (the “Trustee,” as
further defined in the Indenture hereinafter referred to). Defined terms used
herein without definition shall have the meanings given to them in the Senior Indenture,
dated as of May 21, 2009 among Principal Financial Group, Inc., a
Delaware corporation (the “Company,” as further defined in the Indenture
hereinafter referred to), the Guarantor and the Trustee, as supplemented by the
Second Supplemental Indenture, dated as of May 21, 2009, among the
Company, the Guarantor and the Trustee with respect to the Securities as
defined below (the “Indenture”).

 

RECITALS

 

The Guarantor is a wholly-owned subsidiary of
the Company and has duly authorized the execution and delivery of this Guarantee
to provide for the guarantee by the Guarantor for the benefit of the Holders of
the Company’s 8.875% Senior Notes due 2019 (the “Securities”) issued
pursuant to the Indenture.

 

For and in consideration of the premises and
the purchase of the Securities by the Holders thereof, it is mutually
covenanted and agreed as follows for the equal and ratable benefit of the
Holders of the Securities:

 

ARTICLE I

REPRESENTATIONS AND WARRANTIES OF GUARANTOR

 

SECTION 1.1         Guarantor Representations and Warranties.

 

The Guarantor does hereby represent and
warrant that it is a corporation duly incorporated and in good standing under
the laws of the State of Iowa, has the power to enter into and perform this Guarantee
and to own its corporate property and assets, has duly authorized the execution
and delivery of this Guarantee by proper corporate action and neither this Guarantee,
the authorization, execution, delivery and performance hereof, the performance
of the agreements herein contained nor the consummation of the transactions
herein contemplated will violate in any material respect any provision of law,
any order of any court or agency of government or any agreement, indenture or
other instrument to which the Guarantor is a party or by which it or its
property is bound, or in 

 

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any material
respect be in conflict with or result in a breach of or constitute a default
under any indenture, agreement or other instrument or any provision of its
certificate of incorporation, bylaws or any requirement of law. This Guarantee
constitutes the legal, valid and binding obligation of the Guarantor enforceable
against the Guarantor in accordance with its terms, except as the
enforceability hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of creditors
generally and by general equitable principles.

 

ARTICLE II

GUARANTEE OF OBLIGATIONS

 

SECTION 2.1         Obligations Guaranteed.

 

Subject to the provisions of this Article 2,
the Guarantor hereby unconditionally guarantees (a) to each Holder
of a Security authenticated and delivered by the Trustee or Authenticating
Agent, (i) the full and prompt payment of the principal of, and
premium, if any, and interest on, and any Redemption Price with respect to,
such Security, when, where and as the same shall become due and payable,
whether at the stated maturity thereof, by acceleration, call for redemption or
otherwise in accordance with the terms of such Security and the Indenture and (ii) the
full and prompt payment of interest on the overdue principal and interest, if
any, on such Security, at the rate specified in such Security and to the extent
lawful and (b) to the Trustee the full and prompt payment upon
written demand therefor of all amounts due to it in accordance with the terms
of the Indenture (collectively the “Guaranteed Obligation”). If for any
reason the Company shall fail punctually to pay any such Guaranteed Obligation,
the Guarantor hereby agrees to cause any such Guaranteed Obligation to be made
punctually when, where and as the same shall become due and payable, whether at
the stated maturity thereof, by acceleration, call for redemption or otherwise.
All payments by the Guarantor hereunder shall be paid in lawful money of the
United States of America.  This Guarantee
is unsecured and ranks equally in right of payment with all of the Guarantor’s
existing and future senior indebtedness.

 

SECTION 2.2         Obligations Unconditional.

 

The obligations of the Guarantor under this Guarantee
shall be absolute, unconditional and irrevocable and shall constitute a
continuing guarantee of payment and not of collectability. Such obligations
shall remain in full force and effect until this Guarantee shall terminate in
accordance with the provisions of Section 5.1 hereof, and, to the maximum
extent permitted by applicable law, such obligations shall not be affected,
modified, released or impaired by any state of facts or the happening from time
to time of any event, including, without limitation, any of the following,
whether or not with notice to, or the consent of, the Guarantor:

 

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(a)           the waiver, compromise, settlement,
release or termination of any or all of the obligations, covenants or
agreements of the Company contained in the Securities or the Indenture, or of
the payment, performance or observance thereof;

 

(b)           the failure to give notice to the Guarantor
of the occurrence of any default or an Event of Default under the terms and
provisions of the Securities or the Indenture;

 

(c)           the assignment or purported
assignment of any of the obligations, covenants and agreements contained in
this Guarantee;

 

(d)           the extension of the time for payment
of any principal of, premium, if any, or interest on, or any Redemption Price
with respect to, the Securities or of the time for performance of any
obligations, covenants or agreements under or arising out of the Securities or
the Indenture or the extension or the renewal of any thereof;

 

(e)           the modification or amendment
(whether material or otherwise) of any obligation, covenant or agreement set
forth in the Securities or the Indenture;

 

(f)            the taking or the omission to take
any of the actions referred to in this Guarantee or in the Indenture;

 

(g)           any failure, omission or delay on the
part of, or the inability of, the Trustee or the Holders of the Securities to
enforce, assert or exercise any right, power or remedy conferred on the
Trustee, such Holders or any other person in this Guarantee or in the Indenture
for any reason;

 

(h)           the voluntary or involuntary
liquidation, dissolution, merger, consolidation, sale or other disposition of
all or substantially all the assets, marshaling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition with creditors or readjustment of, or
other similar proceedings affecting the Company or any or all of its assets, or
any allegation or contest of the validity of the Securities or the Indenture or
the disaffirmance of the Securities or the Indenture in any such proceeding; it
being specifically understood, consented and agreed to that this Guarantee
shall remain and continue in full force and effect and shall be enforceable
against the Guarantor to the same extent and with the same force and effect as
if such proceedings had not been instituted, and it is the intent and purpose
of this Guarantee that the Guarantor shall and does hereby waive, to the
maximum extent permitted by applicable law, all rights and benefits which might
accrue to the Guarantor by reason of any such proceedings;

 

(i)            any event or action that would, in
the absence of this clause, result in the release or discharge by operation of
law of the Guarantor from the performance or observance of any obligation,
covenant or agreement contained in this Guarantee;

 

(j)            the default or failure of the Guarantor
fully to perform any of its obligations set forth in this Guarantee;

 

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(k)           the release, substitution or
replacement of any security pledged for the benefit of the Holders of the
Securities under the Indenture;

 

(l)            the disposition by the Company of
any or all of its interest in any capital stock of the Guarantor, or any
change, restructuring or termination of the corporate structure, ownership,
corporate existence or any rights or franchises of the Guarantor;

 

(m)          any other circumstances which might
otherwise constitute a legal or equitable discharge or defense of a surety or a
guarantor; or

 

(n)           any other occurrence whatsoever,
whether similar or dissimilar to the foregoing.

 

SECTION 2.3         No Waiver or Set-Off.

 

The Guarantor agrees that, to the maximum
extent permitted by law, (a) no act of commission or omission of
any kind or at any time on the part of the Trustee or any Holder of the
Securities, or their successors and assigns, in respect of any matter
whatsoever shall in any way impair the rights of the Trustee or such Holders to
enforce any right, power or benefit under this Guarantee, and (b) no
set-off, counterclaim, reduction, or diminution of any obligation, or any
defense of any kind or nature (other than performance), which the Guarantor or
the Company has or may have against the Trustee or such Holders or any assignee
or successor thereof shall be available hereunder to the Guarantor.

 

SECTION 2.4         Waiver of Notice; Expenses.

 

The Guarantor hereby expressly waives notice
from the Trustee or the Holders of the Securities of their acceptance and
reliance on this Guarantee. The Guarantor further waives, to the maximum extent
permitted by law, any right that it may have (a) to require the
Trustee or the Holders of the Securities to take action or otherwise proceed
against the Company, (b) to require the Trustee or the Holders of
the Securities to proceed against or exhaust any security pledged for the
benefit of the Holders of the Securities under the Indenture or (c) to
require the Trustee or the Holders of the Securities otherwise to enforce,
assert or exercise any other right, power or remedy that may be available to
the Trustee or such Holders. The Guarantor agrees to pay all costs, expenses
and fees, including all reasonable attorneys’ fees and expenses, that may be
incurred by the Trustee in enforcing or attempting to enforce this Guarantee or
protecting the rights of the Trustee or the Holders of the Securities following
any default on the part of the Guarantor hereunder, whether the same shall be
enforced by suit or otherwise.

 

SECTION 2.5         Subrogation of Guarantor; Subordination.

 

Notwithstanding any payment or payments made
by the Guarantor, the Guarantor agrees that it will not enforce, by reason of
subrogation, contribution, indemnity or otherwise, any rights the Trustee or
the Holders of the Securities may have against the Company until all of the Guaranteed
Obligations shall have been finally, indefeasibly and unconditionally paid in
full. Any claim of the Guarantor against the Company arising 

 

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from payments
made by the Guarantor by reason of this Guarantee shall be in all respects
subordinated to the final, indefeasible, unconditional, full and complete
payment or discharge of all of the Guaranteed Obligations guaranteed hereby.

 

SECTION 2.6         Reinstatement.

 

This Guarantee shall continue to be
effective, or be automatically reinstated, as the case may be, if at any time
payment, or any part thereof, made by or on behalf of the Company or the Guarantor
in respect of any of the Securities is rescinded or must otherwise be restored
or returned by the Trustee or any Holder of such Securities for any reason
whatsoever, whether upon the insolvency, bankruptcy, dissolution, liquidation
or reorganization of the Company, or upon or as a result of the appointment of
a receiver, intervenor or conservator of, or trustee or similar officer for the
Company or any substantial part of its properties, or otherwise, all as though
such payment had not been made.

 

SECTION 2.7         Rights of Holders.

 

The Guarantor expressly acknowledges that the
Trustee has the right to enforce this Guarantee on behalf of the Holders of the
Securities in accordance with and subject to the provisions of the Indenture.

 

ARTICLE III

COVENANTS OF THE GUARANTOR

 

SECTION 3.1         Consolidation, Merger Conveyance, Transfer or Lease.

 

(a)           Subject
to Section 3.1(c), the Guarantor shall not consolidate with or merge with
or into any other Person or convey, transfer or lease its assets substantially
as an entirety to any Person, and the Guarantor shall not permit any Person to
consolidate with or merge with or into the Guarantor, unless:

 

(1)           the Guarantor or the
Company is the surviving corporation in a merger or consolidation; or

 

(2)           in case the Guarantor
shall consolidate with or merge into another Person or convey, transfer or
lease its assets substantially as an entirety to any Person, the Person formed
by such consolidation or into which the Guarantor is merged or the Person which
acquires by conveyance or transfer, or which leases, the assets of the Guarantor
substantially as an entirety shall be a corporation, partnership, trust or
limited liability company, organized and validly existing under the laws of the
United States of America, any State thereof or the District of Columbia and
shall expressly assume, by a supplemental agreement hereto, executed 

 

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and delivered
to the Trustee, all of the obligations of the Guarantor under the Indenture and
this Guarantee; and

 

(3)           immediately after
giving effect to such transaction, no Event of Default, and no event which,
after notice or lapse of time or both, would become an Event of Default, shall
have happened and be continuing; and

 

(4)           the Guarantor has
delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel,
each stating that such consolidation, merger, conveyance, transfer or lease
and, if a supplemental agreement is required in connection with such
transaction, such supplemental agreement comply with this Section 3.1 and
that all conditions precedent herein provided for relating to such transaction
have been complied with.

 

(b)           Subject
to Section 3.1(c), any indebtedness which becomes an obligation of the Guarantor
or any of its Subsidiaries as a result of any such transaction shall be treated
as having been incurred by the Guarantor or such Subsidiary at the time of such
transaction.

 

(c)           The
provisions of Section 3.1(a) and (b) shall not be applicable to:

 

(1)           the direct or
indirect conveyance, transfer or lease of all or any portion of the stock,
assets or liabilities of any of the Guarantor’s wholly owned Subsidiaries to
the Guarantor or to the Company or to other wholly owned Subsidiaries of the Guarantor;
or

 

(2)           any recapitalization
transaction, a change of control of the Guarantor or a highly leveraged
transaction unless such transaction or change of control is structured to
include a merger or consolidation by the Guarantor or the conveyance, transfer
or lease of the Guarantor’s assets substantially as an entirety.

 

(d)           Upon
any consolidation of the Guarantor with, or merger of the Guarantor into, any
other Person or any conveyance, transfer or lease of the assets of the Guarantor
substantially as an entirety in accordance with this Section 3.1, the
successor Person formed by such consolidation or into which the Guarantor is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Guarantor
under this Guarantee with the same effect as if such successor Person had been
named as the Guarantor herein, and thereafter, except in the case of any lease,
the Guarantor shall be relieved of all obligations and covenants under this Guarantee
and may be dissolved and liquidated.

 

In case of any such consolidation, merger,
conveyance, transfer or lease, such changes in phraseology and form may be made
in this Guarantee thereafter to be issued as may be appropriate.

 

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SECTION 3.2         Reports by the Guarantor.

 

During the term hereof, the Guarantor
covenants:

 

(a)           to file with the Trustee, within 30
days after the Guarantor is required to file the same with the Commission, copies
of the annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may from time
to time by rules and regulations prescribe) which the Guarantor may be
required to file with the Commission pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934, as amended; or, if the Guarantor is not
required to file information, documents or reports pursuant to either of such
sections, then to file with the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission pursuant to Section 314(a) of
the Trust Indenture Act, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of the
Securities Exchange Act of 1934, as amended, in respect of a security listed
and registered on a national securities exchange as may be prescribed from time
to time in such rules and regulations. 
All reports, information and documents described in this Section 3.2(a) and
filed with the Commission pursuant to its Electronic Data Gathering, Analysis
and Retrieval (EDGAR) system or any successor system shall be deemed to be
filed with the Trustee.

 

(b)           to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from
time to time by the Commission pursuant to Section 314(a) of the
Trust Indenture Act, such additional information, documents and reports with
respect to compliance by the Guarantor with the conditions and covenants
provided for in this Guarantee and the Indenture, as may be required from time
to time by such rules and regulations;

 

(c)           to transmit to all Holders of the
Securities within 30 days after the filing thereof with the Trustee, in the
manner and to the extent provided in Section 313(c) of the Trust
Indenture Act, such summaries of any information, documents and reports
required to be filed by the Guarantor pursuant to subsections (a) and (b) of
this Section 3.2, as may be required by rules and regulations
prescribed from time to time by the Commission pursuant to Section 314(a) of
the Trust Indenture Act; and

 

(d)           to deliver to the Trustee, within 120
days after the end of each fiscal year of the Guarantor, a brief certificate
from the principal executive officer, principal financial officer, or principal
accounting officer as to his or her knowledge of the Guarantor’s compliance
with all conditions and covenants under this Guarantee.  For purposes of this Section 3.2, such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Guarantee.

 

Delivery of such reports, information and
documents to the Trustee is for informational purposes only and the Trustee’s
receipt of such shall not constitute constructive notice of any information
contained therein or determinable from information contained therein, including
the Company’s compliance with any of its 

 

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covenants
hereunder (as to which the Trustee is entitled to rely exclusively on Officers’
Certificates).

 

ARTICLE IV

NOTICES

 

SECTION 4.1         Notices.

 

All notices, certificates or other
communications to the Guarantor hereunder shall be sufficient for every purpose
hereunder if in writing and mailed, first-class postage prepaid, to the Guarantor
addressed to it at Principal Financial Services, Inc. 711 High Street, Des
Moines, Iowa 50392, Attention: General Counsel, or at any other address previously
furnished in writing to the Trustee by the Guarantor.

 

ARTICLE V

MISCELLANEOUS

 

SECTION 5.1         Effective Date; Termination.

 

The obligations of the Guarantor hereunder
shall arise absolutely and unconditionally upon the date of the initial
delivery of and authentication of the Securities. Subject to Section 2.6,
this Guarantee shall terminate on such date as the Indenture is discharged and
satisfied.

 

SECTION 5.2         Evidence of Compliance with Conditions Precedent.

 

The Guarantor shall provide the Trustee with
such evidence of compliance with such conditions precedent, if any, provided
for in this Guarantee that relate to the matters set forth in Section 314(c) of
the Trust Indenture Act. Any certificate or opinion required to be given by an
officer pursuant to Section 314(c)(1) may be given in the form of an
Officers’ Certificate.

 

SECTION 5.3         Remedies Not Exclusive.

 

No remedy herein conferred upon or reserved
to the Trustee or Holders of the Securities is intended to be exclusive of any
other available remedy or remedies, but, to the maximum extent permitted by
law, each and every such remedy shall be cumulative and shall be in addition to
every other remedy given under this Guarantee or now or hereafter existing at
law or in equity. No delay or omission to exercise any right or power accruing
upon any default, omission or failure of performance hereunder shall impair any
such right or power or shall be construed to be a waiver thereof, but any such
right or power may be exercised from time to time and as often as may be deemed
expedient. In order to entitle the Trustee and Holders of the Securities to
exercise any remedy reserved 

 

9

 

to any of them
in this Guarantee, to the maximum extent permitted by applicable law, it shall
not be necessary to give any notice. In the event any provision contained in
this Guarantee should be breached, and thereafter duly waived, such waiver
shall be limited to the particular breach so waived and shall not be deemed to
waive any other breach hereunder. To the maximum extent permitted by applicable
law, no waiver, amendment, release or modification of this Guarantee shall be
established by conduct, custom or course of dealing, but solely by an
instrument in writing duly executed by the parties to this Guarantee and
consistent with the terms of the Indenture.

 

SECTION 5.4         Limitation of Guarantor’s Liability.

 

Any term or provision of this Guarantee
notwithstanding, the Guarantee shall not exceed the maximum amount that can be
guaranteed by the Guarantor without rendering the Guarantee voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer or
similar laws affecting the rights of creditors generally.

 

SECTION 5.5         Entire Agreement; Counterparts.

 

This Guarantee constitutes the entire
agreement, and supersedes all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof and may
be executed simultaneously in several counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and the same
instrument.

 

SECTION 5.6         Severability.

 

To the maximum extent permitted by applicable
law, the invalidity or unenforceability of any one or more phrases, sentences,
clauses or sections contained in this Guarantee shall not affect the validity
or enforceability of the remaining portions of this Guarantee, or any part
thereof.

 

SECTION 5.7         Governing Law.

 

THIS GUARANTEE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. This Guarantee
is subject to the Trust Indenture Act and if any provision hereof limits,
qualifies or conflicts with a provision of the Trust Indenture Act that is
required by the Trust Indenture Act to be a part of and govern this Guarantee,
the latter provision shall control. If any provision of this Guarantee modifies
or excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this Guarantee as so
modified, or to be excluded, as the case may be, whether or not such provision
of this Guarantee refers expressly to such provision of the Trust Indenture
Act.  The Guarantor shall be an “obligor”
with respect to the Securities as such term is defined in and solely for the
purposes of the Trust Indenture Act and shall comply with those provisions of
the Indenture compliance with which is required by an “obligor” under the Trust
Indenture Act.

 

10

 

SECTION 5.8         Amendment; Modification.

 

This Guarantee may be amended or modified pursuant
to the terms of the Indenture.

 

[Remainder of this
page intentionally blank]

 

11

 

IN WITNESS WHEREOF, the Guarantor has caused
this instrument to be duly executed.

 

 

	
   

  	
  PRINCIPAL
  FINANCIAL SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Terrance
  J. Lillis

  
	
   

  	
   

  	
  Name:
  Terrance J. Lillis

  
	
   

  	
   

  	
  Title:
  Senior Vice President and

  
	
   

  	
   

  	
  Chief
  Financial Officer

  

 

 

[Signature page to Guarantee of 8.875% Senior Notes due 2019]Exhibit 10.27

 

CREDIT
AGREEMENT

 

THIS CREDIT AGREEMENT (this “Agreement”) is entered into as of May 15, 2009, by and between BEBE STORES, INC., a
California corporation (“Borrower”), and WELLS FARGO BANK, NATIONAL ASSOCIATION
(“Bank”).

 

RECITALS

 

Borrower has requested that Bank extend or continue credit to Borrower as
described below, and Bank has agreed to provide such credit to Borrower on the
terms and conditions contained herein.

 

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:

 

ARTICLE I

CREDIT TERMS

 

SECTION 1.1.                    LINE OF CREDIT.

 

(a)       Line of Credit.   Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower from time to time up
to and including May 15, 2012, not to exceed at any time the aggregate
principal amount of Twenty Five Million Dollars ($25,000,000.00) (“Line of
Credit”), the proceeds of which shall be used for working capital
purposes.  Borrower’s obligation to repay
advances under the Line of Credit shall be evidenced by a promissory note dated
as of May 15, 2009 (“Line of Credit Note”), all terms of which are
incorporated herein by this reference.

 

(b)      Letter of Credit
Subfeature.  As a subfeature under the
Line of Credit, Bank agrees from time to time during the term thereof to issue
or cause an affiliate to issue standby and/or sight commercial letters of
credit for the account of Borrower (each, a “Letter of Credit” and
collectively, “Letters of Credit”).  The
form and substance of each Letter of Credit shall be subject to approval by
Bank, in its sole discretion.  No Letter
of Credit shall have an expiration date subsequent to the maturity date of the
Line of Credit.  The undrawn amount of
all Letters of Credit shall be reserved under the Line of Credit and shall not
be available for borrowings thereunder. 
Each Letter of Credit shall be subject to the additional terms and
conditions of the Letter of Credit agreements, applications and any related
documents required by Bank in connection with the issuance thereof.  Each drawing paid under a Letter of Credit
shall be deemed an advance under the Line of Credit and shall be repaid by
Borrower in accordance with the terms and conditions of this Agreement
applicable to such advances; provided however, that if advances under the Line
of Credit are not available, for any reason, at the time any drawing is paid,
then Borrower shall immediately pay to Bank the full amount drawn, together
with interest thereon from the date such drawing is paid to the date such
amount is fully repaid by Borrower, at the rate of interest applicable to
advances under the Line of Credit.  

 

 

In such event Borrower agrees that Bank, in its sole discretion, may debit
any account maintained by Borrower with Bank for the amount of any such
drawing.

 

(c)       Borrowing and
Repayment.  Borrower may from time to
time during the term of the Line of Credit borrow, partially or wholly repay
its outstanding borrowings, and reborrow, subject to all of the limitations,
terms and conditions contained herein or in the Line of Credit Note; provided
however, that the total outstanding borrowings under the Line of Credit shall
not at any time exceed the maximum principal amount available thereunder, as
set forth above.  Notwithstanding the
foregoing, Borrower shall maintain a zero balance on advances under the Line of
Credit for a period of at least thirty (30) consecutive days during the period
beginning January 1st and ending May 31st of each fiscal year; provided however, that for purposes of this
paragraph, advances do not include undrawn amounts under outstanding Letters of
Credit.

 

SECTION 1.2.                    INTEREST/FEES.

 

(a)       Interest.  The outstanding principal balance of each
credit subject hereto shall bear interest at the rate of interest set forth in
each promissory note or other instrument or document executed in connection
therewith.

 

(b)      Computation and
Payment.  Interest shall be computed on
the basis of a 360-day year, actual days elapsed.  Interest shall be payable at the times and
place set forth in each promissory note or other instrument or document
required hereby.

 

(c)       Standby Letter of
Credit Fees.  Borrower shall pay to Bank (i) fees
upon the issuance of each Letter of Credit equal to one and one-half percent
(1.50%) per annum (computed on the basis of a 360-day year, actual days
elapsed) of the face amount thereof, and (ii) fees upon the payment or
negotiation of each drawing under any Letter of Credit and fees upon the
occurrence of any other activity with respect to any Letter of Credit
(including without limitation, the transfer, amendment or cancellation of any
Letter of Credit) determined in accordance with Bank’s standard fees and
charges then in effect for such activity.

 

(d)      Commercial Letter of
Credit Fees.  Borrower shall pay to Bank (i) fees
upon the issuance of each Letter of Credit equal to one hundred twenty-five
thousandths percent (.125%) per annum (computed on the basis of a 360-day year,
actual days elapsed) of the face amount thereof, but in any event, not less
than One Hundred Dollars ($100.00), and (ii) fees upon the payment or
negotiation of each drawing under any Letter of Credit and fees upon the
occurrence of any other activity with respect to any Letter of Credit (including
without limitation, the transfer, amendment or cancellation of any Letter of
Credit) determined in accordance with Bank’s standard fees and charges then in
effect for such activity.

 

(e)       Compensating
Balance/Line Nonutilization Fee. 
Borrower shall maintain with Bank average free collected non-interest
bearing deposit balances, net of any account balances required to offset
service or other charges as shown on Borrower’s monthly Account Analysis from
Bank (“Compensating Balances”), calculated on a quarterly basis, equal to Two
Million Five Hundred Thousand Dollars ($2,500,000.00).  If for any quarter such Compensating Balances
have not been maintained, Borrower shall pay to Bank a fee equal to fifteen one
hundredths 

 

 

percent (.15%) per annum (computed on the basis of a 360-day year, actual
days elapsed) on the average daily unused amount of the Line of Credit during
such quarter, which fee shall be due and payable by Borrower in arrears within
five (5) days after any billing is sent by Bank.

 

SECTION 1.3.                    COLLECTION OF PAYMENTS.  Borrower authorizes Bank to collect all
interest and fees due under each credit subject hereto by charging Borrower’s
deposit account number
                          
with Bank, or if there are insufficient
funds in such designated deposit account, any other deposit account
maintained by Borrower with Bank, for the full amount thereof.  Should there be insufficient funds in any
such deposit account to pay all such sums when due, the full amount of such
deficiency shall be immediately due and payable by Borrower.

 

SECTION 1.4.                    GUARANTIES.  The payment and performance of all
indebtedness and other obligations of Borrower to Bank shall be guaranteed
jointly and severally by Bebe Studio, Inc. and Bebe Management, Inc.
(each a “Guarantor”) in the principal amount of Twenty Five Million Dollars
($25,000,000.00) each, as evidenced by and subject to the terms of guaranties
in form and substance satisfactory to Bank.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES

 

Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement
and shall continue in full force and effect until the full and final payment,
and satisfaction and discharge, of all obligations of Borrower to Bank subject
to this Agreement.

 

SECTION 2.1.                    LEGAL STATUS.  Borrower is a corporation, duly organized and
existing and in good standing under the laws of California, and is qualified or
licensed to do business (and is in good standing as a foreign corporation, if
applicable) in all jurisdictions in which such qualification or licensing is
required or in which the failure to so qualify or to be so licensed could have
a material adverse effect on Borrower.

 

SECTION 2.2.                    AUTHORIZATION AND VALIDITY.  This Agreement and each promissory note,
contract, instrument and other document required hereby or at any time
hereafter delivered to Bank in connection herewith (collectively, the “Loan
Documents”) have been duly authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal, valid and binding
agreements and obligations of Borrower or the party which executes the same,
enforceable in accordance with their respective terms.

 

SECTION 2.3.                    NO VIOLATION.  The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.

 

 

SECTION 2.4.                    LITIGATION.  There are no pending, or to the best of
Borrower’s knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.

 

SECTION 2.5.                    CORRECTNESS OF FINANCIAL
STATEMENT.  The annual financial
statement of Borrower dated July 5, 2008, and all interim financial
statements delivered to Bank since said date, true copies of which have been delivered
by Borrower to Bank prior to the date hereof, (a) are complete and correct
and present fairly the financial condition of Borrower, (b) disclose all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) have been prepared in
accordance with generally accepted accounting principles consistently
applied.  Since the dates of such
financial statements there has been no material adverse change in the financial
condition of Borrower, nor has Borrower mortgaged, pledged, granted a security
interest in or otherwise encumbered any of its assets or properties except in
favor of Bank or as otherwise permitted by Bank in writing.

 

SECTION 2.6.                    INCOME TAX RETURNS.  Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.

 

SECTION 2.7.                    NO SUBORDINATION.  There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower’s obligations
subject to this Agreement to any other obligation of Borrower.

 

SECTION 2.8.                    PERMITS, FRANCHISES.  Borrower possesses, and will hereafter
possess, all  permits, consents,
approvals, franchises and licenses required and rights to all trademarks, trade
names, patents, and fictitious names, if any, necessary to enable it to conduct
the business in which it is now engaged in compliance with applicable law,
other than those, which if not possessed, could not reasonably be expected to
have a material adverse effect on Borrower’s consolidated financial condition
or operations..

 

SECTION 2.9.                    ERISA.  Borrower is in compliance in all material
respects with all applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended or recodified from time to time (“ERISA”);
Borrower has not violated any provision of any defined employee pension benefit
plan (as defined in ERISA) maintained or contributed to by Borrower (each, a “Plan”);
no Reportable Event as defined in ERISA has occurred and is continuing with
respect to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.

 

SECTION 2.10.              OTHER OBLIGATIONS.  Borrower is not in default on any material 
obligation for borrowed money, any purchase money obligation or
any other material lease, commitment, contract, instrument or obligation.

 

 

SECTION 2.11.              ENVIRONMENTAL MATTERS.  Except as disclosed by Borrower to Bank in
writing prior to the date hereof, Borrower is in compliance in all material
respects with all applicable federal or state environmental, hazardous waste,
health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower’s operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may
be amended, modified or supplemented from time to time.  None of the operations of Borrower is the
subject of any federal or state investigation evaluating whether any remedial action
involving a material expenditure is needed to respond to a release of any toxic
or hazardous waste or substance into the environment.  Borrower has no material contingent liability
in connection with any release of any toxic or hazardous waste or substance
into the environment.

 

ARTICLE III

CONDITIONS

 

SECTION 3.1.                    CONDITIONS OF INITIAL EXTENSION OF
CREDIT.  The obligation of Bank to extend
any credit contemplated by this Agreement is subject to the fulfillment to Bank’s
satisfaction of all of the following conditions:

 

(a)       Approval of Bank
Counsel.  All legal matters incidental to
the extension of credit by Bank shall be satisfactory to Bank’s counsel.

 

(b)      Documentation.  Bank shall have received, in form and
substance satisfactory to Bank, each of the following, duly executed:

 

(i)          This Agreement and
each promissory note or other instrument or document required hereby.

(ii)       Corporate Resolution:
Borrower.

(iii) Certificate of Incumbency (3).

(iv) Continuing Guaranty (2).

(v)      Corporate Resolution:
Continuing Guaranty (2).

(vi) Such other documents as Bank may require under any other Section of
this Agreement.

 

(c)       Financial
Condition.  There shall have been no
material adverse change, as determined by Bank, in the financial condition or
business of Borrower, or any guarantor hereunder, nor any material decline, as
determined by Bank, in the market value of any collateral required hereunder or
a substantial or material portion of the assets of Borrower or any such
guarantor.

 

SECTION 3.2.                    CONDITIONS OF EACH EXTENSION OF
CREDIT.  The obligation of Bank to make
each extension of credit requested by Borrower hereunder shall be subject to
the fulfillment to Bank’s satisfaction of each of the following conditions:

 

(a)       Compliance.  The representations and warranties contained
herein and in each of the other Loan Documents shall be true on and as of the
date of the signing of this Agreement and on the 

 

 

date of each extension of credit by Bank pursuant hereto, with the same
effect as though such representations and warranties had been made on and as of
each such date, and on each such date, no Event of Default as defined herein,
and no condition, event or act which with the giving of notice or the passage
of time or both would constitute such an Event of Default, shall have occurred
and be continuing or shall exist.

 

(b)      Documentation.  Bank shall have received all additional
documents which may be reasonably
required in connection with such extension of credit.

 

ARTICLE IV

AFFIRMATIVE COVENANTS

 

Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:

 

SECTION 4.1.                    PUNCTUAL PAYMENTS.  Punctually pay all principal, interest, fees
or other liabilities due under any of the Loan Documents at the times and place
and in the manner specified therein.

 

SECTION 4.2.                    ACCOUNTING RECORDS.  Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect,
audit and examine such books and records, to make copies of the same of
Borrower or any Guarantor.

 

SECTION 4.3.                    FINANCIAL STATEMENTS.  Provide to Bank all of the following, in form
and detail satisfactory to Bank:

 

(a)       not later than 120
days after and as of the end of each fiscal year, an audited consolidated
financial statement of Borrower, and if applicable, a consolidating financial
statement of Borrower, prepared by a certified public accountant acceptable to
Bank, to include balance sheet, income statement, statement of cash flow,
statement of retained earnings and an unqualified opinion from a recognized
independent accounting firm and such firm’s covenant compliance calculations;

 

(b)      not later than 45 days
after and as of the end of each fiscal quarter, a consolidated, and if
applicable, a consolidating financial statement, prepared by Borrower, to
include balance sheet, income statement, statement of retained earnings and
statement of cash flow;

 

(c)       not later than 45 days
after and as of the end of each fiscal quarter, a liquidity statement of
Borrower, to include all appropriate brokerage statements;

 

(d)      contemporaneously with
each annual and quarterly financial statement of Borrower required hereby, a
certificate of chief finance officer of Borrower that said financial statements
are 

 

 

accurate and that there exists no Event of Default nor any condition, act
or event which with the giving of notice or the passage of time or both would
constitute an Event of Default;

 

(e)       from time to time such
other information as Bank may reasonably request.

 

SECTION 4.4.                    COMPLIANCE.  Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower’s
continued existence and with the requirements of all laws, rules, regulations
and orders of any governmental authority applicable to Borrower and/or its
business.

 

SECTION 4.5.                    INSURANCE.  Maintain and keep in force, for each business
in which Borrower is engaged, insurance of the types and in amounts customarily
carried in similar lines of business, including but not limited to fire, extended
coverage, public liability, flood, property damage and workers’ compensation,
with all such insurance carried with companies and in amounts satisfactory to
Bank, and deliver to Bank from time to time at Bank’s request schedules setting
forth all insurance then in effect.

 

SECTION 4.6.                    FACILITIES.  Keep all properties useful or necessary to
Borrower’s business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.

 

SECTION 4.7.                    TAXES AND OTHER LIABILITIES.  Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except (a) such as Borrower may in good
faith contest or as to which a bona fide dispute may arise, and (b) for
which Borrower has made provision, to Bank’s satisfaction, for eventual payment
thereof in the event Borrower is obligated to make such payment.

 

SECTION 4.8.                    LITIGATION.  Promptly give notice in writing to Bank of
any litigation filed that could otherwise reasonably be expected to have a
material adverse effect on Borrower’s consolidated financial condition or
operations.

 

SECTION 4.9.                    FINANCIAL CONDITION.  Maintain Borrower’s consolidated financial
condition as follows using GAAP, consistently applied and used consistently
with prior practices (except to the extent modified by the definitions herein)
and with GAAP defined as generally
accepted accounting principles set forth in the opinions and pronouncements of
the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other person as may be
approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination:

 

(a)       Tangible Net Worth not
at any time less than the Required Amount, with the “Required Amount” defined
initially as $400,000,000.00, with such initial Required Amount to increase at 

 

 

and as of Borrower’s fiscal year ending July 4, 2009 to an amount
equal to the sum of the Initial Amount plus an amount equal to fifty percent
(50%) of Borrower’s consolidated net income for Borrower’s fiscal quarter
ending July 4, 2009, and with such increased Required Amount to increase
at the end of Borrower’s next fiscal year end and each fiscal year end
thereafter on a cumulative basis by an additional amount equal to fifty percent
(50%) of Borrower’s consolidated net income for the fiscal year then ended;
provided; however, that in no event shall any net loss suffered by Borrower at
any time reduce the Required Amount.   Tangible Net Worth is defined as the aggregate of total stockholder’s
equity plus subordinated debt acceptable to Bank less any intangible assets and
less any loans or advances to, or investments in, any related entities or
individuals.

 

(b)      Net Operating Profit
not less than $1.00 in any two consecutive quarters, determined as of each
fiscal quarter end , with Net Operating Profit defined as the sum of the total sales minus the cost of goods sold minus selling,
general and administrative expenses.

 

(c)       Net Operating Profit
not less than $1.00 on an annual basis, determined as of each fiscal year end,
with Net Operating Profit as defined above.

 

(d)      Liquid Assets (defined as the aggregate of
unencumbered and unrestricted cash and readily marketable securities acceptable
to Bank) in amounts at all times in excess of $50,000,000.00.

 

SECTION 4.10.              NOTICE TO BANK.  Promptly (but in no event more than five (5) days
after the occurrence of each such event or matter) give written notice to Bank
in reasonable detail of:  (a) the
occurrence of any Event of Default, or any condition, event or act which with
the giving of notice or the passage of time or both would constitute an Event
of Default; (b) any change in the name or the organizational structure of
Borrower; (c) the occurrence and nature of any Reportable Event or
Prohibited Transaction, each as defined in ERISA, or any funding deficiency
with respect to any Plan; or (d) any termination or cancellation of any
insurance policy which Borrower is required to maintain  and
for which Borrower does not contemporaneously acquire a comparable replacement
policy, or any uninsured or partially uninsured loss through liability
or property damage, or through fire, theft or any other cause affecting a material portion of  Borrower’s property.

 

ARTICLE V

NEGATIVE COVENANTS

 

Borrower further covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct
or contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not (and, with respect to Section 5.2
to and including 5.6, will not cause or permit any Guarantor to) without Bank’s
prior written consent:

 

SECTION 5.1.                    USE OF FUNDS.  Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I hereof.

 

 

SECTION 5.2.                    OTHER INDEBTEDNESS.  Create, incur, assume or permit to exist any
indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except:

 

(a)                 Borrower’s and Guarantor’s indebtedness to Bank under the Loan Documents;

 

(b)                indebtedness existing as of, and disclosed to Bank prior to, the date
hereof;

 

(c)                 indebtedness, in a maximum outstanding principal amount not to exceed
$65,000,000.00, pursuant to Borrower’s auction rate securities holdings account
with UBS so long as recourse therefore is limited to only such auction rate
securities;

 

(d)                Intentionally deleted;

 

(e)                 unsecured indebtedness to trade creditors incurred in the ordinary course
of business;

 

(f)                   indebtedness, in an aggregate maximum principal amount not to exceed
$5,000,000.00 during the term of this Agreement, relating to the acquisition of
machinery or equipment of Borrower or any Guarantor , so long as any security
interest in connection therewith attaches only to such asset; and

 

(g)                indebtedness incurred as a result of endorsing negotiable instruments
received in the ordinary course of business.

 

SECTION 5.3.                    MERGER, CONSOLIDATION, TRANSFER OF
ASSETS.  Merge into or consolidate with
any other entity; make any substantial change in the nature of Borrower’s or
any Guarantor’s business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower’s
or any Guarantor’s assets except in the ordinary course of its business.

 

SECTION 5.4.                    GUARANTIES.  Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower or any
Guarantor as security for, any liabilities or obligations of any other person
or entity, except any of the foregoing in favor of Bank.

 

SECTION 5.5.                    LOANS, ADVANCES, INVESTMENTS.  Make any loans or advances to or investments
in any person or entity, except:

 

(a)                 investments existing
as of, and disclosed to Bank prior to, the date hereof;

 

(b)                investments for which
Bank has provided its prior written consent;

 

(c)                 investments consisting
of Borrower’s auction rate securities holdings account with UBS, provided that
no new auction rate securities are acquired;.

 

 

(d)                investments consisting
of (a) marketable direct obligations issued or unconditionally guaranteed
by the United States or any agency or any State thereof having maturities of
not more than one (1) year from the date of acquisition; (b) commercial
paper maturing no more than one (1) year after its creation and having the
highest rating from either Standard & Poor’s Ratings Group or Moody’s
Investors Service, Inc.; and (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue;

 

(e)                 investments consisting
of the endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of Borrower or any Guarantor;

 

(f)                   investments consisting
of deposit accounts in which Bank has a first priority perfected security
interest;

 

(g)                investments of
subsidiaries in or to other subsidiaries or Borrower and investments by
Borrower in subsidiaries; provided however that any subsidiary receiving any
such investment (if not already a Guarantor) shall execute and deliver to Bank
a guaranty of Borrower’s obligations to Bank (in the same form as required
under Section 1.4) and shall thereafter be deemed to constitute a “Guarantor”
for all purposes of this Agreement.  As
used herein the term “subsidiary” means each entity with respect to which
Borrower, directly or indirectly, owns or controls more than 50% of the voting
equity interests;

 

(h)                investments consisting
of (i) in an outstanding principal amount not to exceed an aggregate of
$500,000.00, travel advances and employee relocation loans and other employee
loans and advances in the ordinary course of business, and (ii) in an
outstanding principal amount not to exceed $500,000.00, loans to employees,
officers or directors relating to the purchase of equity securities of Borrower
or its subsidiaries pursuant to employee stock purchase plans or agreements
approved by Borrower’s board of directors;

 

(i)                    investments (including
debt obligations) received in connection with the bankruptcy or reorganization
of customers or suppliers and in settlement of delinquent obligations of, and
other disputes with, customers or suppliers arising in the ordinary course of
business;

 

(j)                    investments consisting
of notes receivable of, or prepaid royalties and other credit extensions, to
customers and suppliers who are not affiliates, in the ordinary course of
business;

 

(k)                 investments permitted
by Borrower’s investment policy;

 

(l)                    without duplication,
investments in entities which are not subsidiaries in an aggregate amount not
to exceed $1,000,000.00 during the term of this Agreement.

 

SECTION 5.6.                    PLEDGE OF ASSETS.  Mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower’s or any
Guarantor’s assets now owned or hereafter acquired, except:

 

 

(a)                 liens existing as of, and disclosed to Bank prior to, the date hereof;

 

(b)                liens incurred with Bank’s prior written consent;

 

(c)                 liens for taxes, fees, assessments or other government charges or levies,
either not delinquent or being contested in good faith and for which Borrower
maintains adequate reserves on its books, provided that no notice of any such
lien has been filed or recorded under the Internal Revenue Code of 1986, as
amended, and the Treasury Regulations adopted thereunder;

 

(d)                purchase money liens (i) on equipment acquired or held by Borrower
incurred for financing the acquisition of the Equipment, subject to the terms
of Section 5.2(f); (ii) purchase money liens existing as of, and
disclosed to Bank prior to, the date hereof, or (iii) liens existing on
equipment when acquired, if the lien is confined to the property and
improvements and the proceeds of the equipment;

 

(e)                 a lien on Borrower’s auction rate securities holdings account pursuant to
Borrower’s agreement with UBS, subject to the terms of paragraphs 5.2(c) and
5.5(c);

 

(f)                   liens of carriers, warehousemen, suppliers, or other persons that are
possessory in nature arising in the ordinary course of business which are not
delinquent or remain payable without penalty or which are being contested in
good faith and by appropriate proceedings which proceedings have the effect of
preventing the forfeiture or sale of the property subject thereto;

 

(g)                liens to secure payment of workers’ compensation, employment insurance,
old-age pensions, social security and other like obligations incurred in the
ordinary course of business (other than liens imposed by ERISA);

 

(h)                liens incurred in the extension, renewal or refinancing of the
indebtedness secured by liens described in (a) through (c), but any
extension, renewal or replacement lien must be limited to the property
encumbered by the existing lien and the principal amount of the indebtedness
may not increase;

 

(i)                    leases or subleases of real property granted in the ordinary course of
business, and leases, subleases, non-exclusive licenses or sublicenses of
property (other than real property) granted in the ordinary course of Borrower’s
business; and

 

(j)                    liens arising from attachments or judgments, orders, or decrees in
circumstances not constituting an Event of Default under Section 6.1.

 

ARTICLE VI

EVENTS OF DEFAULT

 

SECTION 6.1.                    The occurrence of any
of the following shall constitute an “Event of Default” under this Agreement:

 

 

(a)       Borrower shall fail to
pay (i) any principal when due, or (ii) any
interest within three (3) Business
Days after the due date; or (iii) any fees or other amounts payable
under any of the Loan Documents  within three (3) Business Days from
receipt by Borrower of demand from Bank for such fees and amounts.  During the cure period, the failure to cure
the payment default is not an Event of Default (but no advance shall be made or
Letter of credit issued during such cure period).

 

(b)      Any financial
statement or certificate furnished to Bank in connection with, or any
representation or warranty made by Borrower or any other party under this
Agreement or any other Loan Document shall prove to be incorrect, false or
misleading in any material respect when furnished or made.

 

(c)       Any default in the
performance of or compliance with any obligation, agreement or other provision
contained herein or in any other Loan Document (other than those referred to in
subsections (a) and (b) above), and with respect to any such default
which by its nature can be cured, such default shall continue for a period of
twenty (20) days from the date Borrower first knew (or using reasonable due
diligence, should have known) of such default.

 

(d)      Any default in the
payment or performance of any obligation, or any defined event of default,
under the terms of any contract or instrument (other than any of the Loan
Documents) pursuant to which Borrower, any Guarantor hereunder or any general
partner or joint venturer in Borrower if a partnership or joint venture (with
each such guarantor, general partner and/or joint venturer referred to herein
as a “Third Party Obligor”) has incurred any debt or other liability to any
person or entity, including Bank, and,
with respect to any debt or other liability owed to a party other than Bank,
the amount thereof exceeds $5,000,000.00..

 

(e)       The filing of a notice
of judgment lien against Borrower or any Third Party Obligor; or the recording
of any abstract of judgment against Borrower or any Third Party Obligor in any
county in which Borrower or such Third Party Obligor has an interest in real
property; or the service of a notice of levy and/or of a writ of attachment or
execution, or other like process, against the assets of Borrower or any Third
Party Obligor; or the entry of a judgment against Borrower or any Third Party
Obligor.

 

(f)         Borrower or any Third
Party Obligor shall become insolvent, or shall suffer or consent to or apply
for the appointment of a receiver, trustee, custodian or liquidator of itself
or any of its property, or shall generally fail to pay its debts as they become
due, or shall make a general assignment for the benefit of creditors; Borrower
or any Third Party Obligor shall file a voluntary petition in bankruptcy, or
seeking reorganization, in order to effect a plan or other arrangement with
creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time (“Bankruptcy
Code”), or under any state or federal law granting relief to debtors, whether
now or hereafter in effect; or any involuntary petition or proceeding pursuant
to the Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against Borrower or any Third Party Obligor, or Borrower or any Third Party
Obligor shall file an answer admitting the jurisdiction of the court and the
material allegations 

 

 

of any involuntary petition; or Borrower or any Third Party Obligor shall
be adjudicated a bankrupt, or an order for relief shall be entered against
Borrower or any Third Party Obligor by any court of competent jurisdiction
under the Bankruptcy Code or any other applicable state or federal law relating
to bankruptcy, reorganization or other relief for debtors.

 

(g)      There shall exist or
occur any event or condition which Bank in good faith believes impairs, or is
substantially likely to impair, the prospect of payment or performance by
Borrower of its obligations under any of the Loan Documents.

 

(h)      The death or
incapacity of Borrower or any Third Party Obligor if an individual.  The dissolution or liquidation of Borrower or
any Third Party Obligor if a corporation, partnership, joint venture or other
type of entity; or Borrower or any such Third Party Obligor, or any of its
directors, stockholders or members, shall take action that reasonably could be expected to result in the dissolution or
liquidation of Borrower or such Third Party Obligor.

 

SECTION 6.2.                    REMEDIES.  Upon the occurrence of any Event of
Default:  (a) all indebtedness of
Borrower under each of the Loan Documents, any term thereof to the contrary
notwithstanding, shall at Bank’s option and without notice become immediately
due and payable without presentment, demand, protest or notice of dishonor, all
of which are hereby expressly waived by Borrower; (b) the obligation, if
any, of Bank to extend any further credit under any of the Loan Documents shall
immediately cease and terminate; and (c) Bank shall have all rights,
powers and remedies available under each of the Loan Documents, or accorded by
law, including without limitation the right to resort to any or all security
for any credit subject hereto and to exercise any or all of the rights of a
beneficiary or secured party pursuant to applicable law.  All rights, powers and remedies of Bank may
be exercised at any time by Bank and from time to time after the occurrence of
an Event of Default, are cumulative and not exclusive, and shall be in addition
to any other rights, powers or remedies provided by law or equity.

 

ARTICLE VII

MISCELLANEOUS

 

SECTION 7.1.                    NO WAIVER.  No delay, failure or discontinuance of Bank
in exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive
or otherwise affect any other or further exercise thereof or the exercise of
any other right, power or remedy.  Any
waiver, permit, consent or approval of any kind by Bank of any breach of or
default under any of the Loan Documents must be in writing and shall be
effective only to the extent set forth in such writing.

 

SECTION 7.2.                    NOTICES.  All notices, requests and demands which any
party is required or may desire to give to any other party under any provision
of this Agreement must be in writing delivered to each party at the following
address:

 

BORROWER:                    BEBE STORES, INC.

400 Valley Drive

Brisbane, CA 94005

 

 

BANK:                              WELLS FARGO BANK,
NATIONAL ASSOCIATION

San Francisco Regional Commercial Banking Office

420 Montgomery Street, 9th Floor

San Francisco, CA 94104

 

or to such other address as any party may designate by written notice to
all other parties.  Each such notice,
request and demand shall be deemed given or made as follows:  (a) if sent by hand delivery, upon
delivery; (b) if sent by mail, upon the earlier of the date of receipt or
three (3) days after deposit in the U.S. mail, first class and postage
prepaid; and (c) if sent by telecopy, upon receipt.

 

SECTION 7.3.                    COSTS, EXPENSES AND ATTORNEYS’
FEES.  Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys’ fees (to include outside
counsel fees and all allocated costs of Bank’s in-house counsel), expended or
incurred by Bank in connection with (a) the preparation of any amendments
of and/or waivers under this Agreement and the other Loan Documents, (b) the
enforcement of Bank’s rights and/or the collection of any amounts which become
due to Bank under any of the Loan Documents, and (c) the prosecution or
defense of any action in any way related to any of the Loan Documents,
including without limitation, any action for declaratory relief, whether
incurred at the trial or appellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to
Borrower or any other person or entity;
provided however, that Borrower shall not be liable for such fees if Bank does
not prevail in any such action.

 

SECTION 7.4.                    SUCCESSORS, ASSIGNMENT.  This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interests or rights hereunder without
Bank’s prior written consent.  Bank
reserves the right to sell, assign, transfer, negotiate or grant participations
in all or any part of, or any interest in, Bank’s rights and benefits under
each of the Loan Documents; provided
however, that Bank may not assign or transfer its interest or rights hereunder
without Borrower’s prior written 
consent, not to be unreasonably withheld or delayed.  In connection therewith, Bank may disclose
all documents and information which Bank now has or may hereafter acquire
relating to any credit subject hereto, Borrower or its business, any guarantor
hereunder or the business of such guarantor, or any collateral required
hereunder.

 

SECTION 7.5.                    ENTIRE AGREEMENT; AMENDMENT.  This Agreement and the other Loan Documents
constitute the entire agreement between Borrower and Bank with respect to each
credit subject hereto and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof.  This Agreement may be amended or modified
only in writing signed by each party hereto.

 

 

SECTION 7.6.                    NO THIRD PARTY BENEFICIARIES.  This Agreement is made and entered into for
the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a
third party beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any other of the Loan Documents to
which it is not a party.

 

SECTION 7.7.                    TIME.  Time is of the essence of each and every
provision of this Agreement and each other of the Loan Documents.

 

SECTION 7.8.                    SEVERABILITY OF PROVISIONS.  If any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of
this Agreement.

 

SECTION 7.9.                    COUNTERPARTS.  This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to
be an original, and all of which when taken together shall constitute one and
the same Agreement.

 

SECTION 7.10.              GOVERNING LAW.  This Agreement shall be governed by and
construed in accordance with the laws of the State of California.

 

SECTION 7.11.              ARBITRATION.

 

(a)       Arbitration.  The parties hereto agree, upon demand by any
party, to submit to binding arbitration all claims, disputes and controversies
between or among them (and their respective employees, officers, directors,
attorneys, and other agents), whether in tort, contract or otherwise in any way
arising out of or relating to (i) any credit subject hereto, or any of the
Loan Documents, and their negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests for
additional credit.

 

(b)      Governing Rules.  Any arbitration proceeding will (i) proceed
in a location in California selected by the American Arbitration Association (“AAA”);
(ii) be governed by the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in any of
the documents between the parties; and (iii) be conducted by the AAA, or
such other administrator as the parties shall mutually agree upon, in
accordance with the AAA’s commercial dispute resolution procedures, unless the
claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest,
arbitration fees and costs in which case the arbitration shall be conducted in
accordance with the AAA’s optional procedures for large, complex commercial
disputes (the commercial dispute resolution procedures or the optional
procedures for large, complex commercial disputes to be referred to herein, as
applicable, as the “Rules”).  If there is
any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. 
Any party who fails or refuses to submit to arbitration following a demand
by any other party shall bear all costs and expenses incurred by such other
party in compelling arbitration of any dispute. 
Nothing contained herein shall be deemed to be 

 

 

a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. §91 or any similar applicable state law.

 

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

 

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

 

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

 

(f)         Class Proceedings
and Consolidations.  No party hereto
shall be entitled to join or consolidate disputes by or against others in any
arbitration, except parties who have executed 

 

 

any Loan Document, or to include in any arbitration any dispute as a
representative or member of a class, or to act in any arbitration in the
interest of the general public or in a private attorney general capacity.

 

(g)      Payment Of Arbitration
Costs And Fees.  The arbitrator shall
award all costs and expenses of the arbitration proceeding.

 

(h)      Real Property
Collateral; Judicial Reference. 
Notwithstanding anything herein to the contrary, no dispute shall be
submitted to arbitration if the dispute concerns indebtedness secured directly
or indirectly, in whole or in part, by any real property unless (i) the
holder of the mortgage, lien or security interest specifically elects in
writing to proceed with the arbitration, or (ii) all parties to the
arbitration waive any rights or benefits that might accrue to them by virtue of
the single action rule statute of California, thereby agreeing that all
indebtedness and obligations of the parties, and all mortgages, liens and
security interests securing such indebtedness and obligations, shall remain fully
valid and enforceable.  If any such
dispute is not submitted to arbitration, the dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638
et seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638.  A referee with the qualifications required
herein for arbitrators shall be selected pursuant to the AAA’s selection
procedures.  Judgment upon the decision
rendered by a referee shall be entered in the court in which such proceeding
was commenced in accordance with California Code of Civil Procedure Sections
644 and 645.

 

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

 

(j)          Small Claims
Court.  Notwithstanding anything herein
to the contrary, each party retains the right to pursue in Small Claims Court
any dispute within that court’s jurisdiction. 
Further, this arbitration provision shall apply only to disputes in
which either party seeks to recover an amount of money (excluding attorneys’
fees and costs) that exceeds the jurisdictional limit of the Small Claims
Court.

 

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

 

 

	
  BEBE
  STORES, INC.

  	
   

  	
  WELLS
  FARGO BANK, NATIONAL ASSOCIATION

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Walter Parks

  	
   

  	
  By:

  	
  /s/
  Sunil Pandya

  
	
   

  	
  Walter
  Parks

  	
   

  	
   

  	
  Sunil
  Pandya

  
	
   

  	
  Chief
  Financial Officer, Chief Operating Officer

  	
   

  	
   

  	
  Assistant
  Vice President

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