Document:

Ex-4.1

 

EXHIBIT (b)(9)

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of July 28, 2004

among

DICK’S SPORTING GOODS, INC.

as Borrower,

THE OTHER LOAN PARTIES SIGNATORY HERETO,

as Loan Parties,

and

THE LENDERS PARTY HERETO,

and

GENERAL ELECTRIC CAPITAL CORPORATION,

as Agent,

and

CITIZEN’S BANK OF PENNSYLVANIA

and

NATIONAL CITY BUSINESS CREDIT, INC.,

as Co-Documentation Agents,

and

FLEET RETAIL GROUP, INC.,

as Syndication Agent,

and

GECC CAPITAL MARKETS GROUP, INC.,

as Lead Arranger

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page

	1.	 	AMOUNT AND TERMS OF CREDIT	 	 	3	 
	 
	 	1.1	 	Revolving Credit Advances	 	 	3	 
	 
	 	1.2	 	Repayment; Termination of Commitment	 	 	6	 
	 
	 	1.3	 	Use of Proceeds	 	 	7	 
	 
	 	1.4	 	Interest on Revolving Credit Advances	 	 	7	 
	 
	 	1.5	 	Eligible Inventory	 	 	8	 
	 
	 	1.6	 	Fees	 	 	8	 
	 
	 	1.7	 	Cash Management System	 	 	9	 
	 
	 	1.8	 	Receipt of Payments	 	 	9	 
	 
	 	1.9	 	Proportionate Shares	 	 	9	 
	 
	 	1.10	 	Application and Allocation of Payments	 	 	10	 
	 
	 	1.11	 	Non-Receipt of Funds by Agent	 	 	10	 
	 
	 	1.12	 	Sharing of Payments, Etc	 	 	11	 
	 
	 	1.13	 	Settlement Procedures	 	 	12	 
	 
	 	1.14	 	Accounting	 	 	13	 
	 
	 	1.15	 	Indemnity	 	 	13	 
	 
	 	1.16	 	Access	 	 	15	 
	 
	 	1.17	 	Taxes	 	 	15	 
	 
	 	1.18	 	Letters of Credit	 	 	18	 
	 
	 	1.19	 	Capital Adequacy	 	 	18	 
	 
	 	1.20	 	Increased Costs	 	 	18	 
	 
	 	1.21	 	Illegality	 	 	19	 
	 
	 	1.22	 	Replacement of Lender in Respect of Increased Costs	 	 	19	 
	2.	 	CONDITIONS PRECEDENT	 	 	19	 
	 
	 	2.1	 	Conditions to Effectiveness	 	 	20	 
	 
	 	2.2	 	Further Conditions to Each Revolving Credit Advance and Each Letter of Credit Obligation	 	 	21	 
	 
	 	2.3	 	Additional Conditions to the Revolving Credit Advance	 	 	22	 
	3.	 	REPRESENTATIONS AND WARRANTIES	 	 	22	 
	 
	 	3.1	 	Corporate Existence; Compliance with Law	 	 	22	 

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TABLE OF CONTENTS
(continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page

	 
	 	3.2	 	Executive Offices; Corporate or Other Names	 	 	23	 
	 
	 	3.3	 	Corporate Power; Authorization; Enforceable Obligations	 	 	23	 
	 
	 	3.4	 	Financial Statements and Projections	 	 	23	 
	 
	 	3.5	 	Material Adverse Change	 	 	24	 
	 
	 	3.6	 	Ownership of Property; Liens	 	 	24	 
	 
	 	3.7	 	Restrictions; No Default	 	 	25	 
	 
	 	3.8	 	Labor Matters	 	 	25	 
	 
	 	3.9	 	Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness	 	 	26	 
	 
	 	3.10	 	Government Regulation	 	 	26	 
	 
	 	3.11	 	Margin Regulations	 	 	26	 
	 
	 	3.12	 	Taxes	 	 	27	 
	 
	 	3.13	 	ERISA	 	 	27	 
	 
	 	3.14	 	No Litigation	 	 	28	 
	 
	 	3.15	 	Brokers	 	 	28	 
	 
	 	3.16	 	Intellectual Property	 	 	29	 
	 
	 	3.17	 	Full Disclosure	 	 	29	 
	 
	 	3.18	 	Hazardous Materials	 	 	29	 
	 
	 	3.19	 	Insurance Policies	 	 	30	 
	 
	 	3.20	 	Deposit and Disbursement Accounts	 	 	30	 
	 
	 	3.21	 	Solvency	 	 	30	 
	 
	 	3.22	 	Merger Agreement	 	 	30	 
	 
	 	3.23	 	Tender Consideration	 	 	31	 
	 
	 	3.24	 	Fiscal Quarters	 	 	31	 
	4.	 	FINANCIAL STATEMENTS AND INFORMATION	 	 	31	 
	 
	 	4.1	 	Reports and Notices	 	 	31	 
	 
	 	4.2	 	Communication with Accountants	 	 	31	 
	5.	 	AFFIRMATIVE COVENANTS	 	 	31	 
	 
	 	5.1	 	Maintenance of Existence and Conduct of Business	 	 	31	 
	 
	 	5.2	 	Payment of Charges and Claims	 	 	32	 
	 
	 	5.3	 	Books and Records	 	 	32	 

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TABLE OF CONTENTS
(continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page

	 
	 	5.4	 	Litigation	 	 	32	 
	 
	 	5.5	 	Insurance	 	 	33	 
	 
	 	5.6	 	Compliance with Laws	 	 	33	 
	 
	 	5.7	 	Agreements; Leases	 	 	34	 
	 
	 	5.8	 	Supplemental Disclosure	 	 	34	 
	 
	 	5.9	 	Environmental Matters	 	 	34	 
	 
	 	5.10	 	Application of Proceeds	 	 	34	 
	 
	 	5.11	 	Fiscal Year	 	 	35	 
	 
	 	5.12	 	Landlord’s Waiver and Other Agreements	 	 	35	 
	 
	 	5.13	 	Certain Obligations Respecting Subsidiaries	 	 	35	 
	 
	 	5.14	 	Further Assurances	 	 	35	 
	 
	 	5.15	 	Appraisals and Field Audits	 	 	36	 
	 
	 	5.16	 	Future Guarantors, Security, etc	 	 	36	 
	 
	 	5.17	 	Tender Offer	 	 	37	 
	6.	 	NEGATIVE COVENANTS	 	 	37	 
	 
	 	6.1	 	Mergers, Subsidiaries, Etc	 	 	37	 
	 
	 	6.2	 	Investments	 	 	38	 
	 
	 	6.3	 	Indebtedness	 	 	39	 
	 
	 	6.4	 	Affiliate and Employee Transactions	 	 	40	 
	 
	 	6.5	 	Capital Structure and Business	 	 	40	 
	 
	 	6.6	 	Guaranteed Indebtedness	 	 	41	 
	 
	 	6.7	 	Liens	 	 	41	 
	 
	 	6.8	 	Sale of Assets	 	 	42	 
	 
	 	6.9	 	ERISA	 	 	42	 
	 
	 	6.10	 	Financial Covenant	 	 	43	 
	 
	 	6.11	 	[Intentionally Omitted.]	 	 	43	 
	 
	 	6.12	 	RESTRICTED PAYMENTS	 	 	43	 
	 
	 	6.13	 	HAZARDOUS MATERIALS	 	 	44	 
	 
	 	6.14	 	SALE-LEASEBACKS	 	 	44	 
	 
	 	6.15	 	CANCELLATION OF INDEBTEDNESS	 	 	44	 

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TABLE OF CONTENTS
(continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page

	 
	 	6.16	 	[Intentionally Omitted]	 	 	44	 
	 
	 	6.17	 	No Speculative Investments	 	 	44	 
	 
	 	6.18	 	MARGIN REGULATIONS	 	 	44	 
	 
	 	6.19	 	LIMITATION ON NEGATIVE PLEDGE CLAUSES	 	 	44	 
	 
	 	6.20	 	MATERIAL CONTRACTS	 	 	44	 
	 
	 	6.21	 	LEASES	 	 	45	 
	 
	 	6.22	 	Limitations on Modifications of Convertible Notes	 	 	45	 
	 
	 	6.23	 	Long Form Event	 	 	45	 
	7.	 	TERM	 	 	46	 
	 
	 	7.1	 	Duration	 	 	46	 
	 
	 	7.2	 	Survival of Obligations	 	 	46	 
	8.	 	EVENTS OF DEFAULT; RIGHTS AND REMEDIES	 	 	46	 
	 
	 	8.1	 	Events of Default	 	 	46	 
	 
	 	8.2	 	Remedies	 	 	48	 
	 
	 	8.3	 	Waivers by Borrower	 	 	49	 
	9.	 	AGENT	 	 	49	 
	 
	 	9.1	 	Appointment, Powers and Immunities	 	 	49	 
	 
	 	9.2	 	Reliance by Agent	 	 	50	 
	 
	 	9.3	 	Defaults	 	 	50	 
	 
	 	9.4	 	Rights as a Lender	 	 	50	 
	 
	 	9.5	 	Indemnification	 	 	50	 
	 
	 	9.6	 	Non-Reliance on Agent and Other Lenders	 	 	51	 
	 
	 	9.7	 	Failure to Act	 	 	51	 
	 
	 	9.8	 	Resignation of Agent	 	 	51	 
	 
	 	9.9	 	Consents under Loan Documents	 	 	52	 
	 
	 	9.10	 	Collateral Matters	 	 	52	 
	 
	 	9.11	 	Co-Documentation Agents, Syndication Agent and Lead Arranger	 	 	53	 
	10.	 	SUCCESSORS AND ASSIGNS	 	 	53	 
	 
	 	10.1	 	Successors and Assigns	 	 	53	 
	 
	 	10.2	 	Assignments and Participations	 	 	53	 

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TABLE OF CONTENTS
(continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page

	11.	 	MISCELLANEOUS	 	 	56	 
	 
	 	11.1	 	Complete Agreement; Modification of Agreement	 	 	56	 
	 
	 	11.2	 	Fees and Expenses	 	 	56	 
	 
	 	11.3	 	No Waiver	 	 	57	 
	 
	 	11.4	 	Remedies	 	 	58	 
	 
	 	11.5	 	Severability	 	 	58	 
	 
	 	11.6	 	Conflict of Terms	 	 	58	 
	 
	 	11.7	 	Right of Setoff	 	 	58	 
	 
	 	11.8	 	Authorized Signature	 	 	58	 
	 
	 	11.9	 	Notices	 	 	59	 
	 
	 	11.10	 	Section Titles	 	 	60	 
	 
	 	11.11	 	Counterparts	 	 	60	 
	 
	 	11.12	 	Time of the Essence	 	 	60	 
	 
	 	11.13	 	GOVERNING LAW	 	 	60	 
	 
	 	11.14	 	WAIVER OF JURY TRIAL	 	 	61	 
	 
	 	11.15	 	Publicity	 	 	61	 
	 
	 	11.16	 	Confidentiality	 	 	62	 
	 
	 	11.17	 	Dating	 	 	62	 
	 
	 	11.18	 	Subordination	 	 	62	 

-v-

 

INDEX OF ANNEXES, SCHEDULES AND EXHIBITS

	 	 	 	 	 
	Appendix 1
	 	—	 	Revolving Credit Commitments and Lender Information
	Annex A
	 	—	 	Definitions; Rules of Construction
	Annex B
	 	—	 	Cash Management System
	Annex C
	 	—	 	Schedule of Closing Documents
	Annex D
	 	—	 	Financial Statements and Notices
	Annex E
	 	—	 	Insurance Requirements
	Annex F
	 	—	 	Letters of Credit
	Annex G
	 	—	 	Additional Conditions Precedent
	Schedule 3.2
	 	—	 	Executive Offices; Trade Names
	Schedule 3.3
	 	—	 	Conflicts
	Schedule 3.4
	 	—	 	Financial Statements and Projections
	Schedule 3.5
	 	—	 	Material Adverse Change
	Schedule 3.6
	 	—	 	Real Estate and Leases
	Schedule 3.8
	 	—	 	Labor Matters
	Schedule 3.9
	 	—	 	Ventures, Subsidiaries and Affiliates; Outstanding Stock
	Schedule 3.11
	 	—	 	Margin Stock
	Schedule 3.12
	 	—	 	Tax Matters
	Schedule 3.13
	 	—	 	ERISA Plans
	Schedule 3.14
	 	—	 	Litigation
	Schedule 3.15
	 	—	 	Brokers
	Schedule 3.16
	 	—	 	Patents, Trademarks, Copyrights and Licenses
	Schedule 3.18
	 	—	 	Environmental Matters
	Schedule 3.19
	 	—	 	Insurance Policies
	Schedule 3.20
	 	—	 	Disbursement and Deposit Accounts
	Schedule 3.24
	 	—	 	Fiscal Quarters
	Schedule 6.2
	 	—	 	Investments
	Schedule 6.3
	 	—	 	Indebtedness
	Schedule 6.4
	 	—	 	Loans to and Transactions with Employees
	Schedule 6.7
	 	—	 	Liens
	Schedule 6.20
	 	—	 	Material Contracts
	Schedule 11.8
	 	—	 	Authorized Signatures
	Exhibit A-1
	 	—	 	Form of Notice of Revolving Credit Advance
	Exhibit A-2
	 	—	 	Form of Notice of Conversion/Continuation
	Exhibit B-1
	 	—	 	Form of Borrowing Base Certificate – Pre-Merger
	Exhibit B-2
	 	—	 	Form of Borrowing Base Certificate – Post-Merger
	Exhibit C
	 	—	 	Form of Revolving Credit Note
	Exhibit D-1
	 	—	 	Borrower Security Agreement
	Exhibit D-2
	 	—	 	Subsidiary Security Agreement
	Exhibit E
	 	—	 	[Intentionally Omitted]
	Exhibit F
	 	—	 	Pledge Agreement
	Exhibit G
	 	—	 	Form of Assignment and Acceptance

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     SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 28, 2004,
among DICK’S SPORTING GOODS, INC., a Delaware corporation (“Borrower”), the
other Loan Parties signatory hereto, the Lenders signatory hereto from time to
time (each individually a “Lender” and collectively “Lenders”), GENERAL
ELECTRIC CAPITAL CORPORATION, a Delaware corporation (in its individual
capacity, “GE Capital”), for itself, as Lender, and as Agent for Lenders (in
such capacity, “Agent”), CITIZEN’S BANK OF PENNSYLVANIA and NATIONAL CITY
BUSINESS CREDIT, INC., as co-documentation agents, and FLEET RETAIL GROUP,
INC., as syndication agent.

R E C I T A L S

     A. Borrower, the lenders parties thereto (the “Existing Lenders”) and
General Electric Capital Corporation, as agent for the Existing Lenders, are
parties to an Amended and Restated Credit Agreement, dated as of July 26, 2000,
as amended, modified or otherwise supplemented from time to time prior to the
date hereof (the “Existing Credit Agreement”).

     B. Diamondbacks Acquisition Inc., an Indiana corporation (“Acquirer”), a
direct, wholly-owned subsidiary of Borrower, has made a cash tender offer (the
“Tender Offer”) for all of the outstanding shares of common stock, no par value
(the “Shares”), of Galyan’s Trading Company, Inc., an Indiana corporation
(“Galyan’s”) at a purchase price of $16.75 per Share.

     C. Upon the consummation of the Tender Offer (i) if the number of Shares
tendered is less than the Short-Form Merger Threshold but greater than the
Minimum Shares (a “Long Form Event”), and the required vote of the shareholders
of Galyan’s to consummate the Acquisition (as hereinafter defined) is obtained,
or (ii) if the number of Shares tendered is greater than or equal to the
Short-Form Merger Threshold, Acquirer shall be merged with and into Galyan’s
(the “Merger” and together with the Tender Offer, the “Acquisition”), resulting
in Galyan’s becoming a direct wholly owned subsidiary of Borrower.

     D. Borrower has requested that Lenders extend revolving credit facilities
to Borrower of up to $350,000,000 in the aggregate for the purposes of: (a) (i)
if a Long Form Event shall have occurred, Borrower advancing funds to Acquirer
to purchase from time to time the tendered Shares of Galyan’s (the “Acquirer
Loan”), and Borrower advancing funds to Galyan’s to refinance the Indebtedness
evidenced by the Existing Galyan’s Credit Agreement and provide working capital
to Galyan’s (the “Galyan’s Loan”), or (ii) if the Short Form Threshold has been
obtained, funding a portion of the Acquisition pursuant to the Acquirer Loan
and/or a capital contribution made by Borrower to Acquirer in a manner
satisfactory to Agent, (b) refinancing the Indebtedness evidenced by the
Existing Galyan’s Credit Agreement, and (c) providing (i) working capital
financing for Borrower and its Subsidiaries, (ii) funds for other general
corporate purposes of Borrower and its Subsidiaries and (iii) funds for the
purposes otherwise permitted hereunder; and for these purposes, Lenders are
willing to make and continue to make certain loans and other extensions of
credit to Borrower of up to such amount upon the terms and conditions set forth
herein.

     E. If Acquirer finances a portion of the Tender Offer with the Acquirer
Loan and, in any event, if the Long Form Event shall have occurred, (i)
Acquirer shall issue an intercompany

1

 

note to Borrower to evidence the Acquirer Loan (the “Acquirer Intercompany
Note”), which shall be unsecured, (ii) Acquirer shall guaranty the Obligations,
and (iii) Galyan’s shall issue an intercompany note to Borrower evidencing the
Galyan’s Loan (the “Galyan’s Intercompany Note”), which note shall be secured
by the assets of Galyan’s consistent with those types of assets of Borrower
securing the Obligations and shall be pledged (together with the collateral
supporting such note) by Borrower to Agent for the benefit of Lenders (the
“Galyan’s Pledge”), and shall otherwise be in form and substance satisfactory
to Agent.

     F. If the Short Form Merger Threshold shall have been attained, Acquirer
will finance a portion of the Tender Offer with either the Acquirer Loan or
with the proceeds of a capital contribution from Borrower to Acquirer, and upon
consummation of the Merger, (i) if a portion of the Tender Offer is financed
with the Acquirer Loan, Galyan’s shall assume the obligations of Acquirer under
such Acquirer Loan, (ii) Galyan’s shall guaranty the Obligations and pledge its
assets consistent with those types of assets of Borrower securing the
Obligations to secure such guaranty, and (iii) Borrower shall pledge the Stock
of Galyan’s to secure the Obligations.

     G. Upon the consummation of the Tender Offer, Galyan’s and its
Subsidiaries will become Subsidiaries of the Borrower. Notwithstanding
Galyan’s and its Subsidiaries status as Subsidiaries of the Borrower, unless
the Merger is consummated on the Closing Date, Galyan’s and its Subsidiaries
shall be Loan Parties for purposes of this Agreement, but shall not become a
signatory to this Agreement before the Merger is consummated, and
simultaneously therewith Galyan’s and its Subsidiaries shall execute a joinder
in form and substance satisfactory to the Agent.

     H. Each of the parties hereto wishes to and agrees to amend and restate
the Existing Credit Agreement on the terms and conditions set forth herein.

     I. It is the intent of the parties hereto that this Agreement not
constitute a novation of the obligations and liabilities existing under the
Existing Credit Agreement or evidence payment of all or any of such obligations
and liabilities, that this Agreement amend and restate in its entirety the
Existing Credit Agreement, and that from and after the date hereof, the
Existing Credit Agreement be of no further force and effect except as to
evidence the incurrence of the “Obligations” thereunder and the representations
and warranties made thereunder.

     J. Unless otherwise defined herein, capitalized terms used herein
(including the Recitals hereto) shall have the respective meanings ascribed to
them in Annex A and, for purposes of this Agreement and the other Loan
Documents, the rules of construction set forth in Annex A shall govern. Unless
otherwise indicated, all references in this Agreement to sections, subsections,
schedules, exhibits, and attachments shall refer to the corresponding sections,
subsections, schedules, exhibits, and attachments of or to this Agreement. All
schedules, annexes, exhibits and attachments hereto, or expressly identified to
this Agreement, are incorporated herein by reference, and taken together, shall
constitute but a single agreement. Unless otherwise expressly set forth
herein, or in a written amendment referring to such schedules and annexes, all
schedules and annexes referred to herein shall mean the schedules and annexes
as in effect as of the Closing Date. These Recitals shall be construed as part
of this Agreement.

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     NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree that, effective on the Closing
Date, the Existing Credit Agreement shall be and hereby is amended and restated
in its entirety to read as follows:

1. AMOUNT AND TERMS OF CREDIT

     1.1 Revolving Credit Advances.

          (a) Upon and subject to the terms and conditions hereof, each Lender
severally agrees to make available (and continue outstanding any such advances
outstanding pursuant to the terms of the Existing Credit Agreement), from time
to time, until the Commitment Termination Date, for Borrower’s use and upon the
request of Borrower therefor to Agent, advances (each, including any such
advances outstanding pursuant to the terms of the Existing Credit Agreement,
together with any payments made in respect of any Letter of Credit Obligations
which are automatically deemed to constitute Revolving Credit Advances pursuant
to paragraph (b)(i) of Annex F, a “Revolving Credit Advance”) in an aggregate
principal amount at any time outstanding up to but not exceeding the Revolving
Credit Commitment of such Lender, provided that in no event shall the principal
amount of the Revolving Credit Loan exceed the Borrowing Availability.
Borrower may from time to time borrow, repay and reborrow Revolving Credit
Advances under this Section 1.1; provided that Borrower shall give Agent notice
of each such borrowing as provided in Section 1.1(c).

          (b) Anything in this Agreement to the contrary notwithstanding, at the
request of Borrower, in its discretion Agent may (but shall have absolutely no
obligation to) make Revolving Credit Advances to Borrower on behalf of Lenders
to maintain, protect or preserve the Collateral and/or the Agent’s rights under
the Loan Documents in amounts that cause the outstanding balance of the
aggregate Revolving Credit Loan to exceed Borrowing Availability (any such
excess Revolving Credit Advances are herein referred to collectively as
“Overadvances”); provided that (A) no such event or occurrence shall cause or
constitute a waiver of Agent’s or Lenders’ right to refuse to make any further
Overadvances or Revolving Credit Advances, or incur any Letter of Credit
Obligations, as the case may be, at any time that an Overadvance exists, and
(B) no Overadvance shall result in a Default based on Borrower’s failure to

comply with Section 1.2(b) for so long as Agent permits such Overadvance to be
outstanding, but solely with respect to the amount of such Overadvance. In
addition, Overadvances may be made even if the conditions to lending set forth
in Section 2 have not been met. All Overadvances shall constitute Index Rate
Loans, shall bear interest at the Default Rate and shall be payable on demand.
Except as otherwise provided in Section 1.10, the authority of Agent to make
Overadvances is limited to an aggregate amount not to exceed $15,000,000 at any
time (the “Maximum Overadvance”), shall not cause the aggregate Revolving
Credit Loan to exceed the Aggregate Revolving Credit Commitment, may be revoked
prospectively by a written notice to Agent signed by Required Lenders, shall
not remain outstanding for more than sixty (60) consecutive days (with no less
than five (5) Business Days between each such 60-day period), and shall not be
permitted to occur more than two (2) times in any twelve month period.

          (c) Each Revolving Credit Advance shall be made on notice by Borrower to
Agent at its address at 201 Merritt 7, Norwalk, CT 06856, Attention: Dick’s
Account Manager, Telephone No. (203) 229-5000, Telecopy No. (203) 229-5787.
Those notices must be given no

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later than (1) 12:00 noon (New York time) on the Business Day of the
proposed Revolving Credit Advance, in the case of an Index Rate Loan, or (2)
12:00 noon (New York time) on the date which is three (3) Business Days prior
to the proposed Revolving Credit Advance, in the case of a LIBOR Loan. Each
such notice (a “Notice of Revolving Credit Advance”) must be given in writing
(by telecopy or overnight courier) substantially in the form of Exhibit A-1,
and shall include the information required in such Exhibit and such other
information as may be required by Agent. Subject to Section 1.13, Agent shall
promptly (and in any event prior to 2:00 p.m. (New York City time) on any day
it receives a Notice of Revolving Credit Advance if the applicable borrowing is
to occur on such day or prior to 5:00 p.m. (New York City time) on such day
otherwise) notify each Lender thereof and on or prior to 3:00 p.m. on the date
specified for such borrowing each Lender shall make available the amount of the
Revolving Credit Advance(s) to be made by it on such date to Agent to such
account of Agent as Agent may designate, in immediately available funds, for
the account of Borrower. Notwithstanding anything to the contrary contained
herein, if Borrower desires to have the Revolving Credit Advances bear interest
by reference to a LIBOR Rate, Borrower must comply with Section 1.1(d).

          (d) So long as no Default or Event of Default shall have occurred and be
continuing, and subject to the additional conditions precedent set forth in
Section 2.2, Borrower shall have the option to (i) request that any Revolving
Credit Advance be made as a LIBOR Loan, (ii) convert at any time all or any
part of outstanding Loans from Index Rate Loans to LIBOR Loans, (iii) convert
any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR breakage
costs in accordance with Section 1.15(c) if such conversion is made prior to
the expiration of the LIBOR Period applicable thereto, or (iv) continue all or
any portion of any Loan as a LIBOR Loan upon the expiration of the applicable
LIBOR Period and the succeeding LIBOR Period of that continued Loan shall
commence on the last day of the LIBOR Period of the Loan to be continued. Any
Loan to be made or continued as, or converted into, a LIBOR Loan must be in a
minimum amount of $1,500,000 and integral multiples of $500,000 in excess of
such amount. Any such election must be made by 12:00 noon (New York time) on
the third Business Day prior to (1) the date of any proposed Advance which is
to bear interest at the LIBOR Rate, (2) the end of each LIBOR Period with
respect to any LIBOR Loans to be continued as such, or (3) the date on which
Borrower wishes to convert any Index Rate Loan to a LIBOR Loan for a LIBOR
Period designated by Borrower in such election. If no election is received
with respect to a LIBOR Loan by 12:00 noon (New York time) on the third
Business Day prior to the end of the LIBOR Period with respect thereto (or if a
Default or an Event of Default shall have occurred and be continuing or the
additional conditions precedent set forth in Section 2.2 shall not have been
satisfied), that LIBOR Loan shall be converted to an Index Rate Loan at the end
of its LIBOR Period. Borrower must make such election by notice to Agent in
writing, by telecopy or overnight courier. In the case of any conversion or
continuation, such election must be made pursuant to a written notice (a
“Notice of Conversion/Continuation”) in the form of Exhibit A-2. Agent and
Lenders shall be entitled to rely upon and shall be fully protected under this
Agreement in relying upon any Notice of Revolving Credit Advance or Notice of
Conversion/Continuation reasonably believed by Agent to be genuine and to
assume that the persons executing and delivering the same were duly authorized
unless the responsible individual acting thereon for Agent shall have actual
knowledge to the contrary.

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          (e) The Revolving Credit Advances made by each Lender (including any such
advances made pursuant to the terms of the Existing Credit Agreement) shall be
evidenced by a single promissory note of Borrower for each Lender substantially
in the form of Exhibit C, dated the Closing Date, payable to such Lender in a
principal amount equal to the amount of its Revolving Credit Commitment as in
effect on the Closing Date and otherwise duly completed. The date and amount
of each Revolving Credit Advance made by such Lender to Borrower and the date
and amount of each payment or prepayment of principal thereof shall be recorded
on the books and records of such Lender, which books and records shall
constitute prima facie evidence of the accuracy of the information therein
recorded, provided that the failure of such Lender to make any such recordation
or endorsement shall not affect the obligation of Borrower to make a payment
when due of any amount owing hereunder or under such Lender’s Revolving Credit
Note. Subject to the terms and conditions hereof, each Lender agrees on the
Closing Date to exchange its Revolving Credit Note (as defined in the Existing
Credit Agreement) for such Lender’s Revolving Credit Note issued pursuant to
the terms hereof.

          (f) Borrower shall furnish to Agent and each Lender a Borrowing Base
Certificate completed and signed by an Executive Officer, which sets forth a
calculation of the Borrowing Base at the times and for the periods set forth in
Annex D and be in the form of Exhibit B-1 or B-2, as applicable, or with
respect to Galyan’s prior to the consummation of the Merger, in such form as is
acceptable to Agent. Borrower agrees that in making any Revolving Credit
Advance hereunder Agent and each Lender shall be entitled to rely upon the most
recent Borrowing Base Certificate delivered to Agent by Borrower. Borrower
further agrees that if Borrower shall have failed to deliver a Borrowing Base
Certificate to Agent within the specified period Lenders shall be under no
obligation to make any further Revolving Credit Advances or incur Letter of
Credit Obligations until such time as such certificate is delivered to Agent
and Lenders.

          (g) The failure of any Lender (such Lender until such failure has been
cured by such Lender, a “Non-Funding Lender”) to make any Revolving Credit
Advance to be made by it on the date specified therefor shall not relieve any
other Lender (each such other Lender, an “Other Lender”) of its obligation to
make its Revolving Credit Advance on such date, but neither any Other Lender
nor Agent shall be responsible for the failure of any Non-Funding Lender to
make a Revolving Credit Advance to be made by such Non-Funding Lender, and no
Non-Funding Lender shall have any obligation to Agent or any Other Lender for
the failure by such Non-Funding Lender. Notwithstanding anything set forth
herein to the contrary, a Non-Funding Lender shall not have any voting or
consent rights under or with respect to any Loan Document or constitute a
“Lender” (or be included in the calculation of “Required Lenders” hereunder)
for any voting or consent rights under or with respect to any Loan Document.
Anything in this Agreement to the contrary notwithstanding, each Lender hereby
agrees with each other Lender that no Lender shall take any action to protect
or enforce its rights arising out of this Agreement or the Revolving Credit
Notes (including exercising any rights of off-set) without first obtaining the
prior written consent of Agent or Required Lenders, it being the intent of
Lenders that any such action to protect or enforce rights under this Agreement
and the Revolving Credit Notes shall be taken in concert and at the direction
or with the consent of Agent or Required Lenders and not individually by a
single Lender.

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          (h) To the extent any amounts are due and owing from Borrower on account
of the Obligations, Agent may make Revolving Credit Advances for Borrower’s
account pursuant to Section 1.10.

          (i) Revolving Credit Loan Under Existing Credit Agreement. The Loan
Parties acknowledge and agree that as of the Closing Date (i) the outstanding
principal amount of Revolving Credit Loan under the Existing Credit Agreement
equals $0 and that such Revolving Credit Loan is continued as Revolving Credit
Loan hereunder; and (ii) Letters of Credit are outstanding under the Existing
Credit Agreement having a stated amount of $15,148,262.04 and such Letters of
Credit are continued as Letters of Credit hereunder. All Revolving Credit
Commitments under the Existing Credit Agreement shall hereinafter, to the
extent applicable, be deemed assigned without recourse and re-allocated among
the Lender’s respective Revolving Credit Commitments hereunder, and after
giving effect hereto, the percentages of the Revolving Credit Commitments of
the Lenders hereunder are as set forth on Appendix 1 hereto for all purposes
hereof. The extensions of credit made by the Existing Lenders shall, effective
as of the Closing Date, be evidenced and governed by this Agreement and the
Loan Documents.

     1.2 Repayment; Termination of Commitment.

          (a) Borrower hereby promises to pay to Agent for account of each Lender
the entire outstanding principal amount of the Revolving Credit Loan and all
other outstanding Obligations (including any Revolving Credit Advances made
pursuant to the terms of the Existing Credit Agreement), and the Revolving
Credit Loan and all other outstanding Obligations shall mature, on the
Commitment Termination Date.

          (b) Except as permitted by Section 1.1(b), in the event that the
outstanding principal amount of the Revolving Credit Loan shall, at any time,
exceed the Borrowing Availability, Borrower shall immediately repay the
Revolving Credit Loan in the amount of such excess. In the event that, at any
time, no Revolving Credit Advances are outstanding and the Letter of Credit
Obligations exceed the Borrowing Base then in effect, Borrower shall make
arrangements, as provided in paragraph (c) of Annex F, for satisfaction of
Letter of Credit Obligations in the amount of such excess.

          (c) Borrower shall have the right at any time upon ten (10) days’ prior
written notice to Agent to voluntarily terminate or permanently reduce (but not
terminate) the Aggregate Revolving Credit Commitment without premium or
penalty, provided that (i) any such reductions shall be in a minimum amount of
$5,000,000 and integral multiples of $250,000, (ii) after giving effect to such
reductions, Borrower shall comply with Section 1.2(b), and (iii) the Aggregate
Revolving Credit Commitment shall not be reduced to less than $150,000,000.
Upon any such reduction or termination, Borrower’s right to receive Revolving
Credit Advances, and the benefit of Letter of Credit Obligations and Borrower’s
obligation to pay the Non-use Fee shall simultaneously be permanently reduced
or terminated, as the case may be, and, notwithstanding anything to the
contrary contained herein or in any Loan Document, upon any such termination,
the entire outstanding balance of the Revolving Credit Loan and all other
Obligations shall be immediately due and payable. On the date of such
termination, Borrower shall pay to Agent in immediately available funds all of
the Obligations, and any accrued and

6

 

unpaid interest thereon, and make arrangements, in accordance with
paragraph (c) of Annex F, for satisfaction of any outstanding Letter of Credit
Obligations.

     1.3 Use of Proceeds. Borrower shall use the proceeds of the Revolving
Credit Loan only for (a) payment of Fees, expenses and other costs incurred in
connection with the Transaction, (b) funding a portion of the Acquisition
(including, if applicable, providing the funds for the Acquirer Loan and the
Galyan’s Loan), (c) refinancing certain indebtedness of Galyan’s and (d)
providing (i) working capital financing for Borrower and its Subsidiaries, (ii)
funds for other general corporate purposes of Borrower and its Subsidiaries and
(iii) funds for the purposes otherwise permitted hereunder, including those
referred to in Recital D hereof; and for these purposes, Lenders are willing to
make certain loans and other extensions of credit to Borrower of up to such
amount upon the terms and conditions set forth herein.

     1.4 Interest on Revolving Credit Advances.

          (a) Borrower shall pay interest on the Revolving Credit Loan to Agent for
the account of each Lender, (i) in the case of Index Rate Loans, in arrears for
the preceding calendar month, on the second Business Day of each calendar month
commencing on the second Business Day of the calendar month immediately
following the Closing Date, (ii) in the case of LIBOR Loans, in arrears, on the
last day of each LIBOR Period therefor, (iii) on the Commitment Termination
Date, and (iv) if any interest accrues or remains payable after the Commitment
Termination Date, upon demand. If any interest or other payment under this
Agreement becomes due and payable on a day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day (except
as set forth in the definition of LIBOR Period) and, with respect to payments
of principal, interest thereon shall be payable at the then applicable rate
during such extension.

          (b) Borrower shall be obligated to pay interest to Agent for the account
of each Lender on the outstanding balance of the Revolving Credit Loan (i) with
respect to Index Rate Loans at a floating rate equal to the Index Rate (as in
effect from time to time) plus the Applicable Margin, and (ii) with respect to
LIBOR Loans, for each LIBOR Period relating thereto, the LIBOR Rate for such
Loan for such LIBOR Period plus the Applicable Margin. All computations of
interest shall be made by Agent and on the basis of a three hundred and sixty
(360) day year, in each case for the actual number of days occurring in the
period for which such interest is payable. Each determination by Agent of an
interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error or bad faith.

          (c) Upon the occurrence and during the continuance of any Default, (i) any
outstanding LIBOR Loan may be converted by the Agent (in its discretion) to an
Index Rate Loan, and (ii) the Required Lenders may in their discretion, by
giving notice to Borrower of their intention to do so, increase as of the date
of such notice the interest rate applicable to all of the Obligations,
including the Revolving Credit Loan, to the Default Rate and increase the rate
for calculation of Letter of Credit Fees by two percent (2%) per annum above
the rate otherwise applicable; provided, however, that upon the occurrence of
an Event of Default specified in Section 8.1(f), (g) or (h), the interest rate
applicable to all of the Obligations and the rate for calculation of Letter of
Credit Fees shall be increased automatically as provided above without the
necessity of any action on the part of Required Lenders.

7

 

          (d) Notwithstanding anything to the contrary set forth in this Section
1.4, if, at any time until the Termination Date, the rate of interest payable
to any Lender hereunder exceeds the highest rate of interest permissible under
any law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto (the “Maximum Lawful Rate”), then in such
event and so long as the Maximum Lawful Rate would be so exceeded, the rate of
interest payable hereunder to such Lender shall be equal to the Maximum Lawful
Rate; provided, however, that if at any time thereafter the rate of interest
payable hereunder is less than the Maximum Lawful Rate, Borrower shall continue
to pay interest hereunder to such Lender at the Maximum Lawful Rate until such
time as the total interest received by such Lender from the making of Revolving
Credit Advances hereunder is equal to the total interest which such Lender
would have received had the interest rate payable hereunder been (but for the
operation of this paragraph) the interest rate payable since the Closing Date
as otherwise provided in this Agreement. Thereafter, the interest rate payable
to such Lender hereunder shall be the rate of interest provided in Sections
1.4(a) through (c) of this Agreement, unless and until the rate of interest
again exceeds the Maximum Lawful Rate, in which event this paragraph shall
again apply. In no event shall the total interest received by any Lender
pursuant to the terms hereof exceed the amount which such Lender could lawfully
have received had the interest due hereunder been calculated for the full term
hereof at the Maximum Lawful Rate. In the event the Maximum Lawful Rate is
calculated pursuant to this paragraph, such interest shall be calculated at a
daily rate equal to the Maximum Lawful Rate divided by the number of days in
the year in which such calculation is made. In the event that a court of
competent jurisdiction, notwithstanding the provisions of this Section 1.4(d),
shall make a final determination that a Lender has received interest hereunder
or under any of the Loan Documents in excess of the Maximum Lawful Rate, such
Lender shall, to the extent permitted by applicable law, promptly apply such
excess first to any lawful interest due and not yet paid hereunder, then to the
outstanding principal of the Obligations, then to Fees and any other unpaid
Obligations and thereafter shall refund any excess to Borrower or as a court of
competent jurisdiction may otherwise order.

     1.5 Eligible Inventory. Based on the most recent Borrowing Base
Certificate delivered by Borrower to Agent and on other information available
to Agent, Agent shall determine which Inventory shall be deemed Eligible
Inventory for purposes of determining the amounts, if any, to be advanced to
Borrower under the Revolving Credit Loan.

     1.6 Fees.

          (a) Borrower agrees to pay to Agent for the account of Lenders an unused
facility fee (the “Non-use Fee”) equal to the Applicable Unused Line Fee Margin
per annum on the difference between (x) the Aggregate Revolving Credit
Commitment (as it may be reduced from time to time) and (y) the average for the
period of the daily closing balances of the aggregate Revolving Credit Loan and
aggregate Letter of Credit Obligations, payable in arrears (i) for the
preceding calendar month, on the second Business Day of the succeeding calendar
month commencing on the second Business Day of the calendar month immediately
succeeding the Closing Date, and (ii) on the Commitment Termination Date. All
computations of the foregoing fee shall be made by Agent on the basis of a
three hundred sixty (360) day year, and for the actual number of days occurring
in the period for which such fee is payable.

8

 

          (b) Borrower agrees to pay to Agent on the Closing Date, for the account
of each Existing Lender, a non refundable amendment fee equal to 0.10% of the
Revolving Credit Commitment of such Existing Lender under the Existing Credit
Agreement (the “Existing Commitment”), which amount shall be $180,000 in the
aggregate.

          (c) Borrower agrees to pay to Agent on the Closing Date, for the account
of each Lender, a non refundable commitment fee equal to 0.25% of the
difference between the Revolving Credit Commitment of such Lender and the
Existing Commitment, if any, of such Lender, which amount shall be $425,000 in
the aggregate.

          (d) Borrower agrees to pay to Agent for the account of Lenders the Letter
of Credit Fee as provided in Annex F.

          (e) Borrower agrees to pay to Agent for its own account and the Lenders’
account, as the case may be, such other fees and charges as are set forth in
the fee letter between Borrower and Agent dated as of July 7, 2004 (the “GE
Capital Fee Letter”), at the times specified for payment therein.

     1.7 Cash Management System. On or prior to the Closing Date, Borrower
will establish and maintain (or cause to be established and maintained) until
the Termination Date the cash management system described in Annex B.

     1.8 Receipt of Payments. Borrower shall make each payment under this
Agreement not later than 2:00 p.m. (New York City time) on the day when due in
Dollars in immediately available funds to the Collection Account. For purposes
of computing interest and Fees and receipt of payments (a) all payments
(including cash sweeps) consisting of cash, wire, or electronic transfers in
immediately available funds shall be deemed received by Agent upon deposit no
later than 2:00 p.m. (New York City time) in the Collection Account in
accordance with the blocked account agreement governing the Concentration
Account and (b) all payments consisting of checks, drafts, or similar non-cash
items shall be deemed received two (2) Business Days following deposit in the
Collection Account (together with notice to Agent of such deposit). For
purposes of determining the Borrowing Availability: (a) all payments
(including cash sweeps) consisting of cash, wire, or electronic transfers in
immediately available funds shall be deemed received by Agent upon deposit in
the Collection Account in accordance with the blocked account agreement
governing the Concentration Account; and (b) all payments consisting of checks,
drafts, or similar non-cash items shall be deemed received upon deposit in the
Collection Account (together with notice to Agent of such deposit). Subject to
Section 1.13, each payment received by Agent under this Agreement or any
Revolving Credit Note or any other Loan Documents for the account of the
Lenders shall be paid by Agent promptly to the Lenders, in the same funds
received, for application to the Revolving Credit Advances or other Obligations
in respect of which such payment is made.

     1.9 Proportionate Shares. Except to the extent otherwise provided herein
and subject to Section 1.13: (i) each borrowing of the Revolving Credit Loan
from Lenders shall be incurred and made by the Lenders according to their
respective Proportionate Shares; and (ii) each payment or prepayment of
principal of the Revolving Credit Loan by Borrower shall be made for the
account of the relevant Lenders in accordance with their respective
Proportionate Shares; and

9

 

(iii) each payment of interest on the Revolving Credit Loan,
Non-use Fees and Letter of Credit Fees by Borrower shall be made for the
account of the Lenders in accordance with their Proportionate Shares.

     1.10 Application and Allocation of Payments. Borrower irrevocably waives
the right to direct the application of any and all payments at any time or
times hereafter received from or on behalf of Borrower, and Borrower
irrevocably agrees that Agent shall have the continuing exclusive right to
apply any and all such payments against the then due and payable Obligations
and in repayment of the Revolving Credit Loan, Letter of Credit Obligations and
other Obligations as Agent may deem advisable. Notwithstanding the foregoing,
in the absence of a specific determination by Agent with respect thereto or if
an Event of Default shall have occurred and be continuing, the same shall be
applied in the following order: (a) the principal of any Revolving Credit
Advances made by Agent under Section 1.13(a); (b) then due and payable Fees,
expenses and other Obligations owing to Agent; (c) then due and payable Fees
and expenses of Lenders; (d) then due and payable interest payments on the
Revolving Credit Loan in accordance with Section 1.13(d); (e) other than the
principal described in clause (a) above, principal of the Revolving Credit
Loan; (f) to provide cash collateral for any Letter of Credit Obligations in
the manner set forth in Annex F, (g) Obligations to Lenders other than Fees,
expenses and interest and principal payments; and (h) to the extent there are
no other Obligations then due and payable, to Borrower or its successors or
assigns or as a court of competent jurisdiction may direct. Agent on behalf of
Lenders is authorized to, and at its option may, make or cause to be made
Revolving Credit Advances by Lenders on behalf of Borrower for payment of all
Fees, expenses, charges, costs, principal, interest or other Obligations then
due and payable by Borrower under this Agreement or any of the Loan Documents
(including any payments made by Agent under Section 5.5(a) or any costs or
expenses payable by Borrower under Section 11.2), even if the conditions
precedent in Section 2.2 have not been satisfied with respect to such Revolving
Credit Advance, including if the making of such Revolving Credit Advances
causes the outstanding balance of the Revolving Credit Loan to exceed the
Borrowing Availability.

     1.11 Non-Receipt of Funds by Agent. Unless Agent shall have been notified
by a Lender or Borrower (“Payor”) prior to the date on which (i) such Lender is
to make payment to Agent of the proceeds of a Revolving Credit Advance to be
made by such Lender hereunder or (ii) Borrower is to make payment to Agent for
account of one or more of Lenders hereunder (such payment being herein called
the “Required Payment”), which notice shall be effective upon receipt, that
Payor does not intend to make the Required Payment to Agent, Agent may assume
that the Required Payment has been made and may, in reliance upon such
assumption (but shall not be required to), make the amount thereof available to
the intended recipient(s) on such date; and, if Payor has not in fact made the
Required Payment to Agent, the recipient(s) of such payment shall, on demand,
repay to Agent the amount so made available together with interest thereon in
respect of each day during the period commencing on the date such amount was so
made available by Agent until the date Agent recovers such amount at a rate per
annum equal to the Index Rate for such period. Nothing in this Section 1.11 or
elsewhere in this Agreement or the other Loan Documents shall be deemed to
require Agent to advance funds on behalf of any Lender or to relieve any Lender
from its obligation to fulfill its Revolving Credit Commitment hereunder or to
prejudice any rights that Borrower may have against any Lender as a result of
any default by such Lender hereunder.

10

 

     1.12 Sharing of Payments, Etc.

          (a) Borrower agrees that, in addition to (and without limitation of) any
right of set-off, banker’s lien or counterclaim a Lender may otherwise have,
each Lender shall be entitled, at its option (but subject, as between Lenders,
to the provisions of the last sentence of Section 1.1(g)), to offset balances
held by it for the account of Borrower at any of its offices, in Dollars or in
any other currency, against any principal of or interest on any of such
Lender’s Revolving Credit Advances or any other amount payable to such Lender
hereunder, that is not paid when due (regardless of whether such balances are
then due to Borrower), in which case it shall promptly notify Borrower and
Agent thereof, provided that such Lender’s failure to give such notice shall
not affect the validity thereof. For avoidance of doubt and for purposes of
determining whether any adjustments are required pursuant to the terms of
Section 1.12(b), no effect shall be given to any Obligations owing in respect
of Interest Rate Agreements.

          (b) If any Lender (including Agent) shall obtain from Borrower payment of
any principal of or interest on any Revolving Credit Advance owing to it or
payment of any other amount under this Agreement or any Revolving Credit Note
held by it or any other Loan Document through the exercise of any right of
set-off, banker’s lien or counterclaim or similar right or otherwise (other
than from Agent as provided herein), and, as a result of such payment, such
Lender shall have received more than its Proportionate Share of the principal
of or interest on the Revolving Credit Advances or such other amounts then due
hereunder or thereunder by Borrower to such Lender than the percentage received
by any other Lender, it shall promptly pay to Agent, for the benefit of
Lenders, the amount of such excess and simultaneously purchase from such other
Lenders a participation in (or, if and to the extent specified by such Lender,
direct interests in) the Revolving Credit Advances or such other amounts,
respectively, owing to such other Lenders (or in interest due thereon, as the
case may be) in such amounts, and make such other adjustments from time to time
as shall be equitable, to the end that all Lenders shall share the benefit of
such excess payment (net of any expenses that may be incurred by such Lender in
obtaining or preserving such excess payment) in accordance with their
respective Proportionate Shares. Amounts received by Agent under this
paragraph shall be treated as a payment received by Borrower under Section
1.10. To such end all Lenders shall make appropriate adjustments among
themselves (by the resale of participation sold or otherwise) if such payment
is rescinded or must otherwise be restored. For the avoidance of doubt and for
purposes of determining whether any adjustments are required pursuant to the
terms of this Section 1.12(b), no effect shall be given to any Obligations
owing in respect of Interest Rate Agreements.

          (c) Borrower agrees that any Lender so purchasing such a participation (or
direct interest) may exercise, in a manner consistent with Section 1.12(a), all
rights of set-off, banker’s lien, counterclaim or similar rights with respect
to such participation as fully as if such Lender were a direct holder of
Revolving Credit Advances or other amounts (as the case may be) owing to such
Lender in the amount of such participation.

          (d) Nothing contained herein shall require any Lender to exercise any such
right or shall affect the right of any Lender to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness
or obligation of Borrower. If, under any applicable bankruptcy, insolvency or
other similar law, any Lender receives a secured claim in

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lieu of a set-off to which this Section 1.12 applies, such Lender shall,
to the extent practicable, assign such rights to Agent for the benefit of
Lenders and, in any event, exercise its rights in respect of such secured claim
in a manner consistent with the rights of Lenders entitled under this Section
1.12 to share in the benefits of any recovery on such secured claim.

     1.13 Settlement Procedures.

          (a) In order to administer the Revolving Credit Loan in an efficient
manner and to minimize the transfer of funds between Agent and Lenders, so long
as the conditions precedent set forth in Section 2.1 and Section 2.2, as the
case may be, remain satisfied, Agent may, in its discretion, subject to the
following paragraphs (b), (c) and (d), make available, on behalf of Lenders,
the full amount of the Revolving Credit Advances in an amount of up to
$35,000,000 outstanding on any day (after application of payments received on
such day) requested or deemed requested by Borrower pursuant to Section 1.1(c)
and Section 1.1(h), without notice to Lenders of the proposed Revolving Credit
Advance pursuant to Section 1.1(c).

          (b) If Agent shall have made one or more Revolving Credit Advances on
behalf of Lenders as provided in this Section 1.13(b), the amount of each
Lender’s Proportionate Share of the outstanding Revolving Credit Advances (for
purposes of this Section 1.13(b)) shall be computed weekly rather than daily
and shall be adjusted upward or downward on the basis of the amount of the
outstanding Revolving Credit Advances as of 5:00 P.M. (New York City time) on
the Business Day immediately preceding the date of each computation; provided,
that Agent retains the absolute right at any time or from time to time to make
the above described adjustments at intervals more frequent than weekly. Agent
shall deliver to each of the Lenders after the end of each week, or such lesser
period or periods as Agent shall determine, a summary statement of the amount
of outstanding Revolving Credit Advances for such period (such week or lesser
period or periods being hereafter referred to as a “Settlement Period”). If
the summary statement is sent by Agent and received by a Lender prior to 12:00
Noon (New York City time) then such Lender shall make the transfers described
in the next succeeding sentence no later than 2:00 P.M. (New York City time) on
the day such summary statement was sent, and if such summary statement is sent
by Agent and received by a Lender after 12:00 Noon (New York City time), such
Lender shall make such transfers no later than 2:00 P.M. (New York City time)
on the next succeeding Business Day. If, in any Settlement Period, the amount
of a Lender’s Proportionate Share of the outstanding Revolving Credit Advances
is more than such Lender’s Proportionate Share of the outstanding Revolving
Credit Advances for the previous Settlement Period, then such Lender shall
forthwith (but in no event later than the time set forth in the next preceding
sentence) transfer to Agent by wire transfer in immediately available funds the
amount of the increase; and on the other hand, if the amount of a Lender’s
Proportionate Share of the outstanding Revolving Credit Advances in any
Settlement Period is less than the amount of such Lender’s Proportionate Share
of the outstanding Revolving Credit Advances for the previous Settlement
Period, Agent shall forthwith transfer to such Lender by wire transfer in
immediately available funds the amount of the decrease. The obligation of each
of the Lenders to transfer such funds shall be irrevocable and unconditional
and without recourse to or warranty by Agent. Each of Agent and Lenders agrees
to mark its books and records at the end of each Settlement Period to show at
all times the Dollar amount of its Proportionate Share of the outstanding
Revolving Credit Advances.

12

 

          (c) To the extent that Agent has made any such amounts available and the
settlement described above shall not yet have occurred, upon repayment of any
Revolving Credit Advances by Borrower, Agent may apply such amounts repaid
directly to any amounts made available by Agent pursuant to Section 1.13(a).

          (d) Because Agent, on behalf of Lenders, may be advancing or may be repaid
Revolving Credit Advances prior to the time when Lenders will actually advance
or be repaid Revolving Credit Advances, interest, Non-use Fees and Letter of
Credit Fees with respect to the outstanding Revolving Credit Advances shall be
allocated by Agent to each Lender (including Agent in its capacity as a
Lender), and the amount of each Lender’s (including Agent’s in its capacity as
a Lender) Proportionate Share shall be computed daily, in accordance with the
amount of the outstanding Revolving Credit Advances actually advanced by and
repaid to each Lender (including Agent in its capacity as a Lender) on each day
during each Settlement Period and shall accrue from and including the date such
Revolving Credit Advances are advanced by Agent to but excluding the date such
Revolving Credit Advances are repaid by Borrower in accordance with Section 1.2
or actually settled by the applicable Lender as described in this Section 1.13.
On the second Business Day of each calendar month (an “Interest Settlement
Date”), Agent will advise each Lender by telephone, telecopy or other form of
written transmission of the amount of such Lender’s Proportionate Share of
interest paid and Non-use Fees and Letter of Credit Fees paid for the benefit
of Lenders on the Revolving Credit Loan as of such Interest Settlement Date.
Provided that such Lender has made all payments required to be made by it under
this Agreement and the other Loan Documents, Agent will pay to such Lender, by
wire transfer to such Lender not later than 12:00 noon (New York time) on the
next Business Day following the Interest Settlement Date, such Lender’s
Proportionate Share of interest paid and Non-use Fees and Letter of Credit Fees
paid for the benefit of Lenders on the Revolving Credit Loan.

     1.14 Accounting. Agent will provide a monthly accounting of transactions
under the Revolving Credit Loan to Borrower. Each and every such accounting
shall (absent manifest error) be deemed final, binding and conclusive upon
Borrower in all respects as to all matters reflected therein, unless Borrower,
within thirty (30) days after the date any such accounting is rendered, shall
notify Agent in writing of any objection which Borrower may have to any such
accounting, describing the basis for such objection with specificity. In that
event, only those items expressly objected to in such notice shall be deemed to
be disputed by Borrower. Agent’s determination, based upon the facts
available, of any disputed item shall (absent manifest error) be final, binding
and conclusive on Borrower.

     1.15 Indemnity.

          (a) Each Loan Party that is a signatory hereto shall jointly and severally
indemnify and hold Agent, each Lender and their respective Affiliates, and each
of their respective officers, directors, employees and their respective
attorneys and agents (each, an “Indemnified Person”), harmless from and against
any and all suits, actions, costs, fines, deficiencies, penalties, proceedings,
claims, damages, losses, liabilities and expenses (including reasonable
attorneys’ fees and disbursements and other costs of investigations or defense,
including those incurred upon any appeal) (each, a “Claim”) which may be
instituted or asserted against or incurred by such Indemnified Person as the
result of credit having been extended

13

 

under this Agreement or any other Loan Document or otherwise arising in
connection with the transactions contemplated hereunder and thereunder,
including any and all Environmental Liabilities and Costs and regardless of
whether the Indemnified Person is a party to such Claim, provided, that
Borrower shall not be liable for any indemnification to such Indemnified Person
with respect to any portion of any such Claim which results solely from such
Indemnified Person’s gross negligence or willful misconduct as determined by a
final judgment of a court of competent jurisdiction. The foregoing indemnity
obligations of Borrower shall be in addition to, and not in limitation of, any
other liability or obligations that Borrower or any other Person may have to
any Indemnified Person, by contract, at common law or otherwise, included but
not limited to any right of contribution. NO INDEMNIFIED PERSON SHALL BE
RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR
THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED UNDER THE LOAN DOCUMENTS OR OTHERWISE IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED THEREBY.

In any suit proceeding or action brought by Agent or Lenders relating to any
Collateral for any sum owing in respect thereof or to enforce any provision of
any Collateral, Borrower shall save, indemnify and keep Agent and Lenders
harmless from and against all expense, loss or damage suffered by reason of any
defense, setoff, counterclaim, recoupment or reduction of liability whatsoever
of the obligor thereunder arising out of a breach by Borrower of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing to, or in favor of, such obligor or its successors from
Borrower, all such obligations of Borrower shall be and remain enforceable
against, and only against, Borrower and shall not be enforceable against Agent
or Lenders.

          (b) Borrower hereby acknowledges and agrees that neither Agent nor any
Lender (as of the date hereof) is now or has ever been in control of any of the
Subject Property or the affairs of any Loan Party.

          (c) To induce Lenders to provide the LIBOR Rate option on the terms
provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to
the last day of any applicable LIBOR Period (whether that repayment is made
pursuant to any provision of this Agreement or any other Loan Document or is
the result of acceleration, by operation of law or otherwise); (ii) Borrower
shall default in payment when due of the principal amount of or interest on any
LIBOR Loan; (iii) Borrower shall default in making any borrowing of, conversion
into or continuation of LIBOR Loans after Borrower has given notice requesting
the same in accordance herewith; or (iv) Borrower shall fail to make any
prepayment of a LIBOR Loan after Borrower has given a notice thereof in
accordance herewith, Borrower shall indemnify and hold harmless each Lender
from and against all losses, costs and expenses resulting from or arising from
any of the foregoing. Such indemnification shall include any loss (including
loss of margin) or expense arising from the reemployment of funds obtained by
it or from fees payable to terminate deposits from which such funds were
obtained. For the purpose of calculating amounts payable to a Lender under
this Section, each Lender shall be deemed to have actually funded its relevant
LIBOR Loan through the purchase of a deposit bearing interest

14

 

at the LIBOR Rate in an amount equal to the amount of that LIBOR Loan and
having a maturity comparable to the relevant Interest Period; provided,
however, that each Lender may fund each of its LIBOR Loans in any manner it
sees fit, and the foregoing assumption shall be utilized only for the
calculation of amounts payable under this Section. This covenant shall survive
the termination of this Agreement and the payment of the Revolving Credit Notes
and all other amounts payable hereunder. As promptly as practicable under the
circumstances, each Lender shall provide Borrower with its written calculation
of all amounts payable pursuant to this Section 1.15(c), and such calculation
shall be binding on the parties hereto unless Borrower shall object in writing
within thirty (30) Business Days of receipt thereof, specifying the basis for
such objection in detail.

     1.16 Access. Each Loan Party shall: (a) provide access during normal
business hours to Agent and any of its officers, employees and agents as
frequently as Agent determines to be appropriate upon reasonable advance notice
to Borrower (unless a Default shall have occurred and be continuing, in which
event no such notice shall be required and such access shall be at any and all
times) to the properties and facilities of Borrower or any of its Subsidiaries;
(b) permit Agent and any of its officers, employees and agents, as frequently
as Agent determines to be appropriate, to inspect, audit and make extracts from
all of any Loan Party’s records, files and books of account; and (c) permit
Agent and any of its officers, employees and agents, as frequently as Agent
determines to be appropriate, upon reasonable advance notice to Borrower
(unless a Default shall have occurred and be continuing, in which event no such
notice shall be required and such access shall be at any and all times) to
conduct audits to inspect, review and evaluate the Collateral, and Borrower
agrees to render to Agent at Borrower’s cost and expense such clerical and
other assistance as may be reasonably requested with regard thereto. Each Loan
Party shall make available to Agent and each Lender and their respective
counsel, as quickly as practicable under the circumstances, originals or copies
of all books, records, board minutes, contracts, insurance policies,
environmental audits, business plans, files, financial statements (actual and
pro forma), filings with federal, state and local regulatory agencies, and
other instruments and documents in such Loan Party’s custody or control or
otherwise belonging to or property of such Loan Party which Agent or any Lender
may reasonably request. Each Loan Party shall deliver any document or
instrument reasonably necessary for Agent, as it may from time to time request,
to obtain records from any service bureau or other Person which maintains
records for such Loan Party, and shall maintain duplicate records or supporting
documentation on media, including computer tapes and discs owned by Borrower or
Subsidiary. Borrower shall make available to Agent upon its reasonable request
information and records prepared by its certified public accountants and its
banking and other financial institutions. Notwithstanding the foregoing,
nothing in this Section 1.16 or otherwise in any Loan Document shall require
any Loan Party to disclose to Agent, any Lender, or any of their respective
officers, employees or agents, any documents, instruments or other information
protected by the attorney-client privilege if (i) in the opinion of counsel
reasonably acceptable to Agent such privilege has not previously been waived or
lost, (ii) in the opinion of counsel reasonably acceptable to Agent such
disclosure could reasonably be expected to cause such Loan Party to waive the
benefit of such privilege and (iii) losing the benefit of such privilege would
be materially detrimental to such Loan Party.

     1.17 Taxes.

15

 

          (a) Any and all payments by or on behalf of Borrower hereunder or under
the Revolving Credit Note, or any other Loan Document, shall be made, in
accordance with this Section 1.17, free and clear of and without deduction for
any and all present or future Taxes. If Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under any
Revolving Credit Note or any other Loan Document to Agent or any Lender, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 1.17) Agent or such Lender receives an amount equal to the
sum it would have received had no such deductions been made, (ii) Borrower
shall make such deductions, and (iii) Borrower shall pay the full amount
deducted to the relevant taxing or other authority in accordance with
applicable law. Notwithstanding the foregoing, Borrower shall not be required
to increase any such sum payable to any Lender or assignee of a Lender to the
extent such Lender fails to comply with the requirements of paragraph (f) of
this Section.

          (b) In addition, Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement
(hereinafter referred to as “Other Taxes”). Notwithstanding the preceding
sentence, Other Taxes shall not include any taxes, charges or similar levies
that are imposed on or measured by the net income of any Lender by the United
States of America, the jurisdiction under the laws of which such Lender is
organized or the jurisdiction in which such Lender’s applicable lending office
is located or, in each case any political subdivision thereof, or any franchise
or similar taxes.

          (c) Each Loan Party that is a signatory hereto shall jointly and severally
indemnify, Agent and each Lender for the full amount of Taxes or Other Taxes
owed by Borrower pursuant to paragraph (a) or (b) of this Section (as well as
any amounts imposed by any jurisdiction on amounts payable under this Section
1.17) paid by Agent or such Lender and any liability (including penalties,
interest and reasonable expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Any amounts payable to Agent or any Lender pursuant to the preceding sentence
shall be paid within ten (10) days of demand therefor.

          (d) Within thirty (30) days after the date of any such payment of Taxes or
Other Taxes described in Section 1.17(a), (b) or (c), Borrower shall furnish to
Agent or such Lender, the original or a certified copy of a receipt evidencing
payment thereof.

          (e) If any Lender subsequently receives from a taxing authority a refund
of any Tax or Other Tax previously paid by Borrower and for which Borrower has
indemnified Lender pursuant to this Section 1.17, such Lender shall within
thirty (30) days after receipt of such refund, and to the extent permitted by
applicable law, pay to Borrower the net amount of any such refund (including
any interest paid thereon by such taxing authority) after deducting taxes and
reasonable expenses attributable thereto and any taxes which such Lender is
required to withhold from the payment to Borrower.

          (f) Each Lender or assignee of a Lender that is not incorporated under the
laws of the United States of America or a state thereof (and, upon the written
request of the

16

 

Agent, each other Lender of a Lender) agrees that it will deliver to each
of the Borrower and the Agent two (2) duly completed appropriate valid
Withholding Certificates (as defined under § 1.1441-1(c)(16) of the Income Tax
Regulations (the “Regulations”)) certifying its status (i.e. U.S. or foreign
person) and, if appropriate, making a claim of reduced, or exemption from, U.S.
withholding tax on the basis of an income tax treaty or an exemption provided
by the IRC. The term “Withholding Certificate” means a Form W-9; a Form
W-8BEN; a Form W-8ECI; a Form W-8IMY and the related statements and
certifications as required under § 1.1441-1(e)(2) and/or (3) of the
Regulations; a statement described in § 1.871-14(c)(2)(v) of the Regulations;
or any other certificates under the IRC or Regulations that certify or
establish the status of a payee or beneficial owner as a U.S. or foreign
person. Each Lender assignee required to deliver to the Borrower and the Agent
a Withholding Certificate pursuant to the two preceding sentences shall deliver
such valid Withholding Certificate as follows: (A) each Lender which is a
party hereto on the Closing Date shall deliver such valid Withholding
Certificate at least five (5) Business Days prior to the first date on which
any interest or fees are payable by the Borrower hereunder for the account of
such Lender; and (B) each assignee shall deliver such valid Withholding
Certificate at least five (5) Business Days before the effective date of such
assignment (unless the Agent in its sole discretion shall permit such assignee
to deliver such valid Withholding Certificate less than five (5) Business Days
before such date in which case it shall be due on the date specified by the
Agent). Each Lender which so delivers a valid Withholding Certificate further
undertakes to deliver to each of the Borrower and the Agent two (2) additional
copies of such Withholding Certificate (or a successor form) on or before the
date that such Withholding Certificate expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent Withholding
Certificate so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrower or the Agent or
as may be required by United States federal tax law, provided that (i) no
change in treaty, law, rule, regulation or directive or the official
interpretation thereof has occurred prior to the date on which any such
delivery would otherwise be required which renders a form inapplicable or which
prevents such Lender from duly completing and delivering any such form with
respect to it and such Lender so advises Borrower and Agent; and (ii) no other
form or means of delivery is available that would effectively substitute for
the form or means of delivery otherwise contemplated hereunder.
Notwithstanding the submission of a Withholding Certificate claiming a reduced
rate of or exemption from U.S. withholding tax, the Agent shall be entitled to
withhold United States federal income taxes at the full applicable statutory
withholding rate (30% as of the date of this Agreement) if in its reasonable
judgment it is required to do so under the due diligence requirements imposed
upon a withholding agent under § 1.1441-7(b) of the Regulations, provided that
the Borrower or Agent shall consult with such Lender before declining to rely
on such Withholding Certificate and shall accept any reasonable attempt by the
party delivering the Withholding Certificate to correct any deficiencies in it.
In the event that, by virtue of the preceding sentence, any United States
federal income taxes are erroneously withheld, the Lender with respect to any
payment to which such erroneous withholding occurred shall, upon the request
Borrower or Agent, and at the sole expense of the Borrower, take all reasonable
steps to seek a refund of such erroneously withheld taxes (and interest payable
thereon) and cooperate with the Borrower or Agent in the prosecution of such
refund claim; provided, however, that such Lender need not take any step that,
in its sole discretion, such Lender determines would be materially adverse to
its business, assets, operations, prospects or financial condition or otherwise
prejudicial or harmful to any tax position of such Lender (other

17

 

than any position based upon its payment or deemed payment of the taxes
sought to be refunded); provided further, that no Lender shall be required to
make available to Borrower or Agent any of its tax returns or to disclose to
Borrower or Agent any information regarding its tax affairs or computations or
other information which it deems confidential.

     1.18 Letters of Credit. Subject to the terms and conditions of this
Agreement including Annex F, Borrower shall have the right to request, and each
Lender agrees to incur, the Letter of Credit Obligations (and Revolving Credit
Advances and other obligations in respect thereof) in accordance with the terms
and conditions set forth in Annex F.

     1.19 Capital Adequacy. Borrower shall pay directly to each Lender from
time to time on request such amounts as such Lender may reasonably determine to
be necessary to compensate such Lender for any costs that it reasonably
determines are attributable to the maintenance by such Lender, pursuant to any
law or regulation or any interpretation, directive or request (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful) of any Governmental Authority (a) following any Regulatory Change or
(b) implementing after the date hereof any risk-based capital guideline or
other capital requirement (whether or not having the force of law and whether
or not the failure to comply therewith would be unlawful) heretofore or
hereafter issued by any Governmental Authority, of capital in respect of such
Lender’s Revolving Credit Commitment, Revolving Credit Advances and/or Letter
of Credit Obligations hereunder (such compensation to include, without
limitation, an amount equal to any reduction of the rate of return on assets or
equity of such Lender to a level below that which such Lender could have
achieved but for such law, regulation, interpretation, directive or request).
Each Lender shall notify Borrower of any event occurring after the date of this
Agreement entitling such Lender to compensation under this Section 1.19 as
promptly as practicable, but in any event within 90 days, after such Lender
obtains actual knowledge thereof; provided that if any Lender fails to give
such notice within 90 days after it obtains actual knowledge of such an event,
such Lender shall, with respect to compensation payable pursuant to this
Section 1.19 in respect of any costs resulting from such event, only be
entitled to payment under this Section 1.19 for costs incurred from and after
the date 90 days prior to the date that such Lender does give such notice.
Each Lender will furnish to Borrower a certificate setting forth the basis and
amount of each request by such Lender for compensation under this Section 1.19.
Determinations and allocations by any Lender for purposes of this Section 1.19
of the effect of any Regulatory Change pursuant to or of capital maintained
pursuant to this Section 1.19, on its costs or rate of return of maintaining
Revolving Credit Advances or its Revolving Credit Commitment and of the amounts
required to compensate such Lender under this Section 1.19, shall be conclusive
absent manifest error.

     1.20 Increased Costs.

     If, due to either (i) the introduction of or any change in any law or
regulation (or any change in the interpretation thereof) or (ii) the compliance
with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), there shall be any increase
in the cost to any Lender of agreeing to make or making, funding or maintaining
any Loan, then Borrower shall from time to time, upon demand by such Lender
(with a copy of such demand to Agent), pay to Agent for the account of such
Lender additional amounts sufficient to compensate such Lender for such
increased cost. A certificate as to the

18

 

amount of such increased cost, submitted to Borrower and to Agent by such
Lender, shall be conclusive and binding on Borrower for all purposes, absent
manifest error. Each Lender agrees that, as promptly as practicable after it
becomes aware of any circumstances referred to above which would result in any
such increased cost, the affected Lender shall, to the extent not inconsistent
with such Lender’s internal policies of general application, use reasonable
commercial efforts to minimize costs and expenses incurred by it and payable to
it by Borrower pursuant to this Section 1.20.

     1.21 Illegality.

     Notwithstanding anything to the contrary contained herein, if the
introduction of or any change in any law or regulation (or any change in the
interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to
agree to make or to make or to continue to fund or maintain any LIBOR Loan,
then, unless that Lender is able to make or to continue to fund or to maintain
such LIBOR Loan at another branch or office of that Lender without, in that
Lender’s opinion, adversely affecting it or its Loans or the income obtained
therefrom, on notice thereof and demand therefor by such Lender to Borrower
through Agent, (i) the obligation of such Lender to agree to make or to make or
to continue to fund or maintain LIBOR Loans shall terminate and (ii) Borrower
shall forthwith prepay in full all outstanding LIBOR Loans owing to such
Lender, together with interest accrued thereon, unless Borrower, within five
(5) Business Days after the delivery of such notice and demand, converts all
such Loans into a Loan bearing interest based on the Index Rate.

     1.22 Replacement of Lender in Respect of Increased Costs. Within fifteen
(15) days after receipt by Borrower of written notice and demand from any
Lender (an “Affected Lender”) for payment of additional amounts or increased
costs as provided in Section 1.17(a), 1.19 or 1.20, Borrower may, at its
option, notify Agent and such Affected Lender of its intention to replace the
Affected Lender. So long as no Default or Event of Default shall have occurred
and be continuing, Borrower, with the consent of Agent, may obtain, at
Borrower’s expense, a replacement Lender (“Replacement Lender”) for the
Affected Lender, which Replacement Lender must be reasonably satisfactory to
Agent. If Borrower obtains a Replacement Lender within ninety (90) days
following notice of its intention to do so, the Affected Lender must sell and
assign its Loans and Commitments to such Replacement Lender for an amount equal
to the principal balance of all Revolving Credit Loans held by the Affected
Lender and all accrued interest and Fees with respect thereto through the date
of such sale, provided that Borrower shall have reimbursed such Affected Lender
for the additional amounts or increased costs that it is entitled to receive
under this Agreement through the date of such sale and assignment.

Notwithstanding the foregoing, Borrower shall not have the right to obtain a
Replacement Lender if the Affected Lender rescinds its demand for increased
costs or additional amounts within fifteen (15) days following its receipt of
Borrower’s notice of intention to replace such Affected Lender. Furthermore,
if Borrower gives a notice of intention to replace and does not so replace such
Affected Lender within ninety (90) days thereafter, Borrower’s rights under
this Section 1.22 shall terminate and Borrower shall promptly pay all increased
costs or additional amounts demanded by such Affected Lender pursuant to
Sections 1.17(a), 1.19 and 1.20.

	2.	 	CONDITIONS PRECEDENT

19

 

     2.1 Conditions to Effectiveness.

     Notwithstanding any other provision of this Agreement and without
affecting in any manner the rights of Agent or any Lender hereunder, the
effectiveness of this Agreement and the obligation of Agent and Lenders to make
and/or continue any Revolving Credit Advances hereunder, to continue and/or
incur any Letter of Credit Obligations, or to take, fulfill, or perform any
other action hereunder, are subject to the fulfillment of the following
conditions to the satisfaction of Agent (and to the extent specified below, of
Lenders):

          (a) This Agreement or counterparts thereof shall have been duly executed
by Borrower and delivered to Agent and each Lender.

          (b) Agent and Lenders shall have received such documents, instruments,
certificates, opinions and agreements as Agent shall reasonably request in
connection with the transactions contemplated by this Agreement, including all
documents, instruments, agreements and other materials listed in the Schedule
of Documents each in form and substance satisfactory to Agent and each Lender.

          (c) Evidence satisfactory to Agent that Borrower has obtained consents and
acknowledgments of all Persons, except as set forth on Schedule 3.3, whose
consents and acknowledgments may be required, including, but not limited to,
all requisite Governmental Authorities, to the terms and to the execution and
delivery, of this Agreement and the other Loan Documents and the consummation
of the transactions contemplated hereby and thereby.

          (d) Subject to Section 5.16(c), evidence satisfactory to Agent that the
insurance policies provided for in Section 3.19 and Annex E are in full force
and effect, together with appropriate evidence showing a loss payable and/or
additional insured clauses or endorsements, as appropriate, in favor of Agent
and Lenders and in form and substance satisfactory to Agent.

          (e) Payment by Borrower to Agent (i) for its account and the account of
Lenders, as the case may be, of all Fees, costs, and expenses of closing
(including fees and expenses of consultants and counsel to Agent presented as
of the Closing Date), and (ii) for the account of the Existing Lenders, all
interest, letter of credit fees and unused line fees under the Existing Credit
Agreement accrued through, but not including, the Closing Date, plus any and
all reimbursable expenses or other charges payable by Borrower under the
Existing Credit Agreement accrued through the Closing Date, whether or not then
due and payable.

          (f) On or prior to the Closing Date, no action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any Governmental Authority to enjoin, restrain or prohibit, or to obtain
damages in respect of, or which is related to or arises out of this Agreement
or any of the other Loan Documents or the consummation of the transactions
contemplated hereby and thereby and which, in Agent’s sole judgment, would make
it inadvisable to consummate the transactions contemplated by this Agreement or
any of the other Loan Documents.

          (g) Acquirer shall have acquired no less than the Minimum Shares. If the
Short Form Merger Threshold has been obtained on or prior to the Closing Date,
the Acquisition

20

 

and the other Transactions, contemporaneously with the Revolving Credit
Advance to be made on the Closing Date, shall have been consummated in
accordance with the terms of the Merger Agreement and the other Transactions
Documents. The cash tender offer price to be paid for the Shares of Galyan’s
shall not exceed $16.75 per Share and the aggregate fees and closing costs
(including those payable to Agent and Lenders) of the Transactions upon
consummation of the Acquisition shall not exceed $20,000,000.

          (h) Since January 31, 2004, no event or circumstance having a Material
Adverse Effect has occurred.

          (i) Each Lender shall be satisfied on the Closing Date, in its reasonable
judgment, with (i) the corporate, capital, tax, legal and management structure
of each Loan Party; (ii) the nature and status of all contractual obligations,
securities, labor, tax, ERISA, employee benefit, environmental, health and
safety matters, in each case, involving or affecting any Loan Party; and (iii)
to the extent applicable, the terms of each Loan Party’s stockholders’
agreements, voting trust agreements, stock redemption agreements, and other
agreements with shareholders (including payments, covenants, defaults and
remedies thereunder) and any earnout or deferred compensation arrangements with
management of Borrower.

          (j) Agent and Lenders shall have received as of the Closing Date the
Closing Date Projections in form and substance satisfactory to Agent.

          (k) On or prior to the Closing Date, Agent shall have completed its
business and legal due diligence, including a roll forward of its previous
Collateral audit, with results reasonably satisfactory to Agent.

          (l) On the Closing Date, the Eligible Inventory supporting the Revolving
Credit Advance and Letter of Credit Obligations incurred and the amount of the
Reserves to be established on the Closing Date shall be sufficient in value, as
determined by Agent, to provide Borrower with Excess Availability, after giving
effect to the Revolving Credit Advance on the Closing Date made to Borrower,
the incurrence of any Letter of Credit Obligations on the Closing Date and the
consummation of the Transactions of at least $80,000,000.

          (m) The Acquirer shall have provided to the Agent a copy of the Acquirer’s
notice of acceptance for the Shares and a certificate executed by an Executive
Officer certifying that Borrower (i) has advanced to Acquirer at least
$155,000,000 of Borrower’s cash-on-hand (the “Cash-on-hand”) obtained from
sources other than the Revolving Credit Loan prior to the making of the
Revolving Credit Advance on the Closing Date and (ii) will cause Acquirer to
use the Cash-on-hand to purchase the Shares in the Tender Offer.

The execution of this Agreement by each Lender shall be an acknowledgment by
such Lender that the conditions set forth in this Section 2.1 have been
satisfied or provided for in a manner satisfactory to such Lender.

     2.2 Further Conditions to Each Revolving Credit Advance and Each Letter of
Credit Obligation.

21

 

     No Lender shall be obligated to fund any Loan, convert or continue any
Loan as a LIBOR Loan or incur any Letter of Credit Obligation unless the
following conditions have been fulfilled:

          (a) Each Loan Party’s representations and warranties contained herein or
in any of the Loan Documents shall be true and correct on and as of the Closing
Date and the date on which such Revolving Credit Advance is made or such Letter
of Credit Obligations are incurred, as the case may be, as though made on or
incurred on and as of such date, except to the extent that any such
representation or warranty expressly relates solely to an earlier date and
except for changes therein permitted or contemplated by this Agreement.

          (b) The making of the Loans or issuance of Letter of Credit shall not
contravene any law applicable to any Borrower or its Subsidiaries or any of the
Lenders.

          (c) No event shall have occurred and be continuing, or would result from
the making of such Revolving Credit Advance or the incurrence of such Letter of
Credit Obligation, as the case may be, which constitutes or would constitute a
Default.

          (d) After giving effect to such Revolving Credit Advance or the incurrence
of such Letter of Credit Obligation, the aggregate principal amount of the
Revolving Credit Loan shall not exceed the Borrowing Availability, except as
may be permitted by Agent pursuant to Section 1.1(b).

The request and acceptance by Borrower of the proceeds of any Revolving Credit
Advance, the incurrence of any Letter of Credit Obligation or the conversion or
continuation of any Loan into, or as, a LIBOR Loan, as the case may be, shall
be deemed to constitute, as of the date of such request or acceptance, (i) a
representation and warranty by Borrower that the conditions in Section 2.1,
this Section 2.2 and, to the extent applicable, Section 2.3 have been satisfied
and (ii) a confirmation by Borrower of the granting and continuance of Agent’s
Liens, on behalf of itself and Lenders, pursuant to the Collateral Documents.

     2.3 Additional Conditions to the Revolving Credit Advance. No Lender
shall be obligated to make any Revolving Credit Advance or incur any Letter of
Credit Obligation on the Closing Date, until the additional conditions
precedent set forth in Annex G have been satisfied.

	3.	 	REPRESENTATIONS AND WARRANTIES

     To induce Agent and Lenders to enter into this Agreement, make the
Revolving Credit Loans and incur the Letter of Credit Obligations, Borrower
represents and warrants to Agent and Lenders that:

     3.1 Corporate Existence; Compliance with Law. Each Loan Party: (a) is a
corporation or limited liability company duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization and is
duly qualified to do business and is in good standing in each other
jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification and the failure to so qualify,
individually or in the aggregate, would not reasonably be expected to have or
result in a Material Adverse Effect; (b) has the requisite power and authority
and the legal right to own, pledge, mortgage or otherwise

22

 

encumber and operate its properties, to lease the property it operates
under lease, and to conduct its business as now, heretofore and proposed to be
conducted; (c) has all licenses, permits, consents or approvals from or by, and
has made all filings with, and has given all material notices to, all
Governmental Authorities having jurisdiction, to the extent required for such
ownership, operation and conduct, except to the extent any failure to obtain
any such license, permit, consent or approval or make any such filing or give
any such notice, individually or in the aggregate, would not reasonably be
expected to have or result in a Material Adverse Effect; (d) is in compliance
with its charter and bylaws or operating agreement, as applicable; and (e) is
in compliance in all respects with all applicable provisions of law except to
the extent that such non-compliance, individually or in the aggregate, would
not reasonably be expected to have or result in a Material Adverse Effect.

     3.2 Executive Offices; Corporate or Other Names. As of the Closing Date,
the current location of each Loan Party’s executive offices, principal place of
business, corporate offices, all warehouses and premises within which any
Collateral is stored or located, and the locations of all Loan Parties’ records
concerning the Collateral are set forth in Schedule 3.2 and, except as set
forth in Schedule 3.2, such locations have not changed during the preceding 12
months. During the prior five (5) years, except as set forth in Schedule 3.2,
no Loan Party has been known as or used any corporate, fictitious or trade
name.

     3.3 Corporate Power; Authorization; Enforceable Obligations. Except as
set forth on Schedule 3.3, the execution, delivery and performance by each Loan
Party of the Loan Documents to which it is a party and all other instruments
and documents to be delivered by such Loan Party hereunder and thereunder to
the extent it is a party thereto and the creation of all Liens provided for
herein and therein: (a) are within such Loan Party’s power; (b) have been duly
authorized by all necessary corporate or limited liability company and, if any,
shareholder action; (c) are not in contravention of any provision of such Loan
Party’s charter, bylaws or operating agreement, as applicable; (d) will not
violate any law or regulation, or any order or decree of any court or
governmental instrumentality; (e) will not conflict with or result in the
breach or termination of, constitute a default under or accelerate any
performance required by, any indenture, mortgage, deed of trust, lease,
material agreement or other material instrument to which any Loan Party is a
party or by which any Loan Party or any of its property is bound; (f) will not
result in the creation or imposition of any Lien upon any of the property of
any Loan Party other than those in favor of Agent or Lenders, all pursuant to
the Loan Documents; and (g) do not require the consent or approval of any
Governmental Authority or any other Person, except those referred to in Section
2.1(c), all of which will have been duly obtained, made or complied with prior
to the Closing Date and which are in full force and effect. At or prior to the
Closing Date, each of the Loan Documents shall have been duly executed and
delivered for the benefit of or on behalf of each Loan Party which is a party
thereto and each shall then constitute a legal, valid and binding obligation of
such Loan Party to the extent it is a party thereto, enforceable against such
Loan Party in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting
creditors’ rights and to equitable principles of general applicability.

     3.4 Financial Statements and Projections. Except for the Projections all
Financial Statements concerning Borrower, Galyan’s and their respective
Subsidiaries that are referred to below have been prepared in accordance with
GAAP consistently applied throughout the periods

23

 

covered (except as disclosed therein and except, with respect
to unaudited Financial Statements, for the absence of footnotes and normal
year-end audit adjustments) and present fairly in all material respects the
financial position of the Persons covered thereby as at the dates thereof and
the results of their operations and cash flows for the periods then ended.

          (a) Financial Statements. The following Financial Statements attached
hereto on Schedule 3.4 have been delivered on the date hereof:

               (i) The audited consolidated balance sheets at January 31, 2004 and
February 1, 2003 and the related statements of income and cash flows of
Borrower and its Subsidiaries (other than Galyan’s and its Subsidiaries)
for the Fiscal Years then ended, certified by Deloitte & Touche LLP.

               (ii) The unaudited balance sheet(s) at May 1, 2004 and the related
statement(s) of income and cash flows of Borrower and its Subsidiaries
(other than Galyan’s and its Subsidiaries) for the one Fiscal Quarter
then ended.

               (iii) The audited consolidated balance sheets at January 31, 2004
and February 1, 2003 and the related statements of income and cash flows
of Galyan’s and its Subsidiaries for the Fiscal Years then ended,
certified by Deloitte & Touche LLP.

               (iv) The unaudited consolidated balance sheet(s) at May 1, 2004 and
the related statement(s) of income and cash flows of Galyan’s and its
Subsidiaries, in each case for the one (1) Fiscal Quarter then ended.

          (b) Projections. The Closing Date Projections delivered on the date
hereof and attached hereto on Schedule 3.4 have been prepared by Borrower in
light of the past operations of its and Galyan’s businesses, and reflect
projections for the three and one-half (3.5) year period beginning on July 1,
2004 on a quarter-by-quarter basis for the first one and one-half (1.5) years
and on a year-by-year basis thereafter. The Projections (including the Closing
Date Projections) have been prepared in good faith and are based upon the
assumptions stated therein, which Borrower believes to be reasonable and fair
in light of current conditions and current facts known to Borrower.

     3.5 Material Adverse Change. Except as set forth in Schedule 3.5, neither
Borrower nor any of its Subsidiaries has any material obligations, contingent
liabilities, or liabilities for Charges, long-term leases or unusual forward or
long-term commitments which are not reflected in the audited January 31, 2004
consolidated balance sheets of Borrower and Galyan’s which, individually or in
the aggregate would reasonably be expected to have or result in a Material
Adverse Effect. Since January 31, 2004, no event or events have occurred or
are continuing which, individually or in the aggregate, could reasonably be
expected to have or result in a Material Adverse Effect.

     3.6 Ownership of Property; Liens. As of the Closing Date, except as
described in Schedule 3.6, the real estate listed in Schedule 3.6 constitutes
all of the real property owned, leased, or used in its business by each Loan
Party. Each Loan Party (a) holds good and valid fee simple title to all of its
owned real estate, (b) occupies their Leases pursuant to enforceable leasehold
interests and (c) holds valid title or valid rights to use all of its other
properties and

24

 

assets. None of the properties and assets of Borrower or any of its
Subsidiaries are subject to any Liens, except (x) Permitted Encumbrances and
(y) the Lien in favor of Agent and Lenders pursuant to the Collateral
Documents. Each Loan Party has received all deeds, assignments, waivers,
consents, non-disturbance and recognition or similar agreements, bills of sale
and other documents, and duly effected all recordings, filings and other
actions necessary to establish, protect and perfect such Loan Party’s right,
title and interest in and to all such real estate and other assets or property,
subject to zoning restrictions, easements, licenses, or other restrictions on
the use of real property or other minor irregularities in title (including
leasehold title) thereto, so long as the same do not materially impair the use,
value, or marketability of such real property, leases or leasehold estates.
Except as described in Schedule 3.6, (i) no Loan Party and, to Borrower’s
knowledge, no other party to any Lease is in default of its obligations
thereunder or has delivered or received any notice of default under any such
Lease, and no event has occurred which, to Borrower’s knowledge, with the
giving of notice, the passage of time, or both, would constitute a default
under any such Lease which default or defaults, individually or in the
aggregate, would reasonably be expected to have or result in a Material Adverse
Effect, (ii) as of the Closing Date, no Loan Party owns or holds, or is
obligated under or a party to, any option, right of first refusal or any other
contractual right to purchase, acquire, sell, assign or dispose of any real
property owned or leased by such Loan Party, and (iii) no material portion of
any real property owned or leased by any Loan Party has suffered any material
damage by fire or other casualty loss which has not heretofore been completely
repaired and restored to its original condition. All permits required to have
been issued or appropriate to enable the real property owned or leased by any
Loan Party to be lawfully occupied and used for all of the purposes for which
they are currently occupied and used, have been lawfully issued and are, as of
the date hereof, in full force and effect, except to the extent that the
failure to have any such permit or permits, individually or in the aggregate,
would not reasonably be expected to have or result in a Material Adverse
Effect.

     3.7 Restrictions; No Default. No Contract, lease, agreement, instrument
or other document to which any Loan Party is a party or by which it or any of
its properties or assets is bound or affected and no provision of any charter,
corporate restriction, applicable law or governmental regulation, individually
or in the aggregate, has had or resulted in or would reasonably be expected to
have or result in a Material Adverse Effect. No Loan Party is in default and,
to Borrower’s knowledge, no third party is in default, under or with respect to
any Contract, lease, agreement, instrument or other documents to which any Loan
Party is a party, which default or defaults, individually or in the aggregate,
would reasonably be expected to have or result in a Material Adverse Effect.
No Default has occurred and is continuing.

     3.8 Labor Matters. As of the Closing Date (a) no strikes or other
material labor disputes against any Loan Party that are pending or, to
Borrower’s knowledge, threatened, (b) hours worked by and payment made to
employees of each Loan Party have not been in violation of the Fair Labor
Standards Act or any other applicable laws dealing with such matters which
individually, or in the aggregate, would reasonably be expected to have or
result in a Material Adverse Effect, (c) all material payments due from any
Loan Party on account of employee health and welfare insurance have been paid
or accrued as a liability on the books of such Loan Party, (d) except as set
forth in Schedule 3.8, no Loan Party has any obligation under any collective
bargaining agreement, management agreement, or any employment agreement (and a
correct and complete copy of each agreement listed in Schedule 3.8 has been
provided to Agent),

25

 

(e) there is no organizing activity involving any Loan Party pending or,
to Borrower’s knowledge, threatened by any labor union or group of employees,
(f) except as set forth in Schedule 3.14, there are no representation
proceedings pending or, to Borrower’s knowledge, threatened with the National
Labor Relations Board, and no labor organization or group of employees of any
Loan Party has made a pending demand for recognition, and (g) except as set
forth in Schedule 3.14, there are no material complaints or charges against any
Loan Party pending or, to Borrower’s knowledge, threatened to be filed with any
federal, state, local or foreign court, governmental agency or arbitrator based
on, arising out of, in connection with, or otherwise relating to the employment
or termination of employment by any Loan Party of any individual.

     3.9 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness. Except as set forth in Schedule 3.9, as of the Closing Date, no
Loan Party has any Subsidiaries. Each of ASL and DSGV engages in no business,
operations or other activities and owns no property or assets and has no
liabilities other than to the extent contemplated and permitted by Section 6.5.
Acquirer engages in no business, operations or other activities and owns no
property or assets and has no liabilities other than to the extent contemplated
and described in the this Agreement and in the Transaction Documents. Except
as set forth in Schedule 3.9, as of the Closing Date, no Loan Party is engaged
in any joint venture or partnership with any other Person, or is an Affiliate
of any other Person. As of the Closing Date, except as set forth in Schedule
3.9, there are no outstanding rights to purchase options, warrants or similar
rights or agreements pursuant to which any Loan Party (other than Borrower or
Galyan’s) may be required to issue, sell or purchase any Stock or other equity
security. Schedule 3.9 lists all outstanding Stock of each Loan Party (other
than Borrower or Galyan’s) and the percentage of ownership and voting interests
of the owners thereof as of the Closing Date. Schedule 6.3 lists all
Indebtedness of each Loan Party as of the Closing Date.

     3.10 Government Regulation. No Loan Party is (a) an “investment company”
or an “affiliated person” of, or “promoter” or “principal underwriter” for, an
“investment company,” as such terms are defined in the Investment Company Act
of 1940 as amended; or (b) subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act
or any other federal or state statute that restricts or limits such Loan
Party’s ability to incur Indebtedness, pledge its assets, or to perform its
obligations hereunder, or under any other Loan Document; and the making of the
Revolving Credit Advances and the incurrence of the Letter of Credit
Obligations, in each case by Lenders, the application of the proceeds and
repayment thereof by Borrower, and the consummation of the transactions
contemplated by this Agreement and the other Loan Documents, will not violate
any provision of any such statute or any rule, regulation or order issued by
the Securities and Exchange Commission.

     3.11 Margin Regulations. No Loan Party is engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock. Except as
set forth on Schedule 3.11, no Loan Party owns any Margin Stock (other than the
Shares) as of the Closing Date, and none of the proceeds of the Revolving
Credit Loan or other extensions of credit under this Agreement will be used,
directly or indirectly, for the purpose of purchasing or carrying any Margin
Stock (other than the Shares), for the purpose of reducing or retiring any
Indebtedness which was originally incurred

26

 

to purchase or carry any Margin Stock or for any purpose which
might cause the Revolving Credit Loan or other extensions of credit under this
Agreement to violate any of Regulations T, U or X of the Federal Reserve Board.
No Loan Party will take or permit to be taken by any Loan Party any action
which might cause any Loan Document to violate any regulation of the Federal
Reserve Board.

     3.12 Taxes. Except as set forth in Schedule 3.12, all federal, state,
local and foreign tax returns, reports and statements, including information
returns required to be filed by each Loan Party, have been filed with the
appropriate Governmental Authority and all Charges and other impositions shown
thereon to be due and payable have been paid prior to the date on which any
fine, penalty, interest or late charge may be added thereto for nonpayment
thereof, or any such fine, penalty, interest, late charge or loss has been
paid. Except as set forth in Schedule 3.12, each Loan Party has paid when due
and payable all material Charges required to be paid by it. As of the Closing
Date, each Loan Party has, to the best of its knowledge, correctly classified
all of its employees as employees for employment tax purposes and has withheld
proper and accurate amounts from those classified as its employees for all
periods in compliance with the tax, social security and unemployment
withholding provisions of applicable federal, state, local and foreign law and
such withholdings have been timely paid to the respective Governmental
Authorities. Schedule 3.12 sets forth as of the Closing Date those taxable
years for which any of the tax returns of each Loan Party are currently being
audited by the IRS or any other applicable Governmental Authority; and any
assessments or threatened assessments in connection with such audit or
otherwise currently outstanding. Except as described in Schedule 3.12, as of
the Closing Date no Loan Party is a party to any agreement or other document
with the IRS or any other Governmental Authority extending, or having the
effect of extending, the period for assessment or collection of any Charges.
No Loan Party has any obligation under any tax sharing agreement or arrangement
except as described in Schedule 3.12.

     3.13 ERISA. (a) Schedule 3.13 lists all Plans maintained or contributed to
by any Loan Party and all Qualified Plans, unfunded Pension Plans, or Welfare
Plans maintained or contributed to by any ERISA Affiliate as of the Closing
Date. Neither any Loan Party nor any current or former ERISA Affiliate
sponsors (or has sponsored), contributes to (or has contributed to), or is (or
was) required to contribute to any Title IV Plan, any Multiemployer Plan, any
Plan subject to IRC Section 412 or ERISA Section 302, or any Retiree Welfare
Plan. IRS determination letters regarding the qualified status under IRC
Section 401 of each Qualified Plan have been received as of the dates listed in
Schedule 3.13. Each of the Qualified Plans has been amended to comply with the
Tax Reform Act of 1986 and to make other changes required under the IRC or
ERISA, and if such required amendments are not subject to the determination
letters described in the previous sentence, each Qualified Plan so amended will
be submitted to the IRS for a determination letter as to the ongoing qualified
status of the Plan under the IRC within the applicable IRC Section 401(b)
remedial amendment period; and each such Plan shall be amended, including
retroactive amendments, as required during such determination letter process to
maintain the qualified status of such Plans. To the knowledge of Borrower, the
Qualified Plans as amended continue to qualify under Section 401 of the IRC,
the trusts created thereunder continue to be exempt from tax under the
provisions of IRC Section 501(a), and nothing has occurred which would cause
the loss of such qualification or tax-exempt status. To the knowledge of
Borrower, each Plan is in compliance in all material respects with the
applicable provisions of ERISA and the IRC, including the filing of all reports
required under the IRC or

27

 

ERISA which are true and correct as of the date filed, and all required
contributions and benefits have been paid in accordance with the provisions of
each such Plan. No Loan Party has engaged in a prohibited transaction, as
defined in IRC Section 4975 or Section 406 of ERISA, in connection with any
Plan which would subject any such Person (after giving effect to any exemption)
to a material tax on prohibited transactions imposed by IRC Section 4975 or any
other material liability. Except as set forth in Schedule 3.13: (i) there are
no pending, or to the knowledge of Borrower, threatened claims, actions or
lawsuits (other than claims for benefits in the normal course), asserted or
instituted against (x) any Plan or its assets, (y) any fiduciary with respect
to any Plan or (z) any Loan Party or any ERISA Affiliate with respect to any
Plan; (ii) each Loan Party and each ERISA Affiliate has complied with the
notice and continuation coverage requirements of IRC Section 4980B and the
proposed or final regulations thereunder; and (iii) no liability under any Plan
has been funded, nor has such obligation been satisfied with, the purchase of a
contract from an insurance company that is not rated AAA by Standard & Poor’s
Corporation and the equivalent by each other nationally recognized rating
agency. Notwithstanding the forgoing, the representations set forth in (i)
Section 3.13(a) relates to each Loan Party other than Galyan’s and its
Subsidiaries and (ii) Section 3.13(b) relates to Galyan’s and its Subsidiaries.

          (b) Except set forth on Schedule 3.13, and except as would not reasonably
be expected to have a Material Adverse Effect (reading such definition for the
purposes of this Section 3.13(b) only to replace “Borrower” with “Galyan’s”) on
Galyan’s, (A) neither Galyan’s nor any Affiliate maintains, nor has contributed
since January 1, 2000, to any multiemployer plan within the meaning of Sections
3(37) or 4001(a)(3) of ERISA, (B) for each funded employee pension benefit plan
(within the meaning of Section 3(2) of ERISA) that (x) is subject to the
provisions of Section 401(a) of the IRC and (y) is maintained by Galyan’s or
any of its Subsidiaries for any of its employees, Galyan’s or such Subsidiary
has obtained a favorable determination letter from the IRS, (C) to the
knowledge of Borrower, none of said determination letters has been revoked by
the IRS, nor has the IRS given any indication to the Borrower that it intends
to revoke any such determination letter, (D) neither Galyan’s nor any of its
Subsidiaries currently maintains, contributes to or has any liability with
respect to any employee benefit plan that is subject to Title IV of ERISA and
(E) Galyan’s and its Subsidiaries and Galyan’s Plans have not committed any
violation of ERISA or any agreement relating to the administration of such
Plans.

     3.14 No Litigation. Except as set forth in Schedule 3.14, no litigation,
action, suit, claim, arbitration, investigation or other proceeding is now
pending or, to the knowledge of Borrower, threatened in writing against any
Loan Party, at law, in equity or otherwise, (a) which challenges any such
Person’s right, power, or competence to enter into or perform any of its
obligations under the Loan Documents, or the validity or enforceability of any
Loan Document or any action taken thereunder or any Liens granted to Agent, on
behalf of itself and each of Lenders, or (b) which if determined adversely,
individually or in the aggregate, would have or result in a Material Adverse
Effect. To the knowledge of Borrower, there does not exist a state of facts
which could reasonably be expected to give rise to any such litigation, action,
suit, claim, arbitration, investigation or other proceeding.

     3.15 Brokers. Except as set forth on Schedule 3.15, no broker or finder
acting on behalf of Borrower brought about the obtaining, making or closing of
the credit extended or

28

 

continued pursuant to this Agreement or the transactions contemplated by
the Loan Documents and Borrower has no obligation to any Person in respect of
any finder’s or brokerage fees in connection therewith.

     3.16 Intellectual Property. As of the Closing Date, except where the
failure to own any such Intellectual Property right, individually or in the
aggregate, would not reasonably be expected to have or result in a Material
Adverse Effect, each Loan Party owns all Intellectual Property which is
necessary to continue to conduct its business as heretofore conducted by it,
now conducted by it and, to Borrower’s knowledge, proposed to be conducted by
it, each of which, as of the Closing Date, is listed, together with United
States Patent and Trademark Office application or registration numbers, where
applicable, in Schedule 3.16. Each Loan Party conducts business without
infringement or claim of infringement of any Intellectual Property right of
others, except where such infringement or claim of infringement, individually
or in the aggregate, would not reasonably be expected have or result in a
Material Adverse Effect. Except as set forth in Schedule 3.16, to Borrower’s
knowledge, there is no infringement or claim of infringement by others of any
Intellectual Property of any Loan Party, except where such infringement or
claim of infringement, individually or in the aggregate, would reasonably be
expected to have or result in a Material Adverse Effect.

     3.17 Full Disclosure. No information contained in this Agreement, the
other Loan Documents, the Financial Statements or any written statement
furnished by or on behalf of Borrower or any Affiliate thereof pursuant to the
terms of this Agreement or any other Loan Document, which has previously been
delivered to Agent or any Lender, taken as a whole, contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements contained herein or therein not misleading in light of the
circumstances under which they were made; provided, that except as provided in
the next two sentences, Borrower makes no representation or warranty regarding
business plans, forecasts or projections, including without limitation, the
Projections. With respect to the Closing Date Projections (a) all facts that
formed the basis of such Projections were (and are as of the Closing Date) true
and complete in all material respects and no material fact was omitted from
such Projections at the time such Projections were prepared and as of the
Closing Date, and (b) such Projections were prepared in good faith and based on
assumptions of facts that Borrower believed to be reasonable under the
circumstances at the time such Projections were prepared and as of the Closing
Date and are disclosed therein. With respect to any business plans, forecasts
or projections (including the Projections other than the Closing Date
Projections) made available to Agent or any Lender after the Closing Date, the
foregoing clauses (a) and (b) shall be true and correct in all respects as of
the date of such business plans, projections or forecasts and as of the date
delivered to Agent or any Lender. Notwithstanding anything to the contrary
contained herein, Borrower does not assure or guarantee the attainment of any
Projections.

     3.18 Hazardous Materials. Except as set forth in Schedule 3.18 and except
for routine operations in the ordinary course of business in compliance with
applicable permits issued by a Governmental Authority, the Subject Property is
free of any Hazardous Material and no Loan Party has caused or suffered to
occur any Release at, under, above or within any Subject Property. Except as
set forth in Schedule 3.18, there are no existing or, to the knowledge of any
Loan Party after due inquiry, any potential Environmental Liabilities and Costs
which, individually or in the aggregate, would reasonably be expected to have
or result in a Material

29

 

Adverse Effect. Except as set forth in Schedule 3.18, there are no facts
or circumstances which would reasonably be expected to give rise to the
imposition of any material Environmental Liabilities and Costs on any Loan
Party, or any owner of any premises which such Loan Party occupies, or any Lien
securing the same under any Environmental Law.

     3.19 Insurance Policies. Schedule 3.19 lists all insurance of any nature
maintained for current occurrences by each Loan Party (including Galyan’s and
its Subsidiaries) as of the Closing Date, as well as a summary of the terms of
such insurance. Subject to Section 5.16(c), such insurance complies with and
shall at all times comply with the standards set forth in Annex E.

     3.20 Deposit and Disbursement Accounts. Schedule 3.20 lists all banks and
other financial institutions at which as of the Closing Date, each Loan Party
maintains deposits and/or other accounts and/or post office lock boxes,
including the Disbursement Accounts, the Concentration Account and the Blocked
Accounts, and such Schedule correctly identifies the name, address and
telephone number of each depository, the name in which the account is held, a
description of the purpose of the account, and the complete account number.
Borrower has delivered to Agent true, correct and complete copies of all
agreements, instruments and other documents relating to any credit card
programs, arrangements or agreements to which it is a party.

     3.21 Solvency. After giving effect to (a) any Revolving Credit Advances,
if any, to be made on the Closing Date or on such other date as Revolving
Credit Advances requested hereunder are to be made and/or Letter of Credit
Obligations to be incurred on the Closing Date or on such other date as Letter
of Credit Obligations requested hereunder are to be incurred, (b) the
disbursement of the proceeds of any such Revolving Credit Advances and/or
Letter of Credit Obligations pursuant to Borrower’s instructions, and (c) the
payment and accrual of all transaction costs in connection with the foregoing,
Borrower is Solvent and Borrower and its Subsidiaries taken as a whole are
Solvent.

     3.22 Merger Agreement. As of the Closing Date, Borrower has delivered to
Agent a complete and correct copy of the Merger Agreement (including all
schedules, exhibits, amendments, supplements, modifications, assignments and
all other documents delivered pursuant thereto or in connection therewith). No
Loan Party and no other Person party thereto is in default in the performance
or compliance with any provisions of the Merger Agreement. The Merger
Agreement complies with, and, if the Short Form Merger Threshold has been
obtained, the Acquisition has been (or, if the Short Form Merger Threshold has
not been obtained, will be at the time thereof) consummated in accordance with,
all applicable laws. The Merger Agreement is in full force and effect as of
the Closing Date, and, if applicable, as of the date of the consummation of the
Acquisition, and has not been terminated, rescinded or withdrawn. Except as
set forth on Schedule 3.3, all requisite approvals by Governmental Authorities
having jurisdiction over Galyan’s, any Loan Party and other Persons referenced
therein with respect to the transactions contemplated by the Merger Agreement
have been obtained, and no such approvals impose any conditions to the
consummation of the transactions contemplated by the Merger Agreement or to the
conduct by any Loan Party of its business thereafter. To the best of each Loan
Party’s knowledge, none of Galyan’s representations or warranties in the Merger
Agreement contain any untrue statement of a material fact or omit any fact
necessary to make the

30

 

statements therein not misleading. Each of the representations and
warranties given by each applicable Loan Party in the Merger Agreement is true
and correct in all material respects. Notwithstanding anything contained in
the Merger Agreement to the contrary, such representations and warranties of
the Loan Parties are incorporated into this Agreement by this Section 3.22 and
shall, solely for purposes of this Agreement and the benefit of Agent and
Lenders, survive the consummation of the Acquisition, provided however, from
and after the consummation of the Merger, the representations and warranties in
the Merger Agreement being made separately about Galyan’s and its Subsidiaries
by virtue of this Section 3.22 shall terminate.

     3.23 Tender Consideration. Borrower and Acquirer, at all times since June
28, 2004 up until the Closing Date, have had not less than $155,000,000 in
cash-on-hand from sources other than the Revolving Credit Loan available to pay
for Shares tendered pursuant to the Tender Offer.

     3.24 Fiscal Quarters. The Fiscal Quarters of the Borrower and its
Subsidiaries beginning with the first Fiscal Quarter ending immediately after
the Closing Date and each Fiscal Quarter thereafter until August 1, 2009 are
set forth on Schedule 3.24.

	4.	 	FINANCIAL STATEMENTS AND INFORMATION

     4.1 Reports and Notices. Borrower covenants and agrees that from and
after the Closing Date and until the Termination Date, it shall deliver to
Agent (for delivery to Lenders, unless otherwise specified) the Financial
Statements, Projections, Liquidity Projections and notices at the times and in
the manner set forth in Annex D hereto. Concurrently with the delivery of the
annual audited financial statements referenced in the first sentence of this
Section 4.1, Borrower shall cause to be delivered to Agent a certificate of
Borrower’s independent certified public accountants certifying that during the
course of performing their audit of Borrower they did not become aware of any
Default under the Loan Documents or specifying each Default of which they
became aware.

     4.2 Communication with Accountants. Upon written request by Agent to
Borrower, Borrower will provide reasonable access to Borrower’s independent
certified public accountants and tax advisors so long as any communications
between the Agent and such accountants or advisors include Borrower or its
authorized agents. At the written request of Agent, Borrower shall send a
letter to such accountants and tax advisors, and deliver a copy thereof to
Agent, instructing them to make available to Agent such information and records
as Agent may reasonably request and to otherwise comply with the provisions of
this Section 4.

	5.	 	AFFIRMATIVE COVENANTS

     Borrower covenants and agrees that, unless Required Lenders shall
otherwise consent in writing, from and after the date hereof and until the
Termination Date, Borrower shall, and shall cause each other Loan Party to,
comply with the following affirmative covenants:

     5.1 Maintenance of Existence and Conduct of Business. Each Loan Party
shall: (a) except as permitted by Section 6.1, do or cause to be done all
things necessary to preserve and keep in full force and effect its statutory
existence and its rights and franchises material to the business of the Loan
Parties taken as a whole; (b) continue to conduct its business substantially

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as now conducted or as otherwise permitted hereunder; (c) at
all times maintain, preserve and protect all of its material Intellectual
Property, and preserve all the remainder of its material property, in use or
useful in the conduct of its business and keep the same in good repair, working
order and condition (taking into consideration ordinary wear and tear) and from
time to time make, or cause to be made, all necessary or appropriate repairs,
replacements and improvements thereto consistent with industry practices, so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times, provided that nothing in this Section
5.1(c) shall prevent any Loan Party from discontinuing the use or operation of
any property (including any Intellectual Property) if such discontinuance, in
the reasonable judgment of such Loan Party’s management, is desirable in the
conduct of its business; and (d) in the case of Persons that are Loan Parties
on the Closing Date, transact business only under the names set forth in
Schedule 3.2, or the name of such other Loan Party into which such Person is
merged pursuant to Section 6.1(a)(iv).

     5.2 Payment of Charges and Claims. Each Loan Party shall pay and
discharge, or cause to be paid and discharged in accordance with the terms
thereof, (a) all Charges imposed upon it or its income and profits, or any of
its property (real, personal or mixed) prior to the date on which penalties
attach thereto, and (b) all lawful claims for labor, materials, supplies and
services or otherwise, which if unpaid might or could become a Lien on its
property; provided, that such Loan Party shall not be required to pay any such
Charge or claim which is being contested in good faith by proper legal actions
or proceedings, so long as at the time of commencement of any such action or
proceeding and during the pendency thereof (i) adequate reserves with respect
thereto are established and are maintained in accordance with GAAP, (ii) such
contest operates to suspend collection of the contested Charges or claims and
is maintained and prosecuted continuously with diligence, (iii) the Collateral
subject to forfeiture or loss by reason of the institution or prosecution of
such contest has a current fair market value of less than $2,500,000 in the
aggregate at any time, (iv) no Liens securing an aggregate amount in excess of
$2,500,000 shall exist for such Charges or claims during such action or
proceeding (excluding Liens securing obligations fully covered by insurance or
otherwise bonded to the satisfaction of Agent), (v) if such contest is
terminated or discontinued adversely to such Loan Party, such Loan Party shall
promptly pay or discharge such contested Charges and all additional charges,
interest penalties and expenses, if any, and shall deliver to Agent evidence
reasonably acceptable to Agent of such compliance, payment or discharge, if
such contest is terminated or discontinued adversely to such Loan Party, and
(vi) Agent has not advised Borrower in writing that Agent believes that
nonpayment or nondischarge thereof, individually or in the aggregate, could
reasonably be expected to have or result in a Material Adverse Effect.

     5.3 Books and Records. Each Loan Party shall keep adequate records and
books of account with respect to its business activities, in which proper
entries, reflecting all of its consolidated and consolidating financial
transactions, are made in accordance with GAAP and on a basis consistent with
the Financial Statements.

     5.4 Litigation. Borrower shall notify Agent in writing, promptly upon
learning thereof, of any litigation, action, suit, claim, investigation,
arbitration or other proceeding commenced or threatened, at law, in equity or
otherwise against any Loan Party, and of the institution against any Loan Party
of any suit or administrative proceeding which (a) may involve an amount in
excess of $2,500,000, individually, or $5,000,000, in the aggregate, or (b) if

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adversely determined, individually or in the aggregate, would reasonably
be expected to have or result in a Material Adverse Effect.

     5.5 Insurance.

          (a) Each Loan Party shall, at its sole cost and expense, maintain or cause
to be maintained, the policies of insurance in such amounts and as otherwise
described in Annex E and with insurers recognized as adequate by Agent.
Borrower shall notify Agent promptly of any occurrence causing a material loss
or decline in value of any real or personal property and the estimated (or
actual, if available) amount of such loss or decline, except as specified
otherwise in Annex E. Each Loan Party hereby directs all present and future
insurers under its “All Risk” policies of insurance to pay all proceeds payable
thereunder directly to Agent, other than proceeds relating to the loss or
damage to property which secures Indebtedness permitted under clause (c) of
Section 6.3 which is required by the terms of such Indebtedness to be paid to
the holder thereof (“excluded proceeds”). Each Loan Party irrevocably makes,
constitutes and appoints Agent (and all officers, employees or agents
designated by Agent) as its true and lawful agent and attorney in-fact for the
purpose of, upon the occurrence and during the continuance of a Default,
making, settling and adjusting claims under the “All Risk” policies of
insurance, endorsing the name of such Person on any check, draft, instrument or
other item of payment for the proceeds of such “All Risk” policies of insurance
(other than excluded proceeds), and for making all determinations and decisions
with respect to such “All Risk” policies of insurance. In the event any Loan
Party at any time or times hereafter shall fail to obtain or maintain (or fail
to cause to be obtained or maintained) any of the policies of insurance
required above or to pay any premium in whole or in part relating thereto,
Agent, without waiving or releasing any Obligations or Default hereunder, may
at any time or times thereafter (but shall not be obligated to) obtain and
maintain such policies of insurance and pay such premium and take any other
action with respect thereto which Agent deems advisable. All sums so
disbursed, including reasonable attorneys’ fees, court costs and other charges
related thereto, shall be payable, on demand, by Borrower to Agent and shall be
additional Obligations hereunder secured by the Collateral.

          (b) Agent reserves the right at any time, upon review of any Loan Party’s
risk profile, to reasonably require additional forms and limits of insurance to
adequately protect Agent’s and Lenders’ interests. Each Loan Party shall, if
so requested by Agent, deliver to Agent and each Lender, as often as Agent may
reasonably request, a report of a reputable insurance broker reasonably
satisfactory to Agent with respect to its insurance policies.

          (c) Each Loan Party shall deliver to Agent endorsements to all of its (i)
“All Risk” and business interruption insurance naming Agent as loss payee to
the extent provided in Section 5.5(a), and (ii) general liability and other
liability policies naming Agent and each Lender as an additional insured.

     5.6 Compliance with Laws. Each Loan Party shall comply with all federal,
state and local laws, permits and regulations applicable to it, including those
relating to licensing, environmental, ERISA and labor matters, except to the
extent any failure or failures to so comply, individually or in the aggregate,
would not reasonably be expected to have or result in a Material Adverse
Effect.

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          5.7 Agreements; Leases. Each Loan Party shall perform, within all
required time periods (after giving effect to any applicable grace periods),
all of its obligations and enforce all of its rights under each Contract or
other document or instrument to which it is a party, except where such failure
or failures to so perform and enforce, individually or in the aggregate, would
not reasonably be expected to have or result in a Material Adverse Effect.
Each Loan Party shall perform and comply in all material respects with all
obligations in respect of Chattel Paper, Instruments, Contracts, Licenses, and
Documents and all other agreements constituting or giving rise to Collateral.

          5.8 Supplemental Disclosure. Within thirty (30) days after the Closing
Date, the Loan Parties may, and from time to time as may be reasonably
requested by Agent (which request will not be made more frequently than once
each year absent the occurrence and continuance of a Default), the Loan Parties
shall, supplement each Schedule hereto, or any representation herein or in any
other Loan Document, with respect to any matter hereafter arising that, if
existing or occurring at the date of this Agreement, would have been required
to be set forth or described in such Schedule or as an exception to such
representation or that is necessary to correct any information in such Schedule
or representation which has been rendered inaccurate thereby (and, in the case
of any supplements to any Schedule, such Schedule shall be appropriately marked
to show the changes made therein); provided that (a) no such supplement to any
such Schedule or representation shall amend, supplement or otherwise modify any
Schedule or representation, or be or be deemed a waiver of any Default
resulting from the matters disclosed therein, except as consented to by Agent
and Required Lenders in writing, and (b) no supplement shall be required or
permitted as to representations and warranties that relate solely to the
Closing Date, other than with respect to the optional supplement of the Loan
Parties within thirty (30) days of the Closing Date.

          5.9 Environmental Matters. Each Loan Party shall (a) comply with all
Environmental Laws and permits applicable to it where the failure to so comply,
individually or in the aggregate, would reasonably be expected to have or
result in a Material Adverse Effect, (b) notify Agent and each Lender promptly
after such Loan Party becomes aware of any Release upon any Subject Property
which, individually or in the aggregate, would reasonably be expected to have
or result in a Material Adverse Effect, and (c) promptly forward to Agent and
each Lender a copy of any order, notice, permit, application, or any
communication or report received by such Loan Party in connection with any such
Release or any other matter relating to the Environmental Laws that may affect
any Subject Property or any Loan Party, other than any routine notice, permit,
application, or any communication or report received in the ordinary course of
business in connection with the construction of any store, or any such notice,
permit, application or communication which is received in the ordinary course
of business and none of the Subject Property or any Loan Party is adversely
affected thereby. The provisions of this Section 5.9 shall apply whether or
not the Environmental Protection Agency, any other federal agency or any state
or local environmental agency has taken or threatened any action in connection
with any Release or the presence of any Hazardous Materials.

          5.10 Application of Proceeds. Borrower shall use the proceeds of the
Revolving Credit Loan as provided in Section 1.3.

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          5.11 Fiscal Year. Each Loan Party shall maintain as its Fiscal Year the
52 or 53-week period ending on the Saturday closest to the end of January of
each year.

          5.12 Landlord’s Waiver and Other Agreements. Except as otherwise agreed
to in writing by Agent, each Loan Party shall use commercially reasonable best
efforts to obtain (a) a Landlord’s Waiver in form and substance acceptable to
Agent from the landlord of any present or future leased premises of any Loan
Party where Inventory is located; and (b) a waiver and license agreement in
form and substance acceptable to Agent from any Person (other than Borrower)
which owns, operates or manages a warehouse or other location not owned by
Borrower where Inventory is located ((a) and (b) collectively being the
“Waivers”). With respect to such locations or warehouse space leased as of the
Closing Date or thereafter, if Agent has not received a Landlord’s Waiver or
waiver and license agreement, as applicable, as of the Closing Date (or, if
later, as of the date such location is leased), any Eligible Inventory at that
location shall, in Agent’s discretion, be subject to the Lease Payment Reserve.
Notwithstanding this Section 5.12 or anything else in this Agreement to the
contrary, Galyan’s shall have one hundred twenty (120) days following the
consummation of the Merger to obtain the Waivers being sought under this
Section 5.12 which relate to Galyan’s and its Subsidiaries), provided that any
Eligible Inventory at any applicable location shall, in Agent’s discretion
(without limiting any other provision hereof), be subject to the Lease Payment
Reserve.

          5.13 Certain Obligations Respecting Subsidiaries. Borrower will take such
action from time to time as shall be necessary to ensure that each of its
Subsidiaries is a direct or indirect wholly-owned Subsidiary (unless merged
into Borrower pursuant to Section 6.1(a)(iv)); provided that until consummation
of the Merger, Galyan’s shall be owned, directly or indirectly by Borrower
solely to the extent of the Shares tendered to Acquirer pursuant to the Tender
Offer. Borrower will not permit any of its Subsidiaries to enter into, after
the Closing Date, any indenture, agreement (other than this Agreement and the
other Loan Documents), instrument or other arrangement that, directly or
indirectly, prohibits or restrains, or has the effect of prohibiting or
restraining, or imposes materially adverse conditions upon, the incurrence or
payment of Indebtedness, the granting of Liens, the declaration or payment of
dividends or other Restricted Payments, the making of loans, advances or
Investments or the sale, assignment, transfer or other disposition of any
property or assets.

          5.14 Further Assurances.

               (a) Each Loan Party shall at its cost and expense, upon request of Agent,
duly execute and deliver, or cause to be duly executed and delivered, to Agent
such further instruments and do and cause to be done such further acts as may
be necessary or proper in the reasonable opinion of Agent to carry out more
effectually the provisions and purposes of this Agreement or any other Loan
Document.

               (b) Borrower shall deliver or cause to be delivered to Agent no later than
the thirty (30) days after the Closing Date, with respect to Borrower and its
Subsidiaries (other than Galyan’s and its Subsidiaries), and no later than the
earlier of (i) sixty (60) days after consummation of the Merger and (ii) ninety
(90) days after the Closing Date, in the case of Galyan’s and its Subsidiaries
(or such later date as may be agreed by Agent), duly executed blocked account
agreements referred to in Annex B with respect to each deposit account and

35

 

Disbursement Account set forth on Schedule 3.20 and any other deposit
account or Disbursement Account opened by Galyan’s or any of its Subsidiaries
pursuant to Section 6 of Annex B, which blocked account agreements shall be in
form and substance acceptable to Agent. In the event that Borrower is unable
to deliver to Agent a blocked account agreement for each deposit account or
Disbursement Account on or before such date, Borrower shall close each deposit
account for which it was unable to deliver a blocked account agreement and open
a new deposit account with a financial institution which will enter into a
blocked account agreement satisfactory to Agent. Borrower shall deliver or
cause to be delivered to Agent no later than thirty (30) days after the Closing
Date, duly executed Control Letters from (i) all issuers of uncertificated
securities and financial assets held by each Loan Party, (ii) all securities
intermediaries with respect to all securities accounts and securities
entitlements of each Loan Party, and (iii) all futures commission agents and
clearing houses with respect to all commodities contracts and commodities
accounts held by any Loan Party.

          5.15 Appraisals and Field Audits. Borrower shall allow Agent and its
designees from time to time as Agent shall direct, to perform, and shall assist
Agent and its designees in performing, field audits and appraisals of
Borrower’s and its Subsidiaries’ (including Galyan’s and its Subsidiaries)
Inventory. So long as no Default has occurred and is continuing, Agent agrees
to provide to Borrower upon the request of Borrower any such appraisal prepared
by a third party unaffiliated with Agent which has consented to Agent so
providing such appraisal. In furtherance of the foregoing, Agent agrees to use
reasonable efforts to obtain any such consent. Borrower shall pay all
reasonable out-of-pocket costs and expenses incurred by Agent in connection
with such field audits and appraisals, provided that unless a Default shall be
continuing, only one such field audit and appraisal in any Fiscal Year shall be
at the expense of Borrower if Excess Availability shall be greater than or
equal to $50,000,000 at all times during such Fiscal Year, and only three such
field audits and appraisals (subject to no Default having occurred and be
continuing) shall be at the expense of Borrower if Excess Availability shall be
less than $50,000,000 at any time during such Fiscal Year. Notwithstanding the
foregoing, Agent and its designees may perform a field audit of Galyan’s and
its Subsidiaries within one year of the Closing Date, which field audit shall
be at the expense of the Borrower but shall not count against the limitations
set forth above.

          5.16 Future Guarantors, Security, etc.

               (a) Each Loan Party shall, from time to time, execute such guaranties,
financing statements, documents, security agreements and reports as Agent or
Required Lenders at any time may reasonably request to evidence, perfect or
otherwise implement the guaranties and security for repayment of the
Obligations contemplated by the Loan Documents. Each Loan Party shall (i)
cause each Person, upon its becoming a Subsidiary of such Loan Party (provided
that this shall not be construed to constitute consent by any of the Lenders to
any transaction not expressly permitted by the terms of this Agreement),
promptly (or immediately upon consummation of the Merger with respect to
Galyan’s) to guaranty the Obligations and to grant Agent, for the benefit of
Agent and Lenders, a security interest in the personal and mixed property of
such Person (consistent with the type of assets in which Borrower has granted a
security interest to Agent for the benefit of Lenders) to secure the
Obligations and (ii) pledge, or cause to be pledged, to Agent, for the benefit
of Agent and Lenders, all of the Stock of such Subsidiary to secure the
Obligations; provided that the Stock of Galyan’s and its Subsidiaries

36

 

shall not be pledged until consummation of the Merger. The documentation
for such guaranty, security and pledge shall be substantially similar to the
Loan Documents executed concurrently herewith with such modifications as are
reasonably requested by Agent.

               (b) Without limiting Section 5.16(a) above, immediately upon consummation
of the Merger and to the extent not provided on or prior to the Closing Date,
Galyan’s and its Subsidiaries shall execute such guaranties, financing
statements, documents, security agreements and reports as Agent or Required
Lenders at any time may reasonably request to evidence, perfect or otherwise
implement the guaranties and security for repayment of the Obligations
contemplated by the Loan Documents. Galyan’s and each of its Subsidiaries
shall promptly (i) guaranty the Obligations and grant to Agent, for the benefit
of Agent and Lenders, a security interest in the personal and mixed property of
such Person (consistent with the type of assets in which Borrower has granted a
security interest to Agent for the benefit of Lenders) to secure the
Obligations and (ii) pledge, or cause to be pledged, to Agent, for the benefit
of Agent and Lenders, all of the Stock of its Subsidiaries to secure the
Obligations. In connection with the foregoing, the Loan Parties shall deliver
duly executed originals of opinions of counsel for Galyan’s and its
Subsidiaries, together with any local counsel opinions reasonably requested by
Agent, each in form and substance reasonably satisfactory to Agent and its
counsel, dated the date of the consummation of the Merger.

               (c) Within one (1) Business Day of the Closing Date, or, at the discretion
of Agent, up to three (3) Business Days, the Loan Parties shall deliver
evidence satisfactory to Agent that the insurance policies covering Galyan’s
and its Subsidiaries provided for in Section 3.19 and Annex E are in full force
and effect, together with appropriate evidence showing a loss payable and/or
additional insured clauses or endorsements, as appropriate, in favor of Agent
and Lenders and in form and substance satisfactory to Agent.

          5.17 Tender Offer. In the event the Short Form Merger Threshold is not
attained on or before the Closing Date, the Borrower and Acquirer shall extend
the Tender Offer in accordance with Section 3.13 of the Merger Agreement by
means of a Subsequent Offering Period (as defined in the Merger Agreement). If
at any time the Short Form Merger Threshold is attained, or a favorable vote of
the shareholders of Galyan’s is obtained, the Acquirer shall consummate the
Merger as soon as practicable thereafter.

     6. NEGATIVE COVENANTS

          Each Loan Party covenants and agrees that, unless Required Lenders shall
otherwise consent in writing, from and after the date hereof and until the
Termination Date, each Loan Party shall, comply with the following negative
covenants:

          6.1 Mergers, Subsidiaries, Etc.

               (a) No Loan Party shall, directly or indirectly, by operation of law or
otherwise, merge, consolidate or otherwise combine with any Person or acquire
or hold all or substantially all of the assets or capital stock of any Person
or form, acquire or hold any Subsidiary, except that:

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               (i) Acquirer may acquire Shares of Galyan’s pursuant to the Tender
Offer and consummate the Acquisition;

               (ii) Borrower may maintain its existing investments in its
Subsidiaries as of the Closing Date;

               (iii) Borrower may form DSG of Virginia, LLC, a wholly-owned
Virginia limited liability company (“DSGV”), for the purpose of issuing
and selling electronic gift cards; provided that at the time of formation
of DSGV, the provisions of Section 5.16(a) are complied with;

               (iv) At any time after the Merger has been consummated, any
Subsidiary may liquidate or dissolve voluntarily into, and may merge with
and into, Borrower or any other Subsidiary, and the assets or Stock of
any Subsidiary may be purchased or otherwise acquired by Borrower or any
other Subsidiary (it being understood that Galyan’s may only be purchased
initially by Acquirer, and after consummation of the Merger, by
Borrower); and provided; that the Borrower shall be the survivor of any
merger with a Subsidiary and in no event shall any Subsidiary consolidate
with or merge with and into any other Subsidiary unless after giving
effect thereto, the Agent shall have a perfected pledge of, and security
interest in and to, all of the issued and outstanding interests of Stock
(on a fully diluted basis) of the surviving Person to the same extent as
the Agent had with respect to such merged or consolidated Person
immediately prior to such merger or consolidation in form and substance
satisfactory to the Agent and its counsel, pursuant to such documentation
and opinions as shall be necessary in the opinion of the Agent to create,
perfect or maintain the collateral position of the Agent and Lenders
therein; and

               (v) At any time after the Merger has been consummated, so long as no
Default has occurred and is continuing or would occur after giving effect
thereto, the Borrower or any of its Subsidiaries may (to the extent
permitted by clause (g) of Section 6.2) purchase all or substantially all
of the assets or Stock of any Person (or any division thereof), or
acquire such Person by merger.

               (b) Other than Galyan’s and its Subsidiaries prior to the consummation of
the Merger, Borrower shall have no Subsidiaries other than wholly-owned
domestic Subsidiaries.

          6.2 Investments. No Loan Party shall, directly or indirectly, make or
maintain any Investment except: (a) Investments permitted by Section 6.1, 6.3
or 6.4; (b) Investments outstanding on the date hereof and listed in Schedule
6.2; (c) Investments in Cash Equivalents and Permitted Investments which are
subject to a first priority perfected Lien of Agent for the benefit of Lenders,
provided that the aggregate outstanding principal amount of such Cash
Equivalents and Permitted Investments shall not exceed (x) $20,000,000 any time
during which Revolving Credit Advances are outstanding and (y) $0, at any time
after Agent has the right to deliver an Activation Notice (whether or not such
Activation Notice has been delivered or rescinded) in accordance with Annex B;
(d) Investments representing stock or obligations issued to any Loan Party in
settlement of claims against any other Person by reason of a composition or
readjustment of debt or reorganization of any debtor of any Loan Party; (e)
Investments

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represented by deposits into the Concentration Account, the Blocked
Accounts, the Disbursement Accounts and other bank accounts of such Loan Party
to the extent permitted hereunder; (f) Interest Rate Agreements not prohibited
by Section 6.17 hereof; (g) at any time after the consummation of the Merger,
Investments by way of the acquisition of Stock or assets in each case
constituting Permitted Acquisitions in an aggregate amount not to exceed
$30,000,000 (including any Indebtedness assumed pursuant to Section 6.3(i)) in
any Fiscal Year; provided that, in any event, (i) immediately prior to, and
immediately after giving effect to, such Investment, Excess Availability is
greater than $50,000,000, and (ii) none of the Inventory acquired in connection
with such Permitted Acquisition shall be included in the Borrowing Base unless
and until the Agent has conducted a collateral audit and appraisal thereon
satisfactory to it and has made appropriate adjustments, if any, to the
Reserves and/or the definition of Eligible Inventory, and (h) deposits made in
the ordinary course of business and required in connection with Leases.

          6.3 Indebtedness. No Loan Party shall create, incur, assume or permit to
exist any Indebtedness, except: (a) the Obligations; (b) Deferred Taxes; (c)
Capital Lease Obligations and Indebtedness secured by purchase money Liens
permitted under clause (c) of Section 6.7 (including any such Capital Lease
Obligations and Indebtedness set forth in Schedule 6.3 or any extensions,
renewals, replacements or modifications thereof) in a maximum outstanding
aggregate amount at any time not to exceed $5,000,000 prior to consummation of
the Merger and $15,000,000 thereafter; (d) Guaranteed Indebtedness permitted
under Section 6.6; (e) Indebtedness under Interest Rate Agreements to the
extent not prohibited by Section 6.17; (f) Indebtedness existing on the Closing
Date and set forth in Schedule 6.3 and all extensions, renewals, replacements
and modifications of such Indebtedness on terms and conditions which shall in
any event be on terms no less favorable to Borrower, Agent or any Lender, as
determined by Agent than the terms of the Indebtedness being extended, renewed,
replaced or modified, including, without limitation, with respect to amount,
maturity, amortization, interest rate, premiums, fees, indemnities, covenants,
events of default and remedies; (g) Indebtedness evidenced by the Galyan’s
Intercompany Note and the Acquirer Intercompany Note, in form and substance
satisfactory to Agent; (h) Indebtedness in the form of non-cash obligations for
construction in progress of leased facilities, as reflected on certain of
Borrower’s Financial Statements as “Non-cash obligations for CIP — Leased
Facilities”; (i) at any time after consummation of the Merger, Indebtedness of
a Person existing at the time such Person became a Subsidiary of Borrower
pursuant to Section 6.2(g), but only if such Indebtedness was not created or
incurred in contemplation of such Person becoming a Subsidiary; provided that
neither Borrower nor any Subsidiary may have any Guaranteed Indebtedness in
respect of such Indebtedness incurred by any Subsidiary, if any, which is not a
Loan Party; (j) at any time after consummation of the Merger, Indebtedness
consisting of intercompany loans and advances made by any Loan Party to any
other Loan Party; provided, that: (i) each Loan Party shall have executed and
delivered to each other Loan Party, a demand note (collectively, the
“Intercompany Notes”) to evidence any such intercompany Indebtedness owing at
any time by such Loan Party to such other Loan Party which Intercompany Notes
shall be in form and substance reasonably satisfactory to Agent and shall be
pledged and delivered to Agent pursuant to the applicable Pledge Agreement,
Borrower Security Agreement or Subsidiary Security Agreement as additional
collateral security for the Obligations; (ii) each Loan Party shall record all
intercompany transactions on its books and records in a manner reasonably
satisfactory to Agent; (iii) the obligations of each Loan Party under any such
Intercompany Notes shall be subordinated

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to the Obligations of such Loan Party hereunder or under the other Loan
Documents in a manner reasonably satisfactory to Agent; (iv) at the time any
such intercompany loan or advance is made by any Loan Party to any other Loan
Party and after giving effect thereto, each such Loan Party shall be Solvent;
and (v) no Default or Event of Default would occur and be continuing after
giving effect to any such proposed intercompany loan; (k) at any time after
consummation of the Merger, any other unsecured Indebtedness of Borrower or
Galyan’s not to exceed $20,000,000 in the aggregate at any time outstanding;
and (l) at any time after consummation of the Merger, any other Indebtedness of
Borrower or Galyan’s not to exceed $25,000,000 in the aggregate at any time
outstanding that is secured by real property.

          6.4 Affiliate and Employee Transactions. The Loan Parties shall not
directly or indirectly enter into or permit to exist any transaction (including
the purchase, sale, lease or exchange of any property or the rendering of any
management, consulting, investment banking, advisory or other similar services)
with any Affiliate or with any director, officer or employee of any Loan Party,
except (a) as set forth on Schedule 6.4, (b) transactions in the ordinary
course of and pursuant to the reasonable requirements of the business of any
such Loan Party and upon fair and reasonable terms that are no less favorable
to any such Loan Party than would be obtained in a comparable arm’s length
transaction with a Person that is not an Affiliate, (c) payment of reasonable
compensation to officers and employees for services actually rendered to any
such Loan Party or any of its Subsidiaries, and (d) payment of customary
director’s fees, and (e) any payments to employees, former employees or
consultants of Galyan’s and its Subsidiaries which are being made as a result
of the Merger Agreement or in connection with the Acquisition in an aggregate
amount not in excess of $10,000,000; provided however, that such amount shall
not limit (i) any “parachute” payment, “change of control payment” or other
amount due, paid or payable which relates to (x) the acceleration and/or
payment on or related to Galyan’s stock options or any other rights or warrants
made in accordance with Section 2.4 of the Merger Agreement, (y) restricted
stock that is then outstanding, or (z) severance payments to employees of
Galyan’s or its Subsidiaries, (ii) any “tax-gross up payments,” make-whole” or
similar payment made as a result of any “parachute” payment, “change of control
payment” or other amount due, paid or payable regardless of whether such
payment or amount due or payable is on or relates to Galyan’s stock options,
other rights or warrants, (iii) any amounts due to Goldman Sachs, & Co. or any
other investment banking or financial advisor of Galyan’s that is receiving a
fee or payment as a result of the Transactions and/or (iv) any reasonable
signing bonuses, bonus incentive or other payments made by Borrower or its
affiliates to employees of Galyan’s in order to induce such Galyan’s employees
to accept offers of employment with the Borrower or its Subsidiaries or to
remain employed at Galyan’s. No Loan Party shall enter into any lending or
borrowing transaction with any employees of any Loan Party, provided, that any
Loan Party may extend loans to its respective employees in the ordinary course
of business consistent with past practices for travel and entertainment
expenses, relocation costs and similar purposes and stock option financing up
to a maximum of $5,000,000 in the aggregate at any one time outstanding, or
such higher amount permitted by the prior written consent of Agent.

          6.5 Capital Structure and Business.

               (a) No Loan Party shall: (i) make any changes in its business objectives,
purposes or operations which, individually or in the aggregate, could in any
way adversely affect the repayment of the Obligations or reasonably be expected
to have or result in a Material

40

 

Adverse Effect; (ii) issue or sell any shares of Stock of the Borrower
that is mandatorily redeemable prior to February 11, 2009, (iii) organize any
Subsidiaries other than (x) domestic wholly-owned Subsidiaries for the purpose
of making Investments permitted by Section 6.2(g) and (y) DSGV for the sole
purpose of issuing electronic gift cards and entering into transactions with
the Borrower involving such gift cards, and (iv) amend its articles or
certificate of incorporation, charter, by-laws, organizational document, the
terms of its outstanding Stock, or any partners, shareholders, voting or
similar agreement to which it is a party; provided that any Loan Party may
amend any such documents in a manner that not would adversely affect Agent or
Lenders or such Loan Party’s duty or ability to repay the Obligations; or (v)
subject to clause (iii)(y) above, engage in any business other than the retail
sale of clothing and sporting goods or businesses reasonably related thereto
consistent with past practice.

               (b) Acquirer shall not engage in any trade or business, or own any assets
(other than the Shares of Galyan’s prior to consummation of the Merger) or
incur any Indebtedness or Guaranteed Indebtedness (other than the Obligations
and the Acquirer Loan).

          6.6 Guaranteed Indebtedness. No Loan Party shall create, incur, assume or
permit to exist any Guaranteed Indebtedness except for: (a) endorsements of
instruments or items of payment for deposit to a bank account of such Loan
Party; (b) performance bonds, indemnities entered into in the ordinary course
of business consistent with past practices; (c) Guaranteed Indebtedness
relating to Interest Rate Agreements permitted to be incurred pursuant to
Section 6.3(e); (d) Guaranteed Indebtedness outstanding on the Closing Date and
listed in Schedule 6.3 and all extensions, renewals, replacements and
modifications of such Guaranteed Indebtedness on terms and conditions which
shall in any event be on terms no less favorable to Borrower, Agent or any
Lender, as determined by Agent than the terms of the Guaranteed Indebtedness
being extended, renewed, replaced or modified, including, without limitation,
with respect to amount, premiums, fees, indemnities, covenants, events of
default and remedies; (e) after consummation of the Merger, Guaranteed
Indebtedness incurred for the benefit of any other Loan Party if the primary
obligation is expressly permitted by this Agreement other than Indebtedness, if
any, of any Person existing at the time such Person became a Subsidiary of
Borrower; provided that any such Guaranteed Indebtedness does not exceed the
primary obligation, and (f) guaranties of lease payments in the ordinary course
of business in connection with reletting of space vacated by any Loan Party
pursuant to a store relocation.

          6.7 Liens. No Loan Party shall create or permit to exist any Lien on any
of its properties or assets except for: (a) presently existing or hereafter
created Liens in favor of Agent or Lenders (or any affiliate thereof in
connection with any Interest Rate Agreement not prohibited by Section 6.17) to
secure the Obligations, including but not limited to the Galyan’s Pledge; (b)
Permitted Encumbrances; (c) purchase money Liens or purchase money security
interests upon or in Equipment acquired by any Loan Party in the ordinary
course of business to secure the purchase price of such Equipment or to secure
Capital Lease Obligations, in each case, permitted under clause (c) of Section
6.3 incurred solely for the purpose of financing the acquisition of such
Equipment; (d) extensions, renewals and replacements of Liens referred to in
clause (c) above, provided that any such extension, renewal or replacement Lien
is limited to the property or assets covered by the Lien extended, renewed or
replaced and does not secure Indebtedness in an amount greater than the amount
of the outstanding Indebtedness secured thereby immediately prior to such
extension, renewal or replacement; (e) after consummation of

41

 

the Merger, Liens on property securing Indebtedness permitted by clause
(i) of Section 6.3; provided that such Liens existed prior to such Person
becoming a Subsidiary, were not created in anticipation thereof and attach only
to specific tangible assets of such Person (and not assets of such Person
generally) and provided further that no such property shall be included in the
Borrowing Base; and (f) Liens securing Indebtedness permitted by Section
6.3(l); provided further that no Loan Party shall create or permit any Lien to
exist on any Collateral (other than Liens described in clauses (a), (b) and (e)
above).

          6.8 Sale of Assets. No Loan Party shall sell, transfer, convey, assign or
otherwise dispose of any of its assets or properties, including any Collateral;
provided, that the foregoing shall not prohibit (a) the sale of Inventory in
the ordinary course of business, (b) the sale or disposition for fair
consideration in any Fiscal Year of any assets in the ordinary course of
business which have become obsolete or surplus to the business of such Loan
Party, (c) the sale or disposition of any assets of any Loan Party to any other
Loan Party; provided that prior to the consummation of the Merger and
compliance, to the extent applicable, with Section 5.16, Borrower shall not
sell or otherwise dispose of any of its assets to Galyan’s or any of Galyan’s
Subsidiaries, (d) after consummation of the Merger, Asset Dispositions by Loan
Parties (excluding sales of Inventory and Stock of any of Borrower’s
Subsidiaries) if all of the following conditions are met: (i) the market value
of assets sold or otherwise disposed of in any single transaction or series of
related transactions does not exceed $5,000,000 and the aggregate market value
of assets sold or otherwise disposed of in any Fiscal Year does not exceed
$15,000,000; (ii) the consideration received is at least equal to the fair
market value of such assets; (iii) at least seventy-five percent (75%) of the
consideration received is cash; (iv) the Net Proceeds are immediately deposited
into the Concentration Account; (v) after giving effect to the Asset
Disposition, Borrower is in compliance on a pro forma basis to the extent
applicable with the covenant set forth in Section 6.10 recomputed for the most
recently ended quarter for which information is available and is in compliance
with all other terms and conditions of this Agreement; and (vi) no Default then
exists or would result from such Asset Disposition, and (e) after consummation
of the Merger, Permitted Sale and Leaseback Transactions.

          6.9 ERISA. No Loan Party or any ERISA Affiliate shall acquire any new
ERISA Affiliate that maintains or has an obligation to contribute to a Pension
Plan that has either an “accumulated funding deficiency,” as defined in Section
302 of ERISA, or any “unfunded vested benefits,” as defined in Section
4006(a)(3)(E)(iii) of ERISA in the case of any Pension Plan other than a
Multiemployer Plan and in Section 4211 of ERISA in the case of a Multiemployer
Plan. Additionally, no Loan Party or any ERISA Affiliate shall: (a) permit or
suffer any condition set forth in Section 3.13 to cease to be met and satisfied
at any time, other than permitting an ERISA Affiliate acquired after the
Closing Date to sponsor a Title IV Plan, a Plan subject to IRC Section 412 or
ERISA Section 302, or a Retiree Welfare Plan; (b) terminate any Title IV Plan
where such termination could reasonably be anticipated to result in liability
to such Loan Party; (c) permit any accumulated funding deficiency, as defined
in Section 302(a)(2) of ERISA, to be incurred with respect to any Pension Plan;
(d) fail to make any contributions or fail to pay any amounts due and owing as
required by the terms of any Plan before such contributions or amounts become
delinquent; (e) make a complete or partial withdrawal (within the meaning of
Section 4201 of ERISA) from any Multiemployer Plan; (f) fail to provide Lender
with copies of any Plan documents or governmental reports or filings, if
reasonably requested by Lender; (g) fail to make any contribution or pay any
amount due as required by IRC Section 412 or Section

42

 

302 of ERISA; (h) allow any ERISA Event or event described in
Section 4062(e) of ERISA to occur with respect to any Title IV Plan; and (i)
with respect to all Retiree Welfare Plans, allow the present value of future
anticipated expenses to exceed $100,000 (or $1,000,000 after consummation of
the Merger).

          6.10 Financial Covenant. As of any Fixed Charge Coverage Measurement
Date, Borrower shall maintain a Fixed Charge Coverage Ratio for the four Fiscal
Quarter period ending on the Fixed Charge Coverage Measurement Date, of not
less than 1.0 to 1.0., which covenant shall be calculated in accordance with
GAAP consistently applied (and based upon the financial statements delivered
hereunder).

          6.11 [Intentionally Omitted.]

          6.12 Restricted Payments. No Loan Party shall make any Restricted Payment
to any Person except that: (a) any Subsidiary of Borrower may make Restricted
Payments to Borrower; (b) Borrower may make dividends and distributions in the
form of Stock to its Stockholders to the extent permitted by Section 6.5 hereof
and in connection with mergers permitted by Section 6.1(a)(iv); (c) Borrower
may make (i) regularly scheduled payments of interest to holders of the
Convertible Notes, (ii) payments in cash or Stock upon conversion of any of the
Convertible Notes pursuant to Section 4.1 of the Convertible Note Indenture and
paragraph 9 of the Convertible Notes; (iii) payments in cash on or after
February 11, 2009 upon redemption of the Convertible Notes pursuant to Section
3.8 of the Convertible Note Indenture and paragraph 7 of the Convertible Notes,
(iv) payments in cash on or after February 11, 2009 upon redemption of the
Convertible Notes by Borrower pursuant to Section 3.1 of the Convertible Note
Indenture and paragraph 6 of the Convertible Notes, provided that no Default or
Event of Default has occurred and is continuing both before and after giving
effect to any such payment, (v) payment in cash of the aggregate principal
amount of the Convertible Notes upon maturity or upon acceleration, (vi)
payment of liquidated damages to the holders of Convertible Notes pursuant to
Section 3 of the Registration Rights Agreement, (vii) payments in cash or Stock
pursuant to the Convertible Notes Warrant Transaction, (viii) any payments
required for registration expenses pursuant to Section 5 of the Registration
Rights Agreement, and (ix) payment of the Change in Control Purchase Price (as
defined in Section 3.9(c) of the Convertible Note Indenture) of any Convertible
Notes upon a Change in Control (as defined in Section 3.9(a) of the Convertible
Note Indenture) pursuant to Section 3.9 of the Convertible Note Indenture and
paragraph 7 of the Convertible Notes; (d) the Loan Parties may make payments of
principal of, and interest on, the Intercompany Notes issued in accordance with
Section 6.3(j); (e) Acquirer and Galyan’s, as applicable, may make payments of
principal of, and interest on, the Acquirer Intercompany Note and the Galyan’s
Intercompany Note issued in accordance with Section 6.3; provided that the
outstanding principal balance of the Galyan’s Intercompany Note may not be less
than the amount of the Prior Lender Obligations paid with the proceeds thereof
on the Closing Date; (f) Borrower, Acquirer and Galyan’s may make any payments
required as a result of the Acquisition as contemplated by the Merger Agreement
in connection with any dissenters’ rights, amounts due relating to any option,
warrant or other right of Galyan’s shareholders pursuant to Section 2.4 of the
Merger Agreement; (g) payments pursuant to any transaction permitted by Section
6.4; (h) payments of royalties to DSGV and Galyan’s

43

 

Nevada, Inc. in the
ordinary course of business and consistent with past practice arising out of
the use of Trademarks
owned by DSGV and Galyan’s Nevada, Inc; and (i) any transaction otherwise
permitted by Sections 6.1, 6.2, or 6.8 which constitutes a Restricted Payment

          6.13 Hazardous Materials. No Loan Party shall, nor shall it permit any
Person within its control: (a) to cause or permit a Release of Hazardous
Material on, under, in or about any Subject Property which, individually or in
the aggregate, would reasonably be expected to have or result in a Material
Adverse Effect; (b) to use, store, generate, treat or dispose of Hazardous
Materials in violation of Environmental Laws, except to the extent any failure
or failures to so comply, individually or in the aggregate, would not
reasonably be expected to have or result in a Material Adverse Effect; or (c)
to transport any Hazardous Materials to or from any Subject Property in
violation of Environmental Laws, except to the extent any failure or failures
to so comply, individually or in the aggregate, would not reasonably be
expected to have or result in a Material Adverse Effect.

          6.14 Sale-Leasebacks. No Loan Party shall enter into any sale-leaseback,
synthetic lease or similar transaction involving any of its property or assets
except pursuant to a Permitted Sale and Leaseback Transaction.

          6.15 Cancellation of Indebtedness. No Loan Party shall cancel any claim
or Indebtedness owing to it, except for adequate consideration negotiated in an
arms length transaction and in the ordinary course of its business consistent
with past practices.

          6.16 [Intentionally Omitted]

          6.17 No Speculative Investments. No Loan Party shall engage in any
speculative investment or any investment involving commodity options or futures
contracts. For purposes of this Section 6.17, neither the Convertible Note
Hedge nor the Convertible Note Warrant Transaction shall be deemed to be a
speculative investment.

          6.18 Margin Regulations. Borrower shall not, directly or indirectly, use
the proceeds of any Revolving Credit Advance or Letter of Credit Obligation to
purchase or carry any Margin Stock (other than the Shares) or any equity
security of a class which is registered pursuant to Section 12 of the
Securities Exchange Act of 1934.

          6.19 Limitation on Negative Pledge Clauses. No Loan Party shall directly
or indirectly, enter into any agreement (other than the Loan Documents and the
Merger Agreement), with any Person which prohibits or limits the ability of any
Loan Party to create, incur, assume or suffer to exist any Lien upon any of its
property, assets or revenues, whether now owned or hereafter acquired, other
than in connection with any Indebtedness permitted under clause (c) of Section
6.3 secured by a Lien permitted hereunder on assets of the Loan Parties so long
as such prohibition or limitation in any documentation governing or relating to
such Indebtedness extends only to such assets securing such Indebtedness.

          6.20 Material Contracts. No Loan Party shall cancel or terminate any
Material Contract that would adversely affect any Loan Party or the Agent and
Lenders. No Loan Party shall waive any default or breach any Material
Contract, or amend or otherwise modify any Material Contract or take (or omit
to take) any other action in connection with any Material

44

 

Contract that, individually or in the aggregate, would reasonably
be expected to have or result in a Material Adverse Effect.

          6.21 Leases. No Loan Party shall (a) renew (by amendment, modification or
otherwise) any lease of real property or similar agreements other than renewals
of existing leases of real property upon terms that are not less favorable than
then current market terms, or (b) enter into any new lease of real property or
similar agreements unless such Loan Party has used commercially reasonable best
efforts to enter into a Landlord’s Waiver and other documentation deemed
appropriate by Agent, in each case in form and substance satisfactory to Agent,
with the owner of such real property (to the extent Inventory is located or
will be located at such property). No Loan Party shall without the prior
written consent of Agent amend, supplement or otherwise modify any provision of
any Lease in any manner that is adverse to the Agent or the Lenders in any
material respect under which the landlord has waived or subordinated any
landlord’s lien, right of distraint or other lien or encumbrance upon such Loan
Party’s property securing the performance of such Loan Party’s obligations
under such Lease.

          6.22 Limitations on Modifications of Convertible Notes. Borrower shall
not amend, modify or change, or consent or agree to any amendment, modification
or change to, any of the terms or provisions of the Convertible Note Document,
or, in each case, any documents relating thereto (other than any such
amendment, modification or change which would only extend the maturity or
reduce the amount of any payment of principal thereof or premium thereon or
which would reduce the rate or extend the date for payment of interest
thereon). Notwithstanding the foregoing, Borrower may amend, modify or change,
or consent or agree to any amendment, modification or change to, any of the
terms or provisions of any Convertible Note Document, or any document relating
thereto, unless such amendment, modification or change would have an adverse
effect on the Lenders. The Lenders acknowledge that any amendment,
modification or change required by the Trust Indenture Act of 1939, or by the
United States Securities and Exchange Commission, shall not be deemed to have
an adverse effect on the Lenders.

          6.23 Long Form Event. Notwithstanding anything to the contrary in any
Loan Document, if a Long Form Event has occurred, Borrower shall not make the
Galyan’s Loan or execute any documents related thereto, unless the Galyan’s
Loan, the Galyan’s Intercompany Note, the Galyan’s Pledge and any transaction
related thereto shall have been approved by a majority of the independent
directors of Galyan’s. In the event such director approval shall not be
obtained, notwithstanding anything to the contrary set forth in any Loan
Document, Agent and Lenders agree that (a) the condition precedent set forth in
Annex C, Section III(D) is waived, (b) the Prior Lender Obligations shall be
permitted under this Agreement and the other Loan Documents, and (c) the Liens
in favor of the Prior Lenders securing the Prior Lender Obligations shall be
permitted under this Agreement and the other Loan Documents, provided however,
that so long as any Prior Lender Obligations are outstanding (i) none of
Galyan’s assets shall be included for purposes of calculating the Borrowing
Base, (ii) none of the Dick’s Loan Parties shall make any intercompany advances
or capital contributions to, or incur any Guaranteed Indebtedness on behalf of,
or support in any other manner, any of the Galyan’s Loan Parties, (iii)
Borrower shall not permit Galyan’s to amend, supplement or otherwise modify the
terms of the Existing Galyan’s Credit Agreement or any of the other Loan
Documents (as defined in the Existing Galyan’s Credit Agreement), (iv) Borrower
shall not permit the aggregate outstanding amount of the Prior Lender
Obligations to exceed at any time the amount that would be

45

 

calculated pursuant to clause (a)(ii) of the definition of Borrowing Base,
were the assets of Galyan’s to be included in such calculation, and (v)
Borrower shall cause the Prior Lender Obligations to be repaid in full on or
prior to consummation of the Merger. Upon repayment of the Prior Lender
Obligations, Borrower shall deliver to Agent, copies of a duly executed payoff
letter, in form and substance satisfactory to Agent, by and between the
administrative agent for the Prior Lenders party to the Existing Galyan’s
Credit Agreement evidencing repayment in full of all Prior Lender Obligations,
together with (a) UCC-3 or other appropriate termination statements, in form
and substance satisfactory to Agent, executed by the Prior Lender, if
necessary, releasing all Liens of Prior Lender upon any of the property of
Galyan’s and its Subsidiaries, and (b) termination of all blocked account
agreements, bank agency agreements or other similar agreements or arrangements
or arrangements in favor of Prior Lender or relating to the Prior Lender
Obligations.

     7. TERM

          7.1 Duration. The financing arrangement contemplated hereby shall be in
effect until the Commitment Termination Date. On the Commitment Termination
Date, the Aggregate Revolving Credit Commitment shall terminate and the
Revolving Credit Loan and all other Obligations shall immediately become due
and payable in full, in cash and Borrower shall make arrangements, as provided
in paragraph (c)(ii) of Annex F, for satisfaction of any outstanding Letter of
Credit Obligations.

          7.2 Survival of Obligations. Except as otherwise expressly provided for
in the Loan Documents, no termination or cancellation (regardless of cause or
procedure) of any financing arrangement under this Agreement shall in any way
affect or impair the Obligations, duties, indemnities, and liabilities of any
Loan Party, or the rights of Agent or any Lender relating to any Obligations,
due or not due, liquidated, contingent or unliquidated or any transaction or
event occurring prior to such termination, or any transaction or event, the
performance of which is not required until after the Commitment Termination
Date. Except as otherwise expressly provided herein or in any other Loan
Document, all undertakings, agreements, covenants, warranties and
representations of or binding upon any Loan Party, and all rights of Agent and
each Lender, all as contained in the Loan Documents shall not terminate or
expire, but rather shall survive such termination or cancellation and shall
continue in full force and effect until the Termination Date.

     8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES

          8.1 Events of Default. The occurrence of any one or more of the following
events (regardless of the reason therefor) shall constitute an “Event of
Default” hereunder:

               (a) Borrower (i) fails to make any payment of principal of Revolving
Credit Loan when due, or to repay the Revolving Credit Loan to reduce its
balance to the maximum amount of Revolving Loans then permitted to be
outstanding or to reimburse any issuer of a Letter of Credit for any payment
made by such issuer of a Letter of Credit under or in respect of any Letter of
Credit when due, or (ii) fails to pay, within three (3) days after the due
date, any interest on the Revolving Credit Loan or any other amount due under
this Agreement or any of the other Loan Documents.

46

 

               (b) Borrower shall fail or neglect to perform, keep or observe any of the
provisions of Section 1.7, Section 4.1, Section 5.2 (solely insofar as such
Section requires and the Loan Parties fail to pay Claims for sales and use
taxes and payroll withholding taxes in accordance with the terms of such
Section in an aggregate amount in excess of $500,000), Section 5.5, Section
5.11, Section 5.15, Section 5.16 or Section 6, including any of the provisions
set forth in Annex B or Annex E.

               (c) Any Loan Party shall fail or neglect to perform, keep or observe any
term or provision of this Agreement (other than any such term or provision
referred to in paragraph (a) or (b) above) or of any of the other Loan
Documents, and the same shall remain unremedied for a period ending on the
first to occur of twenty (20) days after Borrower shall receive written notice
of any such failure from Agent or any Lender or twenty (20) days after any Loan
Party shall become aware thereof.

               (d) A default shall occur under any other agreement, document or
instrument to which any Loan Party is a party or by which any such Loan Party
or its property is bound, and such default (i) involves the failure to make any
payment (after expiration of any applicable grace period), whether of
principal, interest or otherwise, due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) in respect of any Indebtedness
of such Loan Party in an aggregate amount exceeding $500,000 (or $5,000,000
after consummation of the Merger) or (ii) causes (or permits any holder of such
Indebtedness or a trustee to cause) such Indebtedness, or a portion thereof in
an aggregate amount exceeding $500,000 (or $5,000,000 after consummation of the
Merger), to become due prior to its stated maturity or prior to its regularly
scheduled dates of payment.

               (e) Any information contained in any Borrowing Base Certificate is untrue
or incorrect in any respect, or any representation or warranty herein or in any
Loan Document or in any written statement, report, financial statement or
certificate (other than a Borrowing Base Certificate) made or delivered to
Agent or any Lender by any Loan Party is untrue or incorrect in any material
respect as of the date when made or deemed made (including those made or deemed
made pursuant to Section 2.2).

               (f) Any of the assets of any Loan Party having a value of greater than
$250,000 (or $2,500,000 after consummation of the Merger), in the aggregate
shall be attached, seized, levied upon or subjected to a writ or distress
warrant, or come within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors of such Loan Party and shall remain
unstayed or undismissed for thirty (30) consecutive days; or any Person other
than a Loan Party shall apply for the appointment of a receiver, trustee or
custodian for any Loan Party’s assets and shall remain unstayed or undismissed
for thirty (30) consecutive days; or any Loan Party shall have concealed,
removed or permitted to be concealed or removed, any part of its property, with
intent to hinder, delay or defraud its creditors or any of them or made or
suffered a transfer of any of its property or the incurring of an obligation
which may be fraudulent under any bankruptcy, fraudulent conveyance or other
similar law.

               (g) A case or proceeding shall have been commenced against any Loan Party
in a court having competent jurisdiction seeking a decree or order (i) under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other applicable federal, state or

47

 

foreign bankruptcy or other similar law, (ii) appointing a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official)
of such Loan Party or of any substantial part of its properties, or (iii)
ordering the winding up or liquidation of the affairs of such Loan Party and
such case or proceeding shall remain undismissed or unstayed for thirty (30)
consecutive days or such court shall enter a decree or order granting the
relief sought in such case or proceeding.

               (h) Any Loan Party shall (i) file a petition seeking relief under Title 11
of the United States Code, as now constituted or hereafter amended, or any
other applicable federal, state or foreign bankruptcy or other similar law,
(ii) consent to the institution of proceedings thereunder or to the filing of
any such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official)
of such Loan Party or of any substantial part of such Loan Party’s properties,
(iii) fail generally to pay its debts as such debts become due, or (iv) take
any corporate action in furtherance of any such action.

               (i) Final judgment or judgments (after the expiration of all times to
appeal therefrom) for the payment of money in excess of $250,000 (or $2,500,000
after consummation of the Merger) in the aggregate, shall be rendered against
any Loan Party, unless the same shall be vacated, stayed, bonded, paid or
discharged within a period of twenty (20) days from the date of such judgment.

               (j) Any material provision of any Loan Document shall for any reason cease
to be valid, binding and enforceable in accordance with its terms or any Loan
Party or other Person shall so state in writing; or any Lien created under any
Collateral Document shall cease to be a valid and perfected Lien on any
Collateral having the priority in such Collateral contemplated hereby.

               (k) There shall occur a Change of Control.

               (l) There shall occur any default or event of default under any
Convertible Note Document.

               (m) An event or condition specified in Section 6.9 hereof shall occur or
exist with respect to any Plan or Multiemployer Plan and, as a result of such
event or condition, together with all other such events or conditions,
Borrower, any Subsidiary thereof or any ERISA Affiliate shall incur or in the
opinion of Required Lenders shall be reasonably likely to incur a liability to
a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) in
excess of $250,000 (or $1,000,000 after consummation of the Merger) in the
aggregate.

          8.2 Remedies. If any Event of Default shall have occurred and be
continuing, the rate of interest applicable to the Revolving Credit Loan and
the other Obligations and the rate used in the calculation of Letter of Credit
Fees may, in the Required Lenders’ discretion, by giving notice to Borrower of
their intention to do so, be increased as of the date of such notice as
provided in Section 1.4(c). If any Event of Default shall have occurred and be
continuing Agent shall upon request of Required Lenders, or may with the
consent of Required Lenders, without notice, take any one or more of the
following actions: (a) terminate the Aggregate Revolving Credit Commitment
whereupon Lenders’ obligation to make further Revolving Credit Advances

48

 

and to incur additional Letter of Credit Obligations shall terminate; or
(b) require that all Letter of Credit Obligations be satisfied as provided in
paragraph (c) of Annex F and declare all or any portion of the Obligations to
be forthwith due and payable whereupon such Obligations shall become and be due
and payable; or (c) exercise any rights and remedies provided to Agent or
Lenders under the Loan Documents and/or at law or equity, including all
remedies provided under the Code; provided, however, that upon the occurrence
of an Event of Default specified in Section 8.1 (g) or (h), the Aggregate
Revolving Credit Commitment shall immediately terminate, the Obligations shall
become immediately due and payable, all Letter of Credit Obligations shall be
fully satisfied as provided in paragraph (c) of Annex F, and the rate of
interest applicable to all Obligations and the rate used in the calculation of
Letter of Credit Fees shall be increased as provided in Section 1.4(c), in each
case, automatically without declaration, notice or demand by any Person.

          8.3 Waivers by Borrower. Except as otherwise provided for in this
Agreement and applicable law to the full extent permitted by applicable law
Borrower waives (a) presentment, demand and protest and notice of presentment,
dishonor, notice of intent to accelerate, notice of acceleration, protest,
default, nonpayment, maturity, release, compromise, settlement, extension or
renewal of any or all Loan Documents, notes, commercial paper, accounts,
contract rights, documents, instruments, chattel paper and guaranties at any
time held by Agent or any Lender on which Borrower may in any way be liable,
and Borrower hereby ratifies and confirms whatever Agent or any Lender may do
in this regard, (b) all rights to notice and a hearing prior to Agent’s or
Lenders’ taking possession or control of, or to Agent’s or Lenders’ replevy,
attachment or levy upon, the Collateral or any bond or security which might be
required by any court prior to allowing Agent or Lenders to exercise any of
their remedies, and (c) the benefit of any right of redemption and all
valuation, appraisal and exemption laws. Borrower acknowledges that it has
been advised by counsel of its choice with respect to this Agreement, the other
Loan Documents and the transactions contemplated by this Agreement and the
other Loan Documents.

     9. AGENT

          9.1 Appointment, Powers and Immunities. Each Lender hereby irrevocably
appoints and authorizes GE Capital to act as its agent hereunder and under the
other Loan Documents with such powers as are specifically delegated to Agent by
the terms of this Agreement and of the other Loan Documents, together with such
other powers as are reasonably incidental thereto. Agent (which term as used
in this sentence and in Section 9.5 and the first sentence of Section 9.6
hereof shall include reference to its affiliates (including GECMG) and its own
and its affiliates’ officers, directors, employees and agents): (a) shall have
no duties or responsibilities except those expressly set forth in this
Agreement and in the other Loan Documents, and shall not by reason of this
Agreement or any other Loan Document be a trustee or fiduciary for any Lender;
(b) shall not be responsible to Lenders for any Recitals, statements,
representations or warranties contained in this Agreement or in any other Loan
Document, or in any certificate or other document referred to or provided for
in, or received by any of them under, this Agreement or any other Loan
Document, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
any other document referred to or provided for herein or therein or for any
failure by any Loan Party or any other Person to perform any of its obligations
hereunder or thereunder; and (c) shall not
be responsible to Lenders for any action taken or omitted to be taken by
it hereunder or under any other Loan

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Document or under any other document or
instrument referred to or provided for herein or therein or in connection
herewith or therewith, except for its own gross negligence or willful
misconduct as determined by a final judgment of a court of competent
jurisdiction. Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. Agent may deem and treat the
payee of any Revolving Credit Note as the holder thereof for all purposes
hereof unless and until a notice of the assignment or transfer thereof shall
have been filed with Agent.

          9.2 Reliance by Agent. Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telecopy, telex, telegram or cable) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by Agent. As to any matters not
expressly provided for by this Agreement or any other Loan Document, Agent
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder or thereunder in accordance with instructions given by Required
Lenders or all of Lenders as is required in such circumstance, and such
instructions of such Lenders and any action taken or failure to act pursuant
thereto shall be binding on all Lenders.

          9.3 Defaults. Agent shall not be deemed to have knowledge or notice of
the occurrence of a Default (other than the non-payment of principal of or
interest on Revolving Credit Advances or of Fees) unless Agent has received
notice from a Lender or Borrower specifying such Default and stating that such
notice is a “Notice of Default”. In the event that Agent receives such a
notice of the occurrence of a Default, Agent shall give prompt notice thereof
to Lenders (and shall give each Lender prompt notice of each such non-payment).
Agent shall (subject to Section 9.7) take such action with respect to such
Default as shall be directed by Required Lenders or, provided that, unless and
until Agent shall have received such directions, Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default as it shall deem advisable in the best interest of
Lenders except to the extent that this Agreement expressly requires that such
action be taken, or not be taken, only with the consent or upon the
authorization of Required Lenders or all Lenders as is required in such
circumstance.

          9.4 Rights as a Lender. With respect to its Revolving Credit Commitment
and the Revolving Credit Advances made by it, GE Capital (and any successor
acting as Agent) in the event it shall become a Lender hereunder shall have the
same rights and powers hereunder as any other Lender and may exercise the same
as though it were not acting as Agent, and the term “Lender” or “Lenders”
shall, unless the context otherwise indicates, include Agent in its individual
capacity. GE Capital (and any successor acting as Agent) and its affiliates
may (without having to account therefor to any Lender) lend money to, make
investments in and generally engage in any kind of business with the Loan
Parties (and any of their Subsidiaries or Affiliates) as if it were not acting
as Agent, and GE Capital and its affiliates may accept fees and other
consideration from the Loan Parties for services in connection with this
Agreement or otherwise without having to account for the same to Lenders.

          9.5 Indemnification. Lenders agree to indemnify Agent (to the extent not
reimbursed by Borrower hereunder and without limiting the obligations of
Borrower hereunder) ratably in

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accordance with their Proportionate Shares, for
any and all Claims of any kind and nature whatsoever that may be imposed on,
incurred by or asserted against Agent (including by any Lender) arising out of
or by reason of any investigation in or in any way relating to or arising out
of this Agreement or any other Loan Document or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including the costs and expenses that Borrower
is obligated to pay hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, provided that no Lender shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
willful misconduct of the party to be indemnified as determined by a final
judgment of a court of competent jurisdiction.

          9.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it
has, independently and without reliance on Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis of the Loan Parties and decision to enter into this Agreement
and that it will, independently and without reliance upon Agent or any other
Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. Agent shall not be required to keep itself informed as to the
performance or observance by any Loan Party of this Agreement or any of the
other Loan Documents or any other document referred to or provided for herein
or therein or to inspect the properties or books of any Loan Party. Agent will
use reasonable efforts to provide Lenders with any information received by
Agent from Borrower which is required to be provided to Lenders hereunder, with
any notice of a Default received by Agent from Borrower and with any notice of
a Default delivered by Agent to Borrower; provided, however, that Agent shall
not be liable to any Lender for any failure to do so, except to the extent that
such failure is attributable to Agent’s gross negligence or willful misconduct
as determined by a final judgment of a court of competent jurisdiction. Except
for notices, reports and other documents expressly required to be furnished to
the Lenders by the Agent hereunder, Agent shall not have any duty or
responsibility to provide any Lender with any other credit or other information
concerning the affairs, financial condition or business of Borrower or any of
its Subsidiaries (or any of their affiliates) that may come into the possession
of Agent or any of its affiliates.

          9.7 Failure to Act. Except for action expressly required of Agent
hereunder and under the other Loan Documents, Agent shall in all cases be fully
justified in failing or refusing to act hereunder and thereunder unless it
shall receive further assurances to its satisfaction from Lenders of their
indemnification obligations under Section 9.5 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.

          9.8 Resignation of Agent. Subject to the appointment and acceptance of a
successor Agent as provided below, Agent may resign at any time by giving
notice thereof to Lenders and Borrower. Upon any such resignation Required
Lenders shall have the right to appoint a successor Agent and, so long as no
Default has occurred and is continuing, with the consent of Borrower, which
consent shall not be unreasonably withheld. If no successor Agent shall have
been so appointed by Required Lenders, so consented to by Borrower and shall
have
accepted such appointment within 30 days after the retiring Agent’s giving
of notice of resignation, then the retiring Agent may, on behalf of Lenders
and, so long as no Default has occurred and is continuing, with the consent of
Borrower (which consent shall not be unreasonably withheld or

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delayed), appoint
a successor Agent, that shall be a financial institution with a combined
capital and surplus or net worth of at least $500,000,000. Upon the acceptance
of any appointment as Agent hereunder by a successor Agent in accordance with
the terms hereof, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent’s resignation hereunder as
Agent, the provisions of this Section 9 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.

          9.9 Consents under Loan Documents. Except as otherwise provided in
Section 11.1 with respect to this Agreement, Agent may, with the prior consent
of Required Lenders (but not otherwise), consent to any modification,
supplement or waiver under any of the Loan Documents, provided that, without
the prior consent of each Lender, Agent shall not (except as provided herein or
in the Collateral Documents) release any Collateral or otherwise terminate any
Lien under any Collateral Document, or agree to additional obligations being
secured by such Collateral, except that no such consent shall be required, and
Agent is hereby authorized and instructed, to release any Lien covering
Collateral (i) which is the subject of a disposition permitted hereunder, (ii)
which is subject to a Lien permitted under Section 6.7 which secures
Indebtedness permitted under Section 6.3, (iii) to which Required Lenders have
consented (except as otherwise provided in Section 11.1) or (iv) the value of
which does not exceed $5,000,000 in any Fiscal Year.

          9.10 Collateral Matters.

               (a) Except as otherwise expressly provided for in this Agreement, Agent
shall have no obligation whatsoever to any Lender or any other Person to
investigate, confirm or assure that the Collateral exists or is owned by any
Loan Party (provided Agent agrees with Lenders to conduct at least one
collateral audit in each Fiscal Year) or is cared for, protected or insured or
has been encumbered, or that any particular items of Collateral meet the
eligibility criteria applicable in respect of the Borrowing Base, or whether
any particular reserves are appropriate, or that the Liens granted to Agent
herein or pursuant hereto have been properly or sufficiently or lawfully
created, perfected, protected or enforced or are entitled to any particular
priority, or to exercise at all or in any particular manner or under any duty
of care, disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Agent in this Agreement or in
any of the other Loan Documents, it being understood and agreed that in respect
of the Collateral, or any act, omission or event related thereto, Agent may act
in any manner it may deem appropriate, in its discretion, given Agent’s own
interest in the Collateral as a Lender and that Agent shall have no duty or
liability whatsoever to any other Lender, other than liability for its own
gross negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.

               (b) Each Lender hereby appoints each other Lender as agent for the purpose
of perfecting Lenders’ security interest in assets which, in accordance with
Article 9 of the Code can be perfected only by possession. Should any Lender
(other than Agent) obtain possession of
any such Collateral, such Lender shall notify Agent thereof and, promptly
upon Agent’s request therefor, shall deliver such Collateral to Agent or in
accordance with Agent’s instructions.

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          9.11 Co-Documentation Agents, Syndication Agent and Lead Arranger.
Notwithstanding anything else to the contrary in this Agreement or any other
Loan Document, Citizen’s Bank of Pennsylvania, in its capacity as
co-documentation agent, National City Business Credit, Inc., in its capacity as
co-documentation agent, Fleet Retail Group, Inc., in its capacity as
syndication agent, and GECMG, in its capacity as lead arranger, shall have no
duties or responsibilities under this Agreement or any other Loan Document nor
any fiduciary duty with any Lender, and no implied covenants, functions,
responsibilities, duties obligations or liabilities shall be read into this
Agreement or otherwise exist against such co-documentation agents, syndication
agent and lead arranger and in such capacities.

     10. SUCCESSORS AND ASSIGNS

          10.1 Successors and Assigns. This Agreement and the other Loan Documents
shall be binding on and shall inure to the benefit of Borrower, Agent, Lenders,
and their respective successors and assigns, except as otherwise provided
herein or therein. Borrower may not assign, delegate, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder or under
any of the Loan Documents without the prior express written consent of Agent
and all Lenders. Any such purported assignment, transfer, hypothecation or
other conveyance by Borrower without such prior express written consent shall
be void. The terms and provisions of this Agreement and the other Loan
Documents are for the purpose of defining the relative rights and obligations
of Borrower, Agent and Lenders with respect to the transactions contemplated
hereby and there shall be no third party beneficiaries of any of the terms and
provisions of this Agreement or any of the other Loan Documents.

          10.2 Assignments and Participations. (a) Any Lender may, in the ordinary
course of its commercial banking or finance business and in accordance with
applicable law, at any time sell to one or more banks or other financial
institutions (“Participants”) participating interests in all or a portion of
its rights and obligations under this Agreement or any other Loan Document
(including all or a part of its Revolving Credit Advances, its Letter of Credit
Obligations, its Revolving Credit Commitment and its Revolving Credit Note).
In the event of any such sale by a Lender of a participating interest to a
Participant, such Lender’s obligations under this Agreement to the other
parties to this Agreement shall remain unchanged, such Lender shall remain
solely responsible for the performance thereof, such Lender shall remain the
holder of any such obligations for all purposes under this Agreement and the
other Loan Documents, and Borrower and Agent shall continue to deal solely and
directly with such Lender in connection with such Lender’s rights and
obligations under this Agreement and the other Loan Documents. Borrower agrees
that if amounts outstanding under this Agreement are due or unpaid, or shall
have been declared or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall, to the maximum extent permitted by
applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, provided that, in purchasing such participating
interest, such Participant shall be deemed to have agreed to share with the
Lenders the proceeds thereof as provided in Section 1.12(b) as fully as if it
were a Lender hereunder. Borrower also
agrees that each Participant shall be entitled to the benefits of Sections
1.17, 1.19 and 1.20 with respect to its participation in the Revolving Credit
Commitments and the Revolving Credit Loan outstanding from time to time as if
it was a Lender; provided that, in the case of Section 1.17, such

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Participant shall have
complied with the requirements of said Section; and provided, further, that no
Participant shall be entitled to receive any greater amount pursuant to any
such Section than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor
Lender to such Participant had no such transfer occurred. Notwithstanding
anything to the contrary contained herein, no Lender shall grant any
participation under which the Participant shall have rights to approve any
amendment to or waiver of this Agreement or the other Loan Documents, except to
the extent such amendment or waiver would (i) extend the final maturity date
for payment of any of the Obligations in which such Participant is
participating; (ii) reduce the interest rate or the amount of principal or Fees
applicable to the Revolving Credit Advances in which such Participant is
participating; or (iii) release all or substantially all of the Collateral,
except as expressly provided herein. In those cases in which a Lender grants
rights to its Participants to approve any amendment to or waiver of this
Agreement or the other Loan Documents respecting the matters described in the
foregoing clauses (i) through (iii), the relevant participation agreements
shall provide for a voting mechanism whereby a majority of the amount of the
participating Lender’s portion of the Obligations (irrespective of whether held
by such Lender or such Participant) shall control the vote for all of such
Lender’s portion of the Revolving Credit Loan.

     (b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time assign to any Lender or any affiliate thereof or, with the consent of
Agent (which shall not be unreasonably withheld), to an additional bank or
financial institution (an “Assignee”) all or any part of its rights and
obligations under this Agreement and the other Loan Documents pursuant to an
Assignment and Acceptance, substantially in the form of Exhibit G, executed by
such Assignee, such assigning Lender (and, in the case of an Assignee that is
not then a Lender or an Affiliate thereof, by Agent) and delivered to Agent for
its acceptance and recording in the Register, provided that (i) in the case of
any such assignment to an additional bank or financial institution, any such
partial assignment shall be in multiples of at least $5,000,000; (ii) the
assigning Lender shall either have assigned all of its rights and obligations
under this Agreement or retained at least $5,000,000 of the Revolving Credit
Commitment; (iii) each such assignment shall be of a constant, and not a
varying, percentage of the assigning Lender’s rights and obligations under this
Agreement and the assignment shall cover the same percentage of the assigning
Lender’s Revolving Credit Advances, Revolving Credit Commitment and Letter of
Credit Obligations; (iv) the Assignee shall be a financial institution
(including a finance Subsidiary of a Person that is not a financial
institution) or an institutional investor including any insurance company,
pension fund or mutual fund which has an investment grade long term unsecured
debt rating; and (v) so long as no Default has occurred and is continuing, any
such assignment shall require the consent of Borrower, which shall not be
unreasonably withheld or delayed. Upon such execution, delivery, acceptance
and recording, from and after the effective date determined pursuant to such
Assignment and Acceptance, (A) the Assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder with a Revolving Credit Commitment as set
forth therein, and (B) the assigning Lender thereunder shall, to the extent
provided in such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of an assigning Lender’s rights and obligations under this Agreement, such
assigning Lender shall cease to be a party hereto).

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     (c) Agent, on behalf of the Borrower, shall maintain at the address of
Agent referred to in Section 11.9 a copy of each Assignment and Acceptance
delivered to it and a register (the “Register”) for the recordation of the
names and addresses of the Lenders and the Revolving Credit Commitments of, and
principal amounts of the Revolving Credit Advances owing to, each Lender from
time to time. The entries in the Register shall be conclusive, in the absence
of manifest error, and Borrower, Agent and the Lenders may treat each Person
whose name is recorded in the Register as the owner of a Revolving Credit
Advance or other Obligation hereunder as the owner thereof for all purposes of
this Agreement and the other Loan Documents, notwithstanding any notice to the
contrary. The Register shall be available for inspection by Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.

     (d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by Agent) together with payment to Agent
of a registration and processing fee of $3,500, Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give notice of such acceptance and recordation to the Lenders and Borrower. On
or prior to such effective date, Borrower, at its own expense, shall execute
and deliver to Agent (in exchange for the Revolving Credit Note of the
assigning Lender) a new Revolving Credit Note to the order of such Assignee in
an amount equal to the Revolving Credit Commitment assumed by it pursuant to
such Assignment and Acceptance and, if the assigning Lender has retained a
Revolving Credit Commitment hereunder, a new Revolving Credit Note to the order
of the assigning Lender in an amount equal to the Revolving Credit Commitment
retained by it hereunder. Such new Revolving Credit Notes shall be dated the
Closing Date and shall otherwise be in the form of the Revolving Credit Note
replaced thereby. The Revolving Credit Notes surrendered to Agent shall be
returned by Agent to Borrower marked “cancelled”.

     (e) For avoidance of doubt, the parties to this Agreement acknowledge that
the provisions of this Section concerning assignments of Revolving Credit
Advances and Revolving Credit Notes relate only to absolute assignments and
that such provisions do not prohibit assignments creating security interests,
including any pledge or assignment by a Lender of any Revolving Credit Advance
or Revolving Credit Note to any Federal Reserve Bank in accordance with
applicable law.

     (f) Except as otherwise provided in this Section 10.2 no Lender shall, as
between Borrower and that Lender, be relieved of any of its obligations
hereunder as a result of any sale, assignment, transfer or negotiation of, or
granting of participation in, all or any part of Revolving Credit Advances or
other Obligations owed to such Lender. Any Lender permitted to sell
assignments and participations under this Section 10.2 may furnish any
information concerning Borrower and its Subsidiaries and Affiliates in the
possession of that Lender from
time to time to Assignees and Participants (including, subject to Section
10.2(g), prospective Assignees and Participants).

     (g) Borrower shall assist any Lender permitted to sell assignments or
participations under this Section 10.2 in whatever manner reasonably necessary
in order to enable or effect any such assignment or participation, including
(but not limited to) the execution

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and delivery of any and all agreements,
notes and other documents and instruments as shall be requested and the
delivery of informational materials, appraisals or other documents for, and the
participation of relevant management in meetings and conference calls with,
potential Assignees or Participants. Borrower shall certify the correctness,
completeness and accuracy of all descriptions of Borrower and its affairs
provided, prepared or reviewed by Borrower that are contained in any selling
materials and all other information provided by it and included in such
materials. No information shall be provided to any potential Assignee or
Participant unless such potential Assignee or Participant has agreed in writing
to use reasonable good faith efforts to maintain such information as
confidential on the same basis as such Person maintains its own proprietary
information which it desires not to disseminate.

     11. MISCELLANEOUS

     11.1 Complete Agreement; Modification of Agreement. This Agreement and
the other Loan Documents constitute the complete agreement between the parties
with respect to the subject matter hereof and thereof and supersede all prior
agreements, commitments, understandings or inducements (oral or written,
expressed or implied). Neither this Agreement nor any other Loan Document nor
any terms hereof or thereof may be changed, waived, discharged or terminated
unless such change, waiver, discharge or termination is in writing signed by
Required Lenders; provided that no such change, waiver, discharge or
termination shall, without the consent of each affected Lender and Agent, (a)
extend the Commitment Termination Date, or reduce the rate or extend the time
of payment of interest (other than as a result of waiving the applicability of
any post-default increase in interest rates) thereon or fees or reduce the
principal amount thereof, or increase the Revolving Credit Commitment of such
Lender over the amount thereof then in effect (it being understood that a
waiver of any Default shall not constitute a change in the terms of any
Revolving Credit Commitment of any Lender), (b) release all or substantially
all of the Collateral (except as expressly permitted by the Loan Documents),
(c) amend, modify or waive any provision of this Section 11.1, or Section 1.9,
1.12 or 9.5, (d) reduce any percentage specified in, or otherwise modify, the
definition of Required Lenders, (e) consent to the assignment or transfer by
Borrower of any of its rights and obligations under this Agreement, (f)
increase the advance rate above those for Eligible Inventory set forth in the
definition of Borrowing Base (other than the increases specifically provided
for in such definition) or that make less restrictive the nondiscretionary
criteria for exclusion set forth in the definition of Eligible Inventory, or
(g) increase the amount of the Maximum Overadvance. No provision of Section 9
may be amended without the prior written consent of Agent. For avoidance of
doubt, it is understood and agreed that no Lender will be required to
participate in a debtor-in-possession financing without such Lender’s consent.
The foregoing is in no way meant to limit any Lender’s obligation to make
extensions of credit to Borrower (or its debtor-in-possession successor)
pursuant to a cash collateral order or stipulation to the extent otherwise
required by the terms of this Agreement.

     11.2 Fees and Expenses.

     (a) Borrower shall pay on demand all out-of-pocket costs and expenses
(including reasonable fees and expenses of counsel) of Agent in connection with
the preparation, negotiation, approval, execution, delivery, administration,
modification, amendment, waiver and enforcement (whether through negotiations,
legal proceedings or otherwise) of the Loan

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Documents, and commitments relating
thereto, and the other documents to be delivered hereunder or thereunder and
the transactions contemplated hereby and thereby and the fulfillment or
attempted fulfillment of conditions precedent hereunder, including: (i) any
amendment, modification or waiver of, or consent with respect to, any of the
Loan Documents or advice in connection with the administration of the advances
made pursuant hereto or its rights hereunder or thereunder; (ii) any
litigation, arbitration, contest, dispute, suit, proceeding or action (whether
instituted by Agent, any Lender, Borrower or any other Person) in any way
relating to the Collateral, any of the Loan Documents or any other agreements
to be executed or delivered in connection therewith or herewith, whether as
party, witness, or otherwise, including any litigation, arbitration, contest,
dispute, suit, case, proceeding or action, and any appeal or review thereof, in
connection with a case commenced (A) in good faith by or against Borrower or
any other Person that may be obligated to Agent and Lenders by virtue of the
Loan Documents, or (B) under title 7 or 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable Federal, state or
foreign bankruptcy or similar insolvency law, provided, that Borrower shall not
be required to pay any out-of-pocket costs and expenses of Agent in any
litigation, contest, dispute, suit, proceeding or action resulting solely from
Agent’s gross negligence or willful misconduct as determined by a final
judgment of a court of competent jurisdiction; (iii) any attempt to enforce any
rights of Agent or Lenders against any Loan Party or any other Person that may
be obligated to Agent or Lenders by virtue of any of the Loan Documents; (iv)
any Default; or (v) subject to Section 5.15, any effort to (A) monitor the
Revolving Credit Loan and the Loan Documents, (B) evaluate, observe, assess
Borrower or its affairs, or (C) verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of the Collateral.

     (b) In addition, Borrower shall pay on demand all out-of-pocket costs and
expenses (including reasonable fees and expenses of counsel) of Agent and each
Lender in connection with any Event of Default and any enforcement or
collection proceedings resulting therefrom or any amendment, modification or
waiver of, or consent with respect to, any of the Loan Documents in connection
with any Event of Default; provided that fees and expenses of counsel for
Lenders shall be limited to counsel for all Lenders as a class and not separate
counsel for each Lender.

     (c) Without limiting the generality of clauses (a) and (b) above (but
subject to the proviso to clause (b) above), Borrower’s obligation to reimburse
Agent and/or any Lender for out-of-pocket costs and expenses shall include the
reasonable fees and expenses of counsel (and local, foreign or special counsel,
advisors, consultants and auditors retained by such counsel), as well as the
reasonable fees and expenses of accountants, environmental advisors,
appraisers, investment bankers, management and other consultants and
paralegals; court costs and expenses; photocopying and duplicating expenses;
court reporter fees, costs and expenses; long distance telephone charges; air
express charges; telegram charges; secretarial overtime charges; expenses for
travel, lodging and food; and all other reasonable out-of-pocket costs and
expenses of every
type and nature paid or incurred in connection with the performance of
such legal or other advisory services (including field examination fee’s of
$800 per Person per diem plus actual out-of-pocket expenses with respect to GE
Capital personnel).

     11.3 No Waiver. No failure on the part of Agent or Lenders, at any time
or times, to require strict performance by any Loan Party, of any provision of
this Agreement and any of the

57

 

other Loan Documents shall waive, affect or
diminish any right of Agent or Lenders thereafter to demand strict compliance
and performance therewith. Any suspension or waiver of a Default shall not
suspend, waive or affect any other Default whether the same is prior or
subsequent thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and representations of any Loan
Party contained in this Agreement or any of the other Loan Documents and no
Default by any Loan Party shall be deemed to have been suspended or waived by
Lenders, unless such waiver or suspension is by an instrument in writing signed
by an officer of or other authorized employee of Agent and Required Lenders or
all of Lenders if required hereunder and directed to Borrower specifying such
suspension or waiver.

     11.4 Remedies. The rights and remedies of Agent and Lenders under this
Agreement shall be cumulative and nonexclusive of any other rights and remedies
which Agent or any Lender may have under any other agreement, including the
Loan Documents, by operation of law or otherwise. Recourse to the Collateral
shall not be required.

     11.5 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

     11.6 Conflict of Terms. Except as otherwise provided in this Agreement or
any of the other Loan Documents by specific reference to the applicable
provisions of this Agreement, if any provision contained in this Agreement is
in conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provisions contained in this Agreement shall govern and control.

     11.7 Right of Setoff. Subject to Section 1.1(g), upon the occurrence and
during the continuance of any Event of Default, each Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted
by law, to setoff and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender to or for the credit or the account of Borrower
against any and all of the Obligations now or hereafter existing irrespective
of whether or not such Lender shall have made any demand under this Agreement
or any other Loan Document and although such Obligations may be unmatured.
Each Lender agrees promptly to notify Agent and Borrower after any such setoff
and application made by such Lender; provided, however, that the failure to
give such notice shall not affect the validity of such setoff and application.
The rights of each Lender under this Section are in addition to the other
rights and remedies (including other rights of setoff) which such Lender may
have.

     11.8 Authorized Signature. Until Agent shall be notified by Borrower to
the contrary, the signature upon any document or instrument delivered pursuant
hereto and reasonably believed by Agent or any of Agent’s officers, agents, or
employees to be that of an officer or duly authorized representative of
Borrower listed in Schedule 11.8 shall bind Borrower and be deemed to be the
act of Borrower affixed pursuant to and in accordance with resolutions duly
adopted by Borrower’s Board of Directors, and Agent and each Lender shall be
entitled to assume the authority of each signature and authority of the Person
whose signature it is or

58

 

reasonably appears to be unless the Person acting in
reliance on such signature shall have actual knowledge of the fact that such
signature is false or the Person whose signature or purported signature is
presented is without authority.

     11.9 Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon
either of the parties by the other party, or whenever either of the parties
desires to give or serve upon the other party any communication with respect to
this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be deemed to
have been validly served, given or delivered (a) upon the earlier of actual
receipt and three (3) days after deposit in the United States Mail, registered
or certified mail, return receipt requested, with proper postage prepaid, (b)
upon transmission, when sent by telecopy or other similar facsimile
transmission (with such telecopy or facsimile promptly confirmed by delivery of
a copy by personal delivery or United States Mail as otherwise provided in this
Section 11.9, (c) one Business Day after deposit with a reputable overnight
courier with all charges prepaid or (d) when delivered, if hand-delivered by
messenger, all of which shall be addressed to the party to be notified and sent
to the address or facsimile number indicated below (or with respect to Lenders
as indicated on Appendix I hereto) or to such other address (or facsimile
number) as may be substituted by notice given as herein provided. The giving
of any notice required hereunder may be waived in writing by the party entitled
to receive such notice. Failure or delay in delivering copies of any notice,
demand, request, consent, approval, declaration or other communication to any
Person (other than Borrower, Agent or any Lender) designated below to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.

	(e)	 	If to Agent, as a Lender or as Agent, at:

	 	 	 
	

	 	General Electric Capital
Corporation

201 Merritt 7

Norwalk, Connecticut 06856

Attention: Dick’s Sporting
Goods
                  Account
Manager – Commercial Finance

Telecopy No.: (203) 956-4002

	

	 	With copies to:

General Electric Capital Corporation

201 Merritt 7

Norwalk, Connecticut 06856

Attention: Commercial Finance- Legal Department

Telecopy No.: (203) 956-4001

	 

	 	and

	 
	 	 
	

	 	Paul, Hastings, Janofsky & Walker LLP

59

 

	 	 	 
	

	 	1055 Washington Boulevard- 10th Floor
	

	 	Stamford, Connecticut 06901
	

	 	Attention: Christopher H. Craig, Esq.
	

	 	Telecopy No.: (203) 359-3031

	(b)	 	If to Borrower, at:

	 	 	 
	

	 	Dick’s Sporting Goods, Inc.
	

	 	300 Industry Drive
	

	 	RIDC Park West
	

	 	Pittsburgh, Pennsylvania 15275
	

	 	Attention: Michael F. Hines
	

	 	Chief Financial Officer
	

	 	Telecopy No.: (724) 227-1918
	 
	 	 
	

	 	With a copy to:
	 
	 	 
	

	 	Buchanan Ingersoll, PC
	

	 	One Oxford Centre
	

	 	301 Grant Street
	

	 	Pittsburgh, PA 15219
	

	 	Attention: Jeremiah G. Garvey, Esq.
and Paula A. 
Zawadzki, Esq.
	

	 	Telecopy No.: (412) 562-8811

     11.10 Section Titles. The Section titles and Table of Contents contained
in this Agreement are and shall be without substantive meaning or content of
any kind whatsoever and are not a part of this Agreement.

     11.11 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which shall, collectively and separately,
constitute one agreement.

     11.12 Time of the Essence. Time is of the essence of this Agreement and
each of the other Loan Documents.

     11.13 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE
LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK, APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH
STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. BORROWER
HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN

60

 

NEW YORK
CITY SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO
ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS, PROVIDED, THAT AGENT, LENDERS AND BORROWER ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
NEW YORK CITY AND, PROVIDED, FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO PRECLUDE AGENT OR ANY LENDER FROM BRINGING SUIT OR TAKING
OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO
REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT OR ANY LENDER.
BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY
OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. BORROWER HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION
OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS
MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE
ADDRESS SET FORTH IN SECTION 11.9 OF THIS AGREEMENT AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER’S ACTUAL RECEIPT THEREOF
OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID AND
RETURN RECEIPT REQUESTED. THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT SHALL BE
DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL,
PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW 5-1401, FOR ALL PURPOSES BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK.

     11.14 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO, THIS AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

     11.15 Publicity. Borrower will not, and will not permit any of its
Affiliates to, disclose the name of Agent or any Lender or any of their
respective Affiliates or refer to this Agreement or the other Loan Documents in
any press release or other public disclosure or in any prospectus,

61

 

Proxy statement or other materials filed with any Governmental Authority (including
the Securities and Exchange Commission (the “SEC”)) without Agent’s or such
Lender’s prior written consent unless Borrower or any of its Affiliates is
required to do so under applicable (including the rules and regulations of the
SEC and any applicable exchange or quotation system), and then, in any event,
Borrower or such Affiliate will consult with Agent or such Lender prior to such
disclosure, provided however, that no such consultation nor consent shall be
required where (i) any Loan Party files any Loan Document as an exhibit to any
SEC or other applicable exchange filing and/or (ii) any Loan Party makes
reference or refers to a Loan Document and/or any term or provision of a Loan
Document in any SEC or applicable exchange filing without making reference to
the actual name of Agent or any Lender (including any disclosure required by a
Loan Party’s financial statements, such party’s management discussion and
analysis or any description of indebtedness or contractual obligations).
Borrower and each Lender consent to Agent publishing a tombstone or similar
advertising material relating to the financing transaction contemplated by this
Agreement. Agent and each Lender consent to Borrower’s orally disclosing to
its vendors, landlords and prospective landlords the name of Agent and each
Lender, the amount of the Aggregate Revolving Credit Commitment and the
Commitment Termination Date. Any written materials of any type disclosing any
information of the type referred to herein, other than as set forth above,
shall require the written approval of Agent prior to being disseminated to any
Person.

     11.16 Confidentiality. Agent and each Lender agree to use commercially
reasonable efforts (equivalent to the efforts Agent or such Lender applies to
maintaining the confidentiality of its own confidential information) to
maintain as confidential all confidential information provided to them by the
Loan Parties and designated as confidential for a period of 2 years following
receipt thereof, except that Agent and any Lender may disclose such information
(a) to Persons employed or engaged by Agent or such Lender; (b) to any bona
fide assignee or participant or potential assignee or participant that has
agreed to comply with the covenant contained in this Section 11.16 (and any
such bona fide assignee or participant or potential assignee or participant may
disclose such information to Persons employed or engaged by them as described
in clause (a) above); (c) as required or requested by any Governmental
Authority or reasonably believed by Agent or such Lender to be compelled by any
court decree, subpoena or legal or administrative order or process; (d) as, on
the advice of Agent’s or such Lender’s counsel, is required by law, including,
without limitation, in connection with the exercise of any right or remedy
under the Loan Documents or in connection with any litigation to which Agent or
such Lender is a party; or (f) that ceases to be confidential through no fault
of Agent or any Lender.

     11.17 Dating. Although this Agreement is dated as of the date first
written above for convenience, the actual dates of execution hereof by the
parties hereto are respectively the dates set forth under the signatures
hereto, and this Agreement shall be effective on the latest of such dates.

     11.18 Subordination.

     (a) Each Loan Party executing this Agreement covenants and agrees that the
payment of all indebtedness, principal, interest (including interest which
accrues after the commencement of any case or proceeding in bankruptcy, or for
the reorganization of any Loan

62

 

Party), fees, charges, expenses, attorneys’ fees
and any other sum, obligation or liability owing by any other Loan Party to
such Loan Party, including any intercompany trade payables or royalty or
licensing fees (collectively, the “Intercompany Obligations”), is subordinated,
to the extent and in the manner provided in this Section 11.18, to the prior
payment in full of all Obligations (herein, the “Senior Obligations”) and that
the subordination is for the benefit of the Agent and Lenders, and Agent may
enforce such provisions directly.

     (b) Each Loan Party executing this Agreement hereby (i) authorizes Agent
to demand specific performance of the terms of this Section 11.18, whether or
not any other Loan Party shall have complied with any of the provisions hereof
applicable to it, at any time when such Loan Party shall have failed to comply
with any provisions of this Section 11.18 which are applicable to it and (ii)
irrevocably waives any defense based on the adequacy of a remedy at law, which
might be asserted as a bar to such remedy of specific performance.

     (c) Upon any distribution of assets of any Loan Party in any dissolution,
winding up, liquidation or reorganization (whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors or
otherwise):

        (i) The Agent and Lenders shall first be entitled to receive payment
in full in cash of the Senior Obligations before any Loan Party is
entitled to receive any payment on account of the Intercompany
Obligations.

        (ii) Any payment or distribution of assets of any Loan Party of any
kind or character, whether in cash, property or securities, to which any
other Loan Party would be entitled except for the provisions of this
Section 11.18(c), shall be paid by the liquidating trustee or agent or
other Person making such payment or distribution directly to the Agent,
to the extent necessary to make payment in full of all Senior Obligations
remaining unpaid after giving effect to any concurrent payment or
distribution or provisions therefore to the Agent and Lenders.

        (iii) In the event that notwithstanding the foregoing provisions of
this Section 11.18(c), any payment or distribution of assets of any Loan
Party of any kind or character, whether in cash, property or securities,
shall be received by any other Loan Party on account of the Intercompany
Obligations before all Senior Obligations are paid in full, such payment
or distribution shall be received and held in trust for and shall be paid
over to the Agent for application to the payment of the Senior
Obligations until all of
the Senior Obligations shall have been paid in full, after giving
effect to any concurrent payment or distribution or provision therefore
to the Agent and Lenders.

     (d) No right of the Agent and Lenders or any other present or future
holders of any Senior Obligations to enforce the subordination provisions
herein shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of any Loan Party or by any act or failure to act,
in good faith, by any such holder, or by any noncompliance by any Loan Party
with the terms hereof, regardless of any knowledge thereof which any such
holder may have or be otherwise charged with.

63

 

     IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.

	 	 	 	 	 
	 	BORROWER

DICK’S SPORTING GOODS, INC.

 	 
	 	By:  	/s/ Jeffrey R. Hennion	 
	 	 	Name:  	Jeffrey R. Hennion	 
	 	 	Title:  	Senior Vice President	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	AGENT

GENERAL ELECTRIC CAPITAL CORPORATION, as Agent

 	 
	 	By:  	/s/ Charles Chiodo	 
	 	 	Name:  	Charles Chiodo	 
	 	 	Title:  	Duly Authorized Signatory 	 
	 

	 	 	 	 	 
	 	LENDERS

GENERAL ELECTRIC CAPITAL CORPORATION

 	 
	 	By:  	/s/ Charles Chiodo	 
	 	 	Name:  	Charles Chiodo	 
	 	 	Title:  	Duly Authorized Signatory 	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	PNC BANK, NATIONAL ASSOCIATION

 	 
	 	By:  	/s/ Stephen W. Boyd	 
	 	 	Name:  	Stephen W. Boyd	 
	 	 	Title:  	Vice President	 
	 

 

 

	 	 	 	 	 
	 	FLEET RETAIL GROUP, INC.

 	 
	 	By:  	/s/ James R. Dore	 
	 	 	Name:  	James R. Dore	 
	 	 	Title:  	Managing Director	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	NATIONAL CITY BUSINESS CREDIT, INC.

 	 
	 
	 	By:  	/s/ Gregory A. Steve	 
	 	 	Name:  	Gregory A. Steve	 
	 	 	Title:  	Managing Director	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	WACHOVIA BANK, NATIONAL ASSOCIATION

 	 
	 	By:  	/s/ Anthony D. Braxton	 
	 	 	Name:  	Anthony D. Braxton	 
	 	 	Title:  	Director	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	CITIZEN’S BANK OF PENNSYLVANIA

 	 
	 	By:  	/s/ Robert G. Beer	 
	 	 	Name:  	Robert G. Beer	 
	 	 	Title:  	Vice President	 

 

 

	 	 	 	 	 

	 	 	 	 	 
	 	JPMORGAN CHASE BANK

 	 
	 	By:  	/s/ James L. Sloan	 
	 	 	Name:  	James L. Sloan	 
	 	 	Title:  	Vice President	 

 

 

	 	 	 	 	 

The following Persons are signatories to this Agreement in their capacity as
Loan Parties and not as Borrower.

	 	 	 	 	 
	 	LOAN PARTIES

DIAMONDBACKS ACQUISITION INC.

 	 
	 	By:  	/s/ Michael F. Hines	 
	 	 	Name:  	Michael F. Hines	 
	 	 	Title:  	Secretary	 
	 

	 	 	 	 	 
	 	AMERICAN SPORTS LICENSING, INC.

 	 
	 	By:  	/s/ Jeffrey R. Hennion	 
	 	 	Name:  	Jeffrey R. Hennion	 
	 	 	Title:  	Treasurer	 
	 

	 	 	 	 	 
	 	DSG OF VIRGINIA, LLC

 	 
	 	By:  	/s/ Lee J. Belitsky	 
	 	 	Name:  	Lee J. Belitsky	 
	 	 	Title:  	Secretary	 
	 

 

 

APPENDIX 1

APPENDIX 1

Revolving Credit Commitments

and Lender Information

	 	 	 	 	 	 	 	 	 
	 	 	Revolving Credit	 	Proportionate Share of
	Lender
	 	Commitment
	 	Commitment

	GENERAL ELECTRIC CAPITAL CORPORATION
	 	$	85,000,000	 	 	 	24.28	%
	201 Merritt 7

Norwalk, CT 06856

Attn: Dick’s Sporting

Goods Account Manager

Telephone: (203) 956-4602

Telecopy: (203) 956-4002
	 	 	 	 	 	 	 	 
	FLEET RETAIL GROUP, INC.
	 	$	65,000,000	 	 	 	18.57	%
	40 Broad Street, 10th Floor

Boston, MA 02109

Attn: James Dore

Telephone: (617) 434-4184

Telecopy: (617) 434-4312
	 	 	 	 	 	 	 	 
	CITIZEN’S BANK OF PENNSYLVANIA
	 	$	45,000,000	 	 	 	12.86	%
	Six PPG Place

Suite 820

Pittsburgh, PA 15222

Attn: Don Cmar

Telephone: (412) 391-3333

Telecopy: (412) 391-2580
	 	 	 	 	 	 	 	 
	NATIONAL CITY BUSINESS CREDIT, INC.
	 	$	45,000,000	 	 	 	12.86	%
	1965 East Sixth Street

Cleveland, OH 44114

Attn: Kathyrn Elero

Telephone: (216) 222-3261

Telecopy: (216) 222-9555
	 	 	 	 	 	 	 	 
	WACHOVIA BANK,
	 	$	40,000,000	 	 	 	11.43	%

 

	 	 	 	 	 	 	 	 	 
	 	 	Revolving Credit	 	Proportionate Share of
	Lender
	 	Commitment
	 	Commitment

	WACHOVIA BANK, NATIONAL
	 	 	 	 	 	 	 	 
	ASSOCIATION
	 	 	 	 	 	 	 	 
	1339 Chestnut Street,
	 	 	 	 	 	 	 	 
	PA4843
	 	 	 	 	 	 	 	 
	Philadelphia, PA 19107
	 	 	 	 	 	 	 	 
	Attn: Anthony Braxton
	 	 	 	 	 	 	 	 
	Telephone: (267) 321-6606
	 	 	 	 	 	 	 	 
	Telecopy: (267) 321-6700
	 	 	 	 	 	 	 	 
	PNC BANK, NATIONAL

	 	$	35,000,000	 	 	 	10.00	%
	ASSOCIATION
	 	 	 	 	 	 	 	 
	245 Fifth Avenue, 6th Floor
	 	 	 	 	 	 	 	 
	One PNC Plaza
	 	 	 	 	 	 	 	 
	Pittsburgh, PA 15222
	 	 	 	 	 	 	 	 
	Attn: Stephen Boyd
	 	 	 	 	 	 	 	 
	Telephone: (412) 768-1337
	 	 	 	 	 	 	 	 
	Telecopy: (412) 768-4369
	 	 	 	 	 	 	 	 
	JPMORGAN CHASE

	 	$	35,000,000	 	 	 	10.00	%
	BANK
	 	 	 	 	 	 	 	 
	JP Morgan Business Credit
	 	 	 	 	 	 	 	 
	Corp.
	 	 	 	 	 	 	 	 
	One Chase Plaza, CS-5
	 	 	 	 	 	 	 	 
	Rochester, NY 14643
	 	 	 	 	 	 	 	 
	Attn: James L. Sloan
	 	 	 	 	 	 	 	 
	Telephone: (585) 258-4389
	 	 	 	 	 	 	 	 
	Telecopy: (585) 258-7440
	 	 	 	 	 	 	 	 
	 
	 	 	
 	 	 	 	
 	 
	

	 	$	350,000,000	 	 	 	100.00	%

 

 

ANNEX A

to

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

DEFINITIONS; RULES OF CONSTRUCTION

     1. Definitions. Capitalized terms used in this Agreement shall have
(unless otherwise provided elsewhere in this Agreement) the following
respective meanings when used in this Agreement.

     “Account Debtor” shall mean any Person who may become obligated to any
Loan Party under, with respect to, or on account of, an Account, Chattel Paper
or General Intangibles (including a payment intangible).

     “Accounts” shall mean all “accounts,” as such term is defined in the Code,
now owned or hereafter acquired by any Loan Party, including (a) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper, or Instruments),
(including any such obligations that may be characterized as an account or
contract right under the Code), (b) all of each Loan Party’s rights in, to and
under all purchase orders or receipts for goods or services, (c) all of each
Loan Party’s rights to any goods represented by any of the foregoing (including
unpaid sellers’ rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods), (d) all rights
to payment due to any Loan Party for property sold, leased, licensed, assigned
or otherwise disposed of, for a policy of insurance issued or to be issued, for
a secondary obligation incurred or to be incurred, for energy provided or to be
provided, for the use or hire of a vessel under a charter or other contract,
arising out of the use of a credit card or charge card, or for services
rendered or to be rendered by such Loan Party or in connection with any other
transaction (whether or not yet earned by performance on the part of such Loan
Party), (e) all health care insurance receivables and (f) all collateral
security of any kind, given by any Account Debtor or any other Person with
respect to any of the foregoing.

     “Acquirer” shall have the meaning assigned to it in the Recitals to the
Agreement.

     “Acquirer Intercompany Note” shall have the meaning assigned to it in the
Recitals to the Agreement.

     “Acquirer Loan” shall have the meaning assigned to it in the Recitals to
the Agreement.

     “Acquisition” shall have the meaning assigned to it in the Recitals to the
Agreement.

     “Activation Notice” shall have the meaning assigned to it in Annex B to
the Agreement.

     “Affiliate” shall mean, with respect to any Person, (a) each Person that,
directly or indirectly, owns or Controls, whether beneficially, or as a
trustee, guardian or other fiduciary, ten
percent (10%) or more of the Stock having ordinary voting power in the
election of directors of such Person, (b) each Person that Controls, is
Controlled by or is under common Control with such Person or (c) each of such
Person’s officers, directors, joint venturers and partners.

A-1

 

     “Agent” shall have the meaning assigned to it in the first paragraph of
this Agreement.

     “Aggregate Revolving Credit Commitment” shall mean $350,000,000, as such
amount may be reduced from time to time pursuant to Section 1.2(c).

     “Agreement” shall mean this Second Amended and Restated Credit Agreement
to which this Annex A is attached and of which it forms a part including all
Annexes, Schedules, and Exhibits attached or otherwise identified thereto,
restatements and modifications and supplements hereto and any appendices,
attachments, exhibits or schedules to any of the foregoing, and shall refer to
this Agreement as the same may be in effect at the time such reference becomes
operative, provided, however that any reference to the Schedules to this
Agreement shall be deemed a reference to the Schedules as in effect on the
Closing Date, in a written amendment thereto executed by Borrower, Agent and
the Required Lenders, or as supplemented by the Loan Parties pursuant to
Section 5.8.

     “Annual Operating Plan” shall mean the annual operating plan and related
projections required to be delivered under paragraph 6 of Annex D.

     “AOP Trigger Date” has the meaning assigned to it in Annex D.

     “Applicable Margin” shall mean (a) for the period from the Closing Date
until and including October 31, 2004, the applicable percentage rate per annum
set forth below corresponding to Level I, and (b) following October 31, 2004,
the applicable percentage rate per annum set forth below corresponding to the
relevant Average Availability level set forth below.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Average Availability for	 	 	 	 	 	 	 	 	 	Applicable
	 	 	Previous Three Calendar	 	LIBOR	 	Index Rate	 	Unused Line
	Levels
	 	Months
	 	Loans
	 	Loans
	 	Fee Margin

	Level I
	 	Greater than or equal to $120,000,000	 	 	1.25	%	 	 	0.00	%	 	 	0.25	%
	Level II
	 	Greater than or equal to $70,000,000 and less than $120,000,000	 	 	1.50	%	 	 	0.00	%	 	 	0.25	%
	Level III
	 	Less than $70,000,000	 	 	1.75	%	 	 	0.00	%	 	 	0.375	%

     For purposes of this definition, (a) Average Availability will be computed
for each three calendar month period ending on January 31, April 30, July 31
and October 31, commencing with the three calendar month period ending October
31, 2004, on the last day of each three
calendar month period and (b) any failure to timely deliver any Borrowing
Base Certificate required pursuant to Annex D shall result in the application
of the highest Applicable Margin set forth above until such certificates are
duly delivered. Changes in the Applicable Margin resulting from a change in
the Average Availability level shall become effective one Business

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Day after
the Agent makes a determination of a change therein (such determination to be
notified to the Borrower in writing on such Business Day).

     “Applicable Unused Line Fee Margin” shall mean the per annum fee, from
time to time in effect, payable in respect of Borrower’s non-use of committed
funds pursuant to Section 1.6(a), which fee is determined by reference to the
definition of “Applicable Margin”.

     “ASL” shall mean American Sports Licensing, Inc., f/k/a Dick’s Asset
Management Corp., a Delaware corporation and a wholly-owned Subsidiary of
Borrower.

     “Asset Disposition” shall mean the disposition whether by sale, lease,
transfer, loss, damage, destruction, casualty, condemnation or otherwise of any
or all of the assets of Borrower or any of its Subsidiaries other than sales of
Inventory in the ordinary course of business.

     “Assignee” shall have the meaning assigned to it in Section 10.2(b).

     “Availability” shall mean, at any time, the amount by which the Borrowing
Base, less the Letter of Credit Obligations, exceeds the outstanding principal
amount of the Revolving Credit Loan.

     “Average Availability” shall mean, for any period of calculation, an
amount equal to the average daily balances of Availability for such period, in
each case as determined by Agent in good faith.

     “Blocked Account” shall have the meaning assigned to it in Annex B.

     “Borrower” shall have the meaning specified in the preamble to this
Agreement.

     “Borrower Security Agreement” shall mean the Second Amended and Restated
Security Agreement, dated as of the date hereof, attached hereto as Exhibit
D-1, made by Borrower and in favor of Agent for the benefit of Lenders.

     “Borrowing Availability” shall mean, at any time, the lesser at such time
of (a) the Aggregate Revolving Credit Commitment and (b) the Borrowing Base, in
each case, less the Letter of Credit Obligations.

     “Borrowing Base” shall mean, as of any date of determination by Agent,
from time to time,

     (a) prior to consummation of the Merger, an amount equal to the sum at
such time of:

          (i) the lesser of (A) seventy percent (70%) (80% from October 1, 2004
through November 30, 2004) of Borrower’s Eligible Inventory on a cost basis, or
(B) eighty-five percent (85%) (95% from October 1, 2004 through November 30,
2004) of Borrower’s Eligible
Inventory net realizable liquidation valuation, as determined by an
appraisal acceptable to Agent, and

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          (ii) the least of (A) the amount at such time outstanding on the Galyan’s
Intercompany Note, (B) the amount of the Prior Lender Obligations that was
refinanced on the Closing Date with the proceeds of the Galyan’s Intercompany
Note, (C) seventy percent (70%) of Galyan’s Eligible Inventory on a cost basis,
or (D) eighty-five percent (85%) of Galyan’s Eligible Inventory net realizable
liquidation valuation, as determined by an appraisal acceptable to Agent (such
least amount is referred to herein as the “Galyan’s Availability”), provided
that, if the Merger has not been consummated (i) within 100 days of the Closing
Date, Galyan’s Availability shall be reduced to fifty percent (50%) of the
amount that would otherwise be calculated pursuant to this clause (a)(ii), (ii)
within 130 days of the Closing Date, Galyan’s Availability shall be reduced to
thirty seven and one-half of one percent (37.5%) of the amount that would
otherwise be calculated pursuant to this clause (a)(ii), (iii) within 160 days
of the Closing Date, Galyan’s Availability shall be reduced to twenty five
percent (25%) of the amount that would otherwise be calculated pursuant to this
clause (a)(ii), (iv) within 190 days of the Closing Date, Galyan’s Availability
shall be reduced to twelve and one-half of one percent (12.5%) of the amount
that would otherwise be calculated pursuant to this clause (a)(ii), and (v)
within 220 days of the Closing Date, Galyan’s Availability shall be reduced to
zero ($0),

     (b) following consummation of the Merger, an amount equal to the sum at
such time of:

          (i) the lesser of (A) seventy percent (70%) of Borrower’s Eligible
Inventory on a cost basis, or (B) eighty-five percent (85%) of Borrower’s
Eligible Inventory net realizable liquidation valuation, as determined by an
appraisal acceptable to Agent, and

          (ii) the lesser of (A) seventy percent (70%) of Galyan’s Eligible
Inventory on a cost basis, or (B) eighty-five percent (85%) of Galyan’s
Eligible Inventory net realizable liquidation valuation, as determined by an
appraisal acceptable to Agent,

minus in the case of (a) and (b) above (1) the Lease Payment Reserve, (2) prior
to consummation of the Merger, the Galyan’s Tender Reserve, and (3) the amount
of any other Reserves (including Reserves for sales and use taxes and payroll
withholding taxes) as Agent may deem necessary or appropriate from time to time
in its discretion.

     “Borrowing Base Certificate” shall mean the inventory borrowing base
certificate in the form attached hereto as Exhibit B-1 or Exhibit B-2, as
applicable.

     “Business Day” shall mean any day that is not a Saturday, a Sunday or a
day on which banks are required or permitted to be closed in New York City and
in reference to LIBOR Loans shall mean any such day that is also a LIBOR
Business Day.

     “Capital Expenditures” shall mean, with respect to any Person, all
payments or accruals (including Capital Lease Obligations) of such Person for
any assets or improvements or for replacements, substitutions or additions
thereto, that are required to be capitalized under GAAP.

     “Capital Lease” shall mean, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, either
would be required to be classified and accounted for as a capital lease on
a balance sheet of such Person or otherwise be disclosed as such in a note to
such balance sheet.

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     “Capital Lease Obligation” shall mean, with respect to any Person, the
amount of the obligation of such Person as lessee under any Capital Lease that,
in accordance with GAAP, would appear on a balance sheet of such Person in
respect of such Capital Lease or otherwise be disclosed in a note to such
balance sheet.

     “Cash Collateral Account” shall have the meaning assigned to it in Annex
F.

     “Cash Equivalents” shall mean, (a) securities with maturities of 180 days
or less from the date of acquisition issued or fully guaranteed or insured by
the United States government or any agency thereof and backed by the full faith
and credit of the United States, (b) certificates of deposit, eurodollar time
deposits, overnight bank deposits and bankers’ acceptances of any domestic
commercial bank having capital and surplus in excess of $500,000,000 having
maturities of one year or less from the date of acquisition, and (c) commercial
paper of an issuer rated at least A-1 by Standard & Poor’s Corporation or P-1
by Moody’s Investors Services, Inc., or carrying an equivalent rating by a
nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments, in each case, with maturities of not
greater than sixty (60) days from the date acquired.

     “Cash-on-hand” shall have the meaning assigned to in Section 2.1(m).

     “Change of Control” shall mean (a) the failure of the Permitted Holders to
directly own Stock of Borrower representing 51% or more of the voting capital
stock of Borrower or to Control Borrower, or (b) the Permitted Holders shall
cease to have the power to designate or elect a majority of Borrower’s board of
directors or a majority of Borrower’s board of directors at any time in office
are no longer designated or elected by the Permitted Holders, or (c) a Change
in Control, as defined in the Convertible Note Indenture, or (d) Borrower shall
cease to own and control all of the economic and voting rights associated
directly or indirectly with all of the Shares tendered prior to the Merger and
all of the outstanding capital Stock of Galyan’s after consummation of the
Merger, except as a result of any merger permitted under Section 6.1 of the
Agreement or any appraisal or dissenters’ rights afforded under the Merger
Agreement, or (e) Borrower ceases to own and control all of the economic and
voting rights associated with all of the outstanding capital Stock of any of
its Subsidiaries (other than Galyan’s prior to the Merger), except as a result
of any merger permitted under Section 6.1 of the Agreement.

     “Charges” shall mean, for each Loan Party, all federal, state, county,
city, municipal, local, foreign or other governmental taxes (including taxes
owed to PBGC at the time due and payable), levies, imposts, assessments,
charges, Liens, claims or encumbrances upon or relating to (a) the Collateral,
(b) the Obligations, (c) the employees, payroll, income or gross receipts of
such Loan Party, (d) such Loan Party’s ownership or use of any of its assets,
or (e) any other aspect of such Loan Party’s business.

     “Chattel Paper” shall mean any “chattel paper,” as such term is defined in
the Code, including electronic chattel paper, now owned or hereafter acquired
by any Loan Party.

     “Claim” shall have the meaning assigned to it in Section 1.15.

     “Closing Date” shall mean the Business Day on which the conditions
precedent set forth in Section 2 have been satisfied or waived in writing by
Agent or Lenders, as applicable.

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     “Closing Date Projections” shall mean the projections delivered on the
Closing Date, of the consolidated balance sheet, statements of income and cash
flow for Borrower and its Subsidiaries, by month for the first eighteen months
after the Closing Date, and by year for each of the Fiscal Years thereafter
assuming the Short Form Merger Threshold has been attained, and forecasted loan
usage, Capital Expenditures and Excess Availability by month for the first
eighteen months after the Closing Date assuming the Short Form Merger Threshold
has been attained and assuming that the Acquisition has been consummated
pursuant to a long-form merger.

     “Code” shall mean the Uniform Commercial Code as the same may, from time
to time, be enacted and in effect in the State of New York; provided, that to
the extent that the Code is used to define any term herein or in any Loan
Document and such term is defined differently in different Articles or
Divisions of the Code, the definition of such term contained in Article or
Division 9 shall govern; provided further, that in the event that, by reason of
mandatory provisions of law, any or all of the attachment, perfection or
priority of, or remedies with respect to, Agent’s or any Lender’s Lien on any
Collateral is governed by the Uniform Commercial Code as enacted and in effect
in a jurisdiction other than the State of New York, the term “Code” shall mean
the Uniform Commercial Code as enacted and in effect in such other jurisdiction
solely for purposes of the provisions thereof relating to such attachment,
perfection, priority or remedies and for purposes of definitions related to
such provisions.

     “Collateral” shall mean the property covered by the Collateral Documents
and any other property, real or personal, tangible or intangible, now existing
or hereafter acquired, that may at any time be or become subject to a security
interest or Lien in favor of Agent or Lenders to secure the Obligations.

     “Collateral Documents” shall mean the Borrower Security Agreement, the
Subsidiary Security Agreement, the Guaranty, the Trademark Security Agreement,
the Pledge Agreement, the blocked account agreements, the Landlord Waivers and
all other instruments, waivers and agreements now or hereinafter securing in
whole or in part the Obligations.

     “Collection Account” shall mean that certain account of Agent, account
number 502-328-54 in the name of Agent at Deutsche Bank Trust Company Americas
in New York, New York ABA No. 021 001 033, or such other account as may be
specified in writing by Agent as the “Collection Account.”

     “Commitment Termination Date” shall mean the earliest of (a) May 30, 2008,
(b) the date of termination of the Aggregate Revolving Credit Commitment
pursuant to Section 8.2, and (c) the date of termination of the Aggregate
Revolving Credit Commitment in accordance with the provisions of Section
1.2(c).

     “Concentration Account” shall have the meaning assigned to it in Annex B.

     “Contracts” shall mean, with respect to any Person, all the contracts,
undertakings, or agreements (other than rights evidenced by Chattel Paper,
Documents or Instruments) in or under which such Person may now or hereafter have any right, title or interest,
including any agreement relating to the terms of payment or the terms of
performance of any Account.

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     “Control” shall mean, with respect to a Person, the possession, directly
or indirectly, of the power to direct or cause the direction of such Person’s
management or policies, whether through the ownership of voting securities, by
contract or otherwise, and “Controlling” and “Controlled” shall have meanings
correlative thereto.

     “Control Letter” shall mean a letter agreement between Agent and (i) the
issuer of uncertificated securities with respect to uncertificated securities
in the name of any Loan Party, (ii) a securities intermediary with respect to
securities, whether certificated or uncertificated, securities entitlements and
other financial assets held in a securities account in the name of any Loan
Party, or (iii) a futures commission merchant or clearing house, as applicable,
with respect to commodity accounts and commodity contracts held by any Loan
Party, whereby, among other things, the issuer, securities intermediary or
futures commission merchant disclaims any security interest in the applicable
financial assets, acknowledges the Lien of Agent, on behalf of itself and
Lenders, on such financial assets, and agrees to follow the instructions or
entitlement orders of Agent without further consent by the affected Loan Party.

     “Convertible Note Documents” shall mean the Convertible Note Indenture,
the Convertible Notes, the Convertible Note Hedge, the Convertible Note
Warrants, any other agreement or instrument now or hereafter executed pursuant
thereto or in connection therewith, in each case as such agreements and
instruments may be amended, supplemented, waived or otherwise modified from
time to time, in each case, subject to the limitations in Section 6.22 hereof.

     “Convertible Note Hedge” shall mean that certain transaction entered into
pursuant to that certain Confirmation of OTC Convertible Note Hedge dated as of
February 13, 2004, by and between Borrower and Merrill Lynch International, and
that certain Guarantee of Merrill Lynch & Co., Inc. dated as of February 13,
2004 in favor of Borrower, as each such agreement may be amended, supplemented
or otherwise modified from time to time in accordance with the terms hereof and
thereof.

     “Convertible Note Indenture” shall mean that certain Indenture by and
between Borrower and Wachovia Bank, N.A., as trustee, dated February 18, 2004,
as such agreement may be amended, supplemented or otherwise modified from time
to time in accordance with the terms hereof and thereof.

     “Convertible Note Warrant Transaction” shall mean that certain transaction
entered into pursuant to the Confirmation of OTC Warrant Transaction dated as
of February 13, 2004, by and between Borrower and Merrill Lynch International,
and that certain Guarantee of Merrill Lynch & Co., Inc. dated as of February
13, 2004 in favor of Borrower, as each such agreement may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms hereof and thereof.

     “Convertible Notes” shall mean the Senior Convertible Notes due 2024
issued by the Borrower pursuant to the Convertible Note Indenture, as such
Convertible Notes may be amended, supplemented or otherwise modified from time to time in
accordance with the terms hereof and thereof.

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     “Copyrights” shall mean, with respect to any Person, any United States
copyright to which such Person now or hereafter has title, as well as any
application for a United States copyright hereafter made by such Person.

     “Default” shall mean any Event of Default or any event which, with the
passage of time or notice or both, would, unless cured or waived, become an
Event of Default.

     “Default Rate” shall mean a rate per annum equal to 2% plus the Index Rate
as in effect from time to time plus the Applicable Margin (provided that with
respect to a LIBOR Loan, the “Default Rate” for such Loan shall be 2% plus the
LIBOR Rate for such LIBOR Loan plus the Applicable Margin during the LIBOR
Period relating thereto and, after such LIBOR Period or any earlier conversion
of such LIBOR Loan to an Index Rate Loan pursuant to this Agreement, the rate
provided for above in this definition).

     “Deferred Taxes” shall mean, with respect to any Person at any date, the
amount of deferred taxes of such Person as shown on the balance sheet of such
Person prepared in accordance with GAAP as of such date.

     “Deposit Accounts” shall mean all “deposit accounts” as such term is
defined in the Code, now or hereafter held in the name of any Loan Party.

     “Dick’s Loan Parties” shall mean Borrower, ASL, DSGV, Acquirer and any of
their respective Subsidiaries, other than the Galyan’s Loan Parties.

     “Disbursement Account” shall have the meaning assigned to it in Annex B.

     “Documentary Letter of Credit” shall mean any Letter of Credit issued for
the purpose of providing the primary payment mechanism in connection with the
purchase of any materials, goods or services by the Loan Parties in the
ordinary course of business of the Loan Parties.

     “Documents” shall mean all “documents,” as such term is defined in the
Code, now owned or hereafter acquired by any Loan Party, wherever located.

     “Dollars” and “$” shall mean lawful money of the United States of America.

     “DOL” shall mean the United States Department of Labor or any successor
thereto.

     “DSGV” shall have the meaning assigned to it in Section 6.1(a)(ii).

     “EBITDA” shall mean, for any period, the Net Income (Loss) for such
period, plus Interest Expense, tax expense, depreciation expense, amortization
expense, and extraordinary losses and other non-cash items, plus for any such
period which includes one of the first four Fiscal Quarters following the
Closing Date, one-time costs related to the Transaction, including costs from
severance and retention bonuses, closing costs and transaction fees and
expenses minus extraordinary gains, in each case, of Borrower and its
Subsidiaries for such period determined on a consolidated basis in accordance with GAAP to the extent
included in the determination of such Net Income (Loss); provided that such
one-time costs shall not (i) include any store closing costs related to real
estate and lease expenses, and (ii) exceed $45,000,000 in

A-8

 

the aggregate. For purposes of this definition, the following items shall be excluded in
determining Net Income (Loss) of a Person: (1) the income (or deficit) of any
other Person accrued prior to the date it became a Subsidiary of, or was merged
or consolidated into, such Person or any of such Person’s Subsidiaries; (2) the
income (or deficit) of any other Person (other than a Subsidiary) in which such
Person has an ownership interest, except to the extent any such income has
actually been received by such Person in the form of cash dividends or
distributions; (3) the undistributed earnings of any Subsidiary of such Person
to the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary is not at the time permitted by the terms of
any contractual obligation or requirement of law applicable to such Subsidiary;
(4) any restoration to income of any contingency reserve, except to the extent
that provision for such reserve was made out of income accrued during such
period; (5) any write-up of any asset; (6) any net gain from the collection of
the proceeds of life insurance policies; (7) any net gain arising from the
acquisition of any securities, or the extinguishment, under GAAP, of any
Indebtedness, of such Person; (8) in the case of a successor to such Person by
consolidation or merger or as a transferee of its assets, any earnings of such
successor prior to such consolidation, merger or transfer of assets; and (9)
any deferred credit representing the excess of equity in any Subsidiary of such
Person at the date of acquisition of such Subsidiary over the cost to such
Person of the investment in such Subsidiary.

     “Eligible Inventory” shall mean such Inventory of Borrower and Galyan’s
that is not ineligible as the basis for Revolving Credit Advances or Letter of
Credit Obligations based on the criteria set forth below. In determining
whether Inventory constitutes Eligible Inventory, Agent does not intend to
include Inventory which:

      (a) is not owned by Borrower or Galyan’s free and clear of all Liens and
rights of others, except the Liens in favor of Agent and Lenders pursuant to
the Collateral Documents;

      (b) is not located on premises owned or operated by Borrower or Galyan’s
referenced on Schedule 3.6;

      (c) is Inventory in transit (other than Eligible L/C Inventory and
Inventory in transit from one of Borrower’s or Galyan’s distribution centers to
one of Borrower’s or Galyan’s stores provided that such Inventory is being
shipped in the normal course of business and consistent with Borrower’s or
Galyan’s past practice, as applicable, and Agent continues to maintain a first
priority perfected security interest in such Inventory);

      (d) is Inventory held on or at leased premises where the landlord thereof
has either not executed a Landlord Waiver in form and substance satisfactory to
Agent or reserves (including, without limitation, a Lease Payment Reserve)
related thereto satisfactory to Agent in its discretion have not been
established against Borrowing Availability;

      (e) is in the possession or control of a bailee, warehouseman, processor,
converter or other Person other than Borrower or Galyan’s, unless Agent is in
possession of such agreements, instruments and documents as Agent may require
(each in form and content acceptable to Agent and duly executed, as appropriate by the bailee,
warehouseman, processor, converter or other Person in possession or control of
such Inventory, as applicable) including but not limited to warehouse receipts
in Agent’s name covering such Inventory;

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               (f) is covered by a negotiable document of title unless such document has
been delivered to Agent;

               (g) is not covered by insurance required by the terms of Section 5.5 and
Annex E;

               (h) is obsolete, unsalable, shopworn, damaged, unfit for further
processing, or is of substandard quality;

               (i) consists of display items or packing and shipping materials or
samples, bags, packaging, labels and other similar non-merchandise categories;

               (j) consists of discontinued or slow-moving items;

               (k) does not meet all standards imposed by any Governmental Authority;

               (l) is placed by Borrower or Galyan’s on consignment or held by Borrower
or Galyan’s on consignment from another Person;

               (m) is not a type held for sale in the ordinary course of Borrower’s or
Galyan’s business, including goods to be returned to the vendor;

               (n) is Inventory produced in violation of the Fair Labor Standards Act and
subject to the “hot goods” provisions contained in Title 29 U.S.C. § 215 or any
successor statute or section;

               (o) is Inventory which in any way fails to meet or violates any warranty,
representation or covenant contained in this Agreement or any other Loan
Document; or

               (p) is not otherwise acceptable in the discretion of Agent, based upon
such credit and collateral considerations as Agent may deem appropriate from
time to time.

     “Eligible L/C Inventory” shall mean all finished goods inventory owned by
Borrower or Galyan’s and covered by Documentary Letters of Credit, which
finished goods Inventory is in transit to one of Borrower’s or Galyan’s
locations and which finished goods Inventory (a) is owned by Borrower or
Galyan’s, (b) is fully insured, (c) is subject to a first priority security
interest in and lien upon such goods in favor of Agent (except for any
possessor lien upon such goods in the possession of a freight carrier or
shipping company securing only the freight charges for the transportation of
such goods to Borrower or Galyan’s), (d) is evidenced or deliverable pursuant
to documents, notices, instruments, statements and bills of lading that have
been delivered to Agent or an agent acting on its behalf, and (e) is otherwise
deemed to be “Eligible Inventory” hereunder.

     “Environmental Laws” shall mean all federal, state and local laws,
statutes, ordinances, orders and regulations, now or hereafter in effect, and
in each case as amended or supplemented from time to time, and any applicable
judicial or administrative interpretation thereof relating to the regulation
and protection of human health, safety, the environment and natural resources
(including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata,

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wildlife, aquatic species and vegetation). Environmental Laws include,
but are not limited to, the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended (42 U.S.C. §§ 9601 et seq.) (“CERCLA”);
the Hazardous Material Transportation Act, as amended (49 U.S.C. §§ 1801 et
seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7
U.S.C. §§ 136 et seq.); the Resource Conservation and Recovery Act, as amended
(42 U.S.C. §§ 6901 et seq.) (“RCRA”); the Toxic Substance Control Act, as
amended (15 U.S.C. §§ 2601 et seq.); the Clean Air Act, as amended (42 U.S.C.
§§ 740 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C.
§§ 1251 et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C.
§§ 651 et seq.) (“OSHA”); and the Safe Drinking Water Act, as amended (42
U.S.C. §§ 300(f) et seq.), and any and all regulations promulgated thereunder,
and all analogous state and local counterparts or equivalents and any transfer
of ownership notification or approval statutes.

     “Environmental Liabilities and Costs” shall mean all liabilities,
obligations, responsibilities, remedial actions, removal costs, losses,
damages, punitive damages, consequential damages, treble damages, costs and
expenses (including all reasonable fees, disbursements and expenses of counsel,
experts and consultants and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim,
suit, action or demand by any person or entity, whether based in contract,
tort, implied or express warranty, strict liability, criminal or civil statute
or common law (including any thereof arising under any Environmental Law,
permit, order or agreement with any Governmental Authority) and which relate to
any health or safety condition regulated under any Environmental Law or in
connection with any other environmental matter or Release, threatened Release,
or the presence of a Hazardous Material.

     “Equipment” shall mean all “equipment,” as such term is defined in the
Code, now owned or hereafter acquired by any Loan Party, wherever located and,
in any event, including all such Loan Party’s machinery and equipment,
including processing equipment, conveyors, machine tools, data processing and
computer equipment, including embedded software and peripheral equipment and
all engineering, processing and manufacturing equipment, office machinery,
furniture, materials handling equipment, tools, attachments, accessories,
automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor
vehicles, rolling stock and other equipment of every kind and nature, trade
fixtures and fixtures not forming a part of real property, together with all
additions and accessions thereto, replacements therefor, all parts therefor,
all substitutes for any of the foregoing, fuel therefor, and all manuals,
drawings, instructions, warranties and rights with respect thereto, and all
products and proceeds thereof and condemnation awards and insurance proceeds
with respect thereto.

     “ERISA” shall mean the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto), as amended from time to time, and any
regulations promulgated thereunder.

     “ERISA Affiliate” shall mean any trade or business (whether or not
incorporated) under common control with any Loan Party and which, together with
such Loan Party, is treated as a single employer within the meaning of Section
414(b), (c), (m) or (o) of the IRC.

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     “ERISA Event” shall mean, with respect to any Loan Party or any ERISA
Affiliate, (a) a Reportable Event with respect to a Title IV Plan or a
Multiemployer Plan; (b) the withdrawal of any Loan Party or any ERISA Affiliate
from a Title IV Plan subject to Section 4063 of ERISA during a plan year in
which it was a substantial employer, as defined in Section 4001(a) (2) of
ERISA; (c) the complete or partial withdrawal of any Loan Party or any ERISA
Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to
terminate a Title IV Plan or the treatment of a plan amendment as a termination
under Section 4041 of ERISA; (e) the institution of proceeding to terminate a
Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure to make
required contributions to a Qualified Plan; (g) any other event or condition
which might reasonably be expected to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer,
any Title IV Plan or Multiemployer Plan or the imposition of any liability
under Title IV of ERISA, other than PBGC premiums due but not delinquent under
Section 4007 of ERISA; or (h) the loss of a Qualified Plan’s qualification or
tax exempt status.

     “Event of Default” shall have the meaning assigned to it in Section 8.1.

     “Excess Availability” shall mean, at any time, (a) Borrowing Availability,
minus (b) the aggregate Revolving Credit Loan then outstanding, minus (c) the
aggregate amount of all then outstanding and unpaid trade payables and other
obligations of Borrower or any of its Subsidiaries which are outstanding more
than sixty (60) days past due as of such time, minus (d) without duplication,
the amount of checks issued by Borrower or any of its Subsidiaries to pay trade
payables and other obligations which are more than sixty (60) days past due as
of such time, but not yet sent.

     “Executive Officers” shall mean the President, Chief Executive Officer,
Chief Administrative Officer, Chief Financial Officer, Treasurer and/or
Controller of Borrower.

     “Existing Credit Agreement” shall have the meaning assigned to it in the
Recitals to this Agreement.

     “Existing Galyan’s Credit Agreement” shall mean the Amended and Restated
Credit Agreement dated as of April 25, 2003 among Galyan’s, as borrower, the
lenders party thereto, and JPMorgan Chase Bank, as administrative agent, as
amended, supplemented or otherwise modified prior to the date hereof.

     “Existing Lenders” shall have the meaning assigned to it in the Recitals
to this Agreement.

     “Federal Funds Effective Rate” shall mean, for any day, the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day which is a Business Day, the
average of the quotations for the day of such transactions received by Agent
from three federal funds brokers of recognized standing selected by it.

     “Fees” shall mean the fees due to Agent and/or Lenders as set forth in
Section 1.6 or otherwise pursuant to the Loan Documents, including the GE
Capital Fee Letter.

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     “Financial Statements” shall mean the financial statements referred to in
paragraph 1 of Schedule 3.4.

     “Fiscal Quarter” shall mean the 12 or 13-week period ending on the
Saturday closest to the end of each April, July, October and January of each
year.

     “Fiscal Year” shall mean the 52 or 53-week fiscal year of Borrower and its
Subsidiaries for financial accounting purposes, which in any event shall end on
the last Saturday of January of each year.

     “Fixed Charge Coverage Ratio” shall mean, with respect to any period, the
ratio of the following for such period of Borrower and its Subsidiaries
determined in accordance with GAAP: (a) EBITDA plus the aggregate amount of
Net Proceeds received during any such period by Borrower or any of its
Subsidiaries from a sale of Fixtures and Equipment (including the proceeds
received by Borrower or any such Subsidiaries in a Permitted Sale and Leaseback
Transaction), permitted under Section 6.8 of this Agreement; less Capital
Expenditures which are not financed through Operating Leases to (b) the sum of
Interest Expense plus principal paid on Indebtedness (including Capitalized
Lease Obligations but excluding the principal of the Revolving Credit Loan) or
required to be paid during such period plus taxes to the extent accrued or
otherwise payable with respect to such period.

     “Fixed Charge Coverage Measurement Date” shall mean the last day of any
Fiscal Quarter of Borrower ending on or after October 31, 2004 for which
Financial Statements have been delivered, or should have been delivered,
pursuant to Sections 4 and 5 of Annex D, immediately preceding a Measurement
Event. For purposes of this definition, a “Measurement Event” means the
failure of the Loan Parties to maintain Excess Availability equal to or in
excess of $50,000,000 on any day.

     “Fixtures” shall mean all “fixtures” as such term is defined in the Code,
now owned or hereafter acquired by any Loan Party.

     “GAAP” shall mean generally accepted accounting principles in the United
States of America as in effect from time to time, consistently applied, except
that, for purposes of Section 6.10, GAAP shall be determined on the basis of
such principles in effect on January 31, 2004 and consistent with those used in
the preparation of the Financial Statements referred to in Section 3.4.

     “Galyan’s” shall have the meaning assigned to it in the Recitals.

     “Galyan’s Intercompany Note” shall have the meaning assigned to it in the
Recitals to the Agreement.

     “Galyan’s Loan” shall have the meaning assigned to it in the Recitals to
the Agreement.

     “Galyan’s Loan Parties” shall mean Galyan’s and its Subsidiaries.

     “Galyan’s Pledge” shall have the meaning assigned to it in the Recitals to
the Agreement.

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     “Galyan’s Tender Reserve” shall mean a reserve against the Borrowing Base
in an amount determined by Agent in its discretion but up to an amount equal at
any date of determination to the product of (a) ninety percent (90%) (one
hundred percent (100%) after the Short Form Merger Threshold has been achieved)
of the total number of Shares outstanding on such date (including any Shares to
be issued upon the exercise of any warrant, option, subscription right or
similar right) less (i) the number of Shares that have been acquired and paid
for as of such date and (ii) the number of Shares which would have been issued
upon exercise of any warrant, option, subscription right or similar right that
has been extinguished as of such date, and (b) $16.75.

     “GE Capital” shall mean General Electric Capital Corporation, a Delaware
corporation having an office at 201 Merritt 7, Norwalk, Connecticut 06856.

     “General Intangibles” shall mean all “general intangibles,” as such term
is defined in the Code, now owned or hereafter acquired by any Loan Party,
including all right, title and interest that such Loan Party may now or
hereafter have in or under any Contract, all payment intangibles, customer
lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor
and reissues, extensions or renewals thereof, rights in Intellectual Property,
interests in partnerships, joint ventures and other business associations,
licenses, permits, copyrights, trade secrets, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials and
records, goodwill (including the goodwill associated with any Trademark or
Trademark License), all rights and claims in or under insurance policies
(including insurance for fire, damage, loss and casualty, whether covering
personal property, real property, tangible rights or intangible rights, all
liability, life, key man and business interruption insurance, and all unearned
premiums), uncertificated securities, choses in action, deposit, checking and
other bank accounts, rights to receive tax refunds and other payments, rights
to receive dividends, distributions, cash, Instruments and other property in
respect of or in exchange for pledged Stock and Investment Property, rights of
indemnification, all books and records, correspondence, credit files, invoices
and other papers, including without limitation all tapes, cards, computer runs
and other papers and documents in the possession or under the control of such
Loan Party or any computer bureau or service company from time to time acting
for such Loan Party.

     “GE Capital Fee Letter” shall have the meaning assigned to it in Section
1.6(e).

     “GECMG” shall mean GECC Capital Markets Group, Inc., a Delaware
corporation.

     “Gift Certificate and Merchandise Credit Liability” shall mean, at any
time, the aggregate face value at such time of (a) outstanding gift
certificates and gift cards of the Borrower and Galyan’s entitling the holder
thereof to use all or a portion of the certificate to pay all or a portion of
the purchase price for any Inventory, and (b) outstanding merchandise credits
of the Borrower and Galyan’s.

     “Goods” shall mean all “goods” as defined in the Code, now owned or
hereafter acquired by any Loan Party, wherever located, including embedded
software to the extent included in

A-14

 

“goods” as defined in the Code, manufactured homes, standing timber that
is cut and removed for sale and unborn young of animals.

     “Governmental Authority” shall mean any nation or government, any state or
other political subdivision thereof, and any agency, department, court, board,
commission, or other entity exercising valid legal executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government.

     “Guaranteed Indebtedness” shall mean, as to any Person, any obligation of
such Person guaranteeing any indebtedness, lease, dividend, or other obligation
(“primary obligations”) of any other Person (the “primary obligor”) in any
manner including any obligation or arrangement of such Person (a) to purchase
or repurchase any such primary obligation, (b) to advance or supply funds (i)
for the purchase or payment of any such primary obligation or (ii) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet condition of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation, or (d) to
indemnify the owner of such primary obligation against loss in respect thereof.

     “Guaranty” shall mean an Amended and Restated Guaranty, in form and
substance satisfactory to Agent, made between Loan Parties (other than Borrower
and other than Galyan’s and its Subsidiaries prior to the consummation of the
Merger) and Agent.

     “Hazardous Material” shall mean (a) any element, material, compound,
mixture, solution, chemical, substance, or pollutant within the definition of
“hazardous substance” under Section 101(14) of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. § 9601(14); petroleum or
any fraction, byproduct or distillation product thereof; asbestos,
polychlorinated biphenyls, or any radioactive substances; and any material
regulated as a hazardous substance by any jurisdiction in which any Loan Party
owns or operates or has owned or operated a facility; or (b) any element,
pollutant, contaminate or discarded material (including any radioactive
material) within the definition of Section 103(6) of the Resource Conservation
and Recovery Act, 42 U.S.C. § 6903(6); and any material regulated as a
hazardous waste by any jurisdiction in which any Loan Party owns or operates or
has owned or operated a facility, or to which any Loan Party sends material for
treatment, storage or disposal as waste.

     “Indebtedness” of any Person shall mean (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services (including reimbursement and all other obligations with respect to
surety bonds, letters of credit and bankers’ acceptances, whether or not
matured, but not including obligations to trade creditors incurred in the
ordinary course of business that are not unpaid for more than 90 days past the
stated due date therefor), (b) all obligations evidenced by notes, bonds,
debentures or similar instruments, (c) all indebtedness created or arising
under any conditional sale or other title retention agreements with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in an event of default may be limited to
repossession or sale of such property), (d) all Capital Lease Obligations, (e)
all Guaranteed Indebtedness, (f) all obligations of such Person under any
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate option contract, foreign exchange

A-15

 

contract, currency swap agreement, futures contract, option contract,
synthetic cap, commodity purchase or option agreements or other similar
agreement or contract designed to protect such Person against fluctuations in
interest rates, currency values or commodity prices, as the case may be, or
other hedging or derivative agreements, (g) all Indebtedness referred to in
clause (a), (b), (c), (d), (e) or (f) above secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon or in property (including accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness, and (h) the Obligations.

     “Indemnified Person” shall have the meaning assigned to it in Section
1.15.

     “Index Rate” shall mean, for any day, a floating rate equal to the highest
of (a) the rate publicly quoted from time to time by The Wall Street Journal as
the “base rate on corporate loans at large U.S. money center commercial banks”
(or, if The Wall Street Journal ceases quoting a base rate of the type
described, the highest per annum rate of interest published by the Federal
Reserve Board in Federal Reserve statistical release H.15 (519) entitled
“Selected Interest Rates” as the Bank prime loan rate or its equivalent), and
(b) the Federal Funds Effective Rate as in effect for such day plus fifty (50)
basis points per annum. Each change in any interest rate provided for in this
Agreement based upon the Index Rate shall take effect at the time of such
change in the Index Rate.

     “Index Rate Loan” shall mean a Loan or portion thereof bearing interest by
reference to the Index Rate.

     “Instruments” shall mean all “instruments,” as such term is defined in the
Code, now owned or hereafter acquired by any Loan Party, wherever located, and,
in any event, including all certificated securities, all certificates of
deposit, and all promissory notes and other evidences of indebtedness, other
than instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.

     “Intellectual Property” shall mean, for any Person, collectively, all
Trademarks, all Patents, all Copyrights and all Licenses now held or hereafter
acquired by such Person, together with all franchises, tax refund claims,
rights of indemnification, payments under insurance, indemnities, warranties
and guarantees payable with respect to the foregoing.

     “Interest Expense” shall mean for any period the amount which would, in
conformity with GAAP, be set forth opposite the caption “interest expense” or
any like caption on a consolidated statement of operations of the Borrower and
its Subsidiaries prepared on a consolidated basis in accordance with GAAP.

     “Interest Rate Agreement” shall mean any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or similar
agreement or arrangement designed to protect Borrower against fluctuations in
interest rates entered into between Borrower and any financial institution;
provided, that if such financial institution is not a Lender or an affiliate
thereof the obligations of the Borrower in respect of any such agreement or
arrangement shall be unsecured.

     “Interest Settlement Date” shall have the meaning assigned to it in
Section 1.13(d).

A-16

 

     “Inventory” shall mean all “inventory,” as such term is defined in the
Code, now owned or hereafter acquired by any Loan Party, wherever located, and
in any event including inventory, merchandise, goods and other personal
property that are held by or on behalf of any Loan Party for sale or lease or
are furnished or are to be furnished under a contract of service, or that
constitute raw materials, work in process, finished goods, returned goods, or
materials or supplies of any kind, nature or description used or consumed or to
be used or consumed in such Loan Party’s business or in the processing,
production, packaging, promotion, delivery or shipping of the same, including
all supplies and embedded software.

     “Investment” shall mean, for any Person (a) the acquisition (whether for
cash, property, services or securities or otherwise) of capital stock, bonds,
notes, debentures, partnership or other ownership interests or other securities
of any other Person or any agreement to make any such acquisition; (b) the
making of any deposit with, or advance, loan or other extension of credit to,
any other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such Person); and (c) the entering into of any Guaranteed
Indebtedness of, or other contingent obligation with respect to, Indebtedness
or other liability of any other Person and (without duplication) any amount
committed to be advanced, lent or extended to such Person.

     “Investment Property” shall mean all “investment property” as such term is
defined in the Code now owned or hereafter acquired by any Loan Party, wherever
located, including (i) all securities, whether certificated or uncertificated,
including stocks, bonds, interests in limited liability companies, partnership
interests, treasuries, certificates of deposit, and mutual fund shares; (ii)
all securities entitlements of any Loan Party, including the rights of any Loan
Party to any securities account and the financial assets held by a securities
intermediary in such securities account and any free credit balance or other
money owing by any securities intermediary with respect to that account; (iii)
all securities accounts of any Loan Party; (iv) all commodity contracts of any
Loan Party; and (v) all commodity accounts held by any Loan Party.

     “IRC” shall mean the Internal Revenue Code of 1986, as amended, and any
successor thereto.

     “IRS” shall mean the Internal Revenue Service, or any successor thereto.

     “JPMorgan Letters of Credit” shall have the meaning assigned to such term
in Annex F.

     “L/C Availability” shall have the meaning assigned to such term in Annex
F.

     “L/C Issuer” shall have the meaning assigned to such term in Annex F.

     “L/C Sublimit” shall have the meaning assigned to such term in Annex F.

     “Landlord’s Waiver” shall mean a landlord’s waiver and license agreement
or other agreement executed and delivered by the landlord under any Lease in
form and substance satisfactory to Agent.

     “Lease Payment Reserve” shall mean a reserve against the Borrowing Base in
an amount determined by Agent in its discretion including an amount equal to
the aggregate amount of a

A-17

 

number of months (as determined by Agent) rent and utility costs payable
by Borrower with respect to each Lease of real property where Eligible
Inventory is located and with respect to which Borrower or Galyan’s, as the
case may be, has failed to obtain a Landlord’s Waiver from the landlord thereof
in form and substance satisfactory to Agent. The Lease Payment Reserve may, in
Agent’s discretion, be in addition to any other reserve against the Borrowing
Base established by Agent, but in no event shall the Lease Payment Reserve per
any single location where there has been a failure to obtain a Landlord’s
Waiver exceed the greater of (i) an amount equal to the base rental payments
under the then current lease for such location over the immediately preceding
three month period, and (ii) the amount of any obligations owing or potentially
owing to the applicable landlord secured by the assets of any Loan Party,
provided that such amount shall not exceed the sum of the base rental payments
under the then current lease for such location over the immediately preceding
twelve month period.

     “Leases” shall mean all of those leasehold estates in real property now
owned or hereafter acquired by a Loan Party, as lessee.

     “Lender” and “Lenders” shall have the meaning provided in the first
paragraph of this Agreement.

     “Letter of Credit” shall mean any Documentary Letter of Credit or Standby
Letter of Credit issued (including issued pursuant to the terms of the Existing
Credit Agreement) at the request and for the account of Borrower for which
Agent and/or Lenders have incurred Letter of Credit Obligations.

     “Letter of Credit Fee” shall have the meaning assigned to it in Section
1.6.

     “Letter of Credit Obligations” shall mean all outstanding obligations
incurred by Agent and/or Lenders at the request of Borrower, whether direct or
indirect, contingent or otherwise, due or not due, in connection with the
issuance or guarantee, by Agent or any Lender of Letters of Credit. The amount
of such Letter of Credit Obligations at any time shall equal the maximum amount
which may be payable by Agent and/or Lenders under or pursuant to the
outstanding Letters of Credit at such time.

     “Letter-of-Credit Rights” shall mean letter-of-credit rights as such term
is defined in the Code, now owned or hereafter acquired by any Loan Party,
including rights to payment or performance under a letter of credit, whether or
not such Loan Party, as beneficiary, has demanded or is entitled to demand
payment or performance.

     “LIBOR Business Day” shall mean a Business Day on which banks in the city
of London are generally open for interbank or foreign exchange transactions.

     “LIBOR Loan” shall mean a Loan or any portion thereof bearing interest by
reference to the LIBOR Rate.

     “LIBOR Period” shall mean, with respect to any LIBOR Loan, each period
commencing on a LIBOR Business Day selected by Borrower pursuant to the
Agreement and ending one, two or three months thereafter, as selected by
Borrower’s irrevocable notice to Agent as set forth in

A-18

 

Section 1.1(d); provided that the foregoing provision relating to LIBOR
Periods is subject to the following:

     (a) if any LIBOR Period would otherwise end on a day that is not a LIBOR
Business Day, such LIBOR Period shall be extended to the next succeeding LIBOR
Business Day unless the result of such extension would be to carry such LIBOR
Period into another calendar month in which event such LIBOR Period shall end
on the immediately preceding LIBOR Business Day;

     (b) any LIBOR Period that would otherwise extend beyond the Commitment
Termination Date shall end two (2) LIBOR Business Days prior to such date;

     (c) any LIBOR Period pertaining to a LIBOR Loan that begins on the last
LIBOR Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such LIBOR
Period) shall end on the last LIBOR Business Day of a calendar month;

     (d) Borrower shall select LIBOR Periods so as not to require a payment or
prepayment of any LIBOR Loan during a LIBOR Period for such LIBOR Loan; and

     (e) Borrower shall select LIBOR Periods so that there shall be no more
than seven (7) separate LIBOR Loans in existence at any one time.

     “LIBOR Rate” shall mean for each LIBOR Period, a rate of interest
determined by Agent equal to:

     (a) the offered rate for deposits in United States Dollars for the
applicable LIBOR Period which appears on Telerate Page 3750 as of 11:00 a.m.,
London time, on the second full LIBOR Business Day next preceding the first day
of each LIBOR Period (unless such date is not a Business Day, in which event
the next succeeding Business Day will be used); divided by

     (b) a number equal to 1.0 minus the aggregate (but without duplication) of
the rates (expressed as a decimal fraction) of reserve requirements in effect
on the day which is two (2) LIBOR Business Days prior to the beginning of such
LIBOR Period (including basic, supplemental, marginal and emergency reserves
under any regulations of the Board of Governors of the Federal Reserve system
or other governmental authority having jurisdiction with respect thereto, as
now and from time to time in effect) for Eurocurrency funding (currently
referred to as “Eurocurrency liabilities” in Regulation D of such Board) which
are required to be maintained by a member bank of the Federal Reserve System
(such rate to be adjusted to the nearest one sixteenth of one percent (1/16th
of 1%) or, if there is not a nearest one sixteenth of one percent (1/16th of
1%), to the next highest one sixteenth of one percent (1/16th of 1%)).

     If such interest rates shall cease to be available from Telerate News
Service, the LIBOR Rate shall be determined from such financial reporting
service or other information as shall be mutually acceptable to Agent and
Borrower.

     “License” shall mean, with respect to any Person, any Patent License,
Trademark License or other license of rights or interests now held or hereafter
acquired by such Person.

A-19

 

     “Lien” shall mean any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge,
claim, security interest, easement or encumbrance, or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing,
and the filing of, or agreement to give, any financing statement perfecting a
security interest under the Code or comparable law of any jurisdiction).

     “Liquidity Projections” has the meaning assigned to it in Paragraph 6A of
Annex D.

     “Loan” or “Loans” shall mean the Revolving Credit Loan.

     “Loan Documents” shall mean this Agreement, the Revolving Credit Notes,
the GE Capital Fee Letter and the Collateral Documents and all other
agreements, instruments, documents and certificates identified in the Closing
Checklist executed and delivered to, or in favor of, Agent or any Lenders and
including all other pledges, powers of attorney, consents, assignments,
contracts, notices, and all other written matter whether heretofore, now or
hereafter executed by or on behalf of any Loan Party, or any employee of any
Loan Party, and delivered to Agent or any Lender in connection with the
Agreement or the transactions contemplated thereby. Any reference in the
Agreement or any other Loan Document to a Loan Document shall include all
appendices, exhibits or schedules thereto, and all amendments, restatements,
supplements or other modifications thereto, and shall refer to the Agreement or
such Loan Document as the same may be in effect at any and all times such
reference becomes operative.

     “Loan Party” shall mean Borrower and each Subsidiary of Borrower.

     “Long Form Event” shall have the meaning assigned to it in the Recitals to
this Agreement.

     “Master Documentary Agreement” means the Master Agreement for Documentary
Letters of Credit dated as of the date hereof among Borrower, as Applicant, and
GE Capital.

     “Master Standby Agreement” means the Master Agreement for Standby Letters
of Credit dated as of the date hereof among Borrower, as Applicant, and GE
Capital, as issuer.

     “Margin Stock” shall have the meaning specified in Regulation T, U or X of
the Board of Governors of the Federal Reserve System, as in effect from time to
time.

     “Material Adverse Effect” shall mean a material adverse effect on (a) the
business, assets, operations, prospects, or financial condition of Borrower and
its Subsidiaries, taken as a whole, (b) any Loan Party’s ability to pay or
perform its Obligations in accordance with the terms of the Loan Documents, (c)
the Collateral or Agent’s Lien on the Collateral or the priority or perfection
of any such Lien or (d) the rights and remedies of Agent and Lenders under this
Agreement and the other Loan Documents.

     “Material Contracts” shall those contracts required to by filed by the
Borrower with the Securities and Exchange Commission pursuant to Item 601 of
Regulation S-K, which as of the Closing Date means the contracts listed on
Schedule 6.20 hereto.

A-20

 

     “Maximum Lawful Rate” shall have the meaning assigned to it in Section
1.4(e).

     “Maximum Overadvance” shall have the meaning assigned to it in Section
1.1(b).

     “Merger” shall have the meaning assigned to it in the Recitals to the
Agreement.

     “Merger Agreement” shall mean the Agreement and Plan of Merger dated as of
June 21, 2004 by and among Galyan’s, Borrower and Acquirer and the Company
Disclosure Letter (as defined therein).

     “Minimum Shares” shall mean a total number of Shares representing at least
a majority of the Shares on a “fully diluted basis”. The term “fully diluted
basis” shall mean the sum of (i) the aggregate number of Shares outstanding
immediately prior to the acceptance of Shares pursuant to the Tender Offer,
plus (ii) the aggregate number of Shares issuable upon the exercise of any
option, warrant, other right to acquire capital stock of Galyan’s or other
security exercisable or convertible for Shares or other capital stock of
Galyan’s outstanding immediately prior to the acceptance of Shares pursuant to
the Tender Offer.

     “Multiemployer Plan” shall mean a “multiemployer plan” as defined in
Section 4001(a) (3) of ERISA, and to which Borrower or any ERISA Affiliate is
making, is obligated to make, has made or been obligated to make, contributions
on behalf of participants who are or were employed by any of them.

     “Net Income (Loss)” shall mean, for any period, the aggregate net income
(or loss) after provision (benefit) for income taxes of Borrower and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP.

     “Net Proceeds” shall mean (a) with respect to any sale or disposition of
assets (including by sale and leaseback) by any Person, the cash proceeds
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or purchase price adjustment
receivable or otherwise, but only as and when received) of such sale or
disposition net of (i) attorneys’ fees, accountants’ fees, investment banking
fees, survey costs, title insurance premiums, and related search and recording
charges, transfer taxes, deed or mortgage recording taxes, other customary
expenses, and brokerage, consultant and other customary fees actually incurred
in connection therewith other than such amounts payable to an Affiliate of
Borrower, (ii) taxes paid or payable as a result thereof, (iii) any other
transaction costs related thereto and (iv) the repayment of any debt
obligations related thereto; and (b) with respect to any issuance of equity
securities or the incurrence of any Indebtedness by any Person subsequent to
the Closing Date, the cash proceeds received by such Person from such issuance
or incurrence net of investment banking fees, legal fees, accountants’ fees,
underwriting discounts and commissions and other customary fees and expenses
and other reasonable costs and expenses actually incurred in connection
therewith other than such amounts payable to an Affiliate of Borrower.

     “Non-Funding Lender” shall have the meaning assigned to it in Section
1.1(g).

     “Non-use Fee” shall have the meaning assigned to it in Section 1.6.

A-21

 

     “Notice of Conversion/Continuation” shall have the meaning assigned to it
in Section 1.1(d).

     “Notice of Revolving Credit Advance” shall have the meaning assigned to it
in Section 1.1(c).

     “Obligations” shall mean all loans, advances, debts, liabilities
(including, without limitation, liabilities now existing or hereafter incurred
under, arising out of or in connection with any Interest Rate Agreement entered
into by Borrower in accordance with the terms of the Agreement to which a
Lender or an affiliate thereof was a counterparty at the time such interest
rate agreement was entered into) and obligations for the performance of
covenants, tasks or duties or for payment of monetary amounts (whether or not
such performance is then required or contingent, or amounts are liquidated or
determinable) owing by any Loan Party to Agent or any Lender (or any affiliate
thereof in connection with any Interest Rate Agreement referred to above), and
all covenants and duties regarding such amounts, of any kind or nature, present
or future, whether or not evidenced by any note, agreement or other instrument,
arising under any of the Loan Documents or any such Interest Rate Agreement.
This term includes (i) any Revolving Credit Advances made pursuant to the terms
of the Existing Credit Agreement, and (ii) all principal and interest
(including interest which accrues after the commencement of any case or
proceeding referred to in Section 8.1(f), (g) or (h)), on the Revolving Credit
Loan, all amounts payable in respect of Letters of Credit under Section 1.18 or
Annex F, all Letter of Credit Obligations, all Fees, Charges, expenses,
attorneys’ fees and any other sum chargeable to any Loan Party under any of the
Loan Documents.

     “Offer Materials” shall mean the documents and materials filed publicly in
connection with the Tender Offer and the Merger.

     “Operating Lease” shall mean any lease of real or personal property, or
mixed property, which is not a Capital Lease.

     “Other Lender” shall have the meaning assigned to it in Section 1.1(g).

     “Other Taxes” shall have the meaning assigned to it in Section 1.17(b).

     “Overadvance” has the meaning assigned to it in Section 1.1(b).

     “Participants” shall have the meaning assigned to it in Section 10.2(a).

     “Patent License” shall mean, with respect to any Person, rights under any
written agreement now owned or hereafter acquired by such Person granting any
right with respect to any invention on which a Patent is in existence.

     “Patents” shall mean, with respect to any Person, all of the following in
which such Person now holds or hereafter acquires any right, title or interest:
(a) all letters patent of the United States of America or any other country,
all registrations and recordings thereof, and all applications for letters
patent of the United States of America or any other country, including
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States of
America, any State or Territory thereof, or

A-22

 

any other country, and (b) all reissues, divisions, continuations,
continuations-in-part or extensions thereof.

     “Payoff and Letter of Credit Agreement” shall have the meaning assigned to
such term in Annex F.

     “PBGC” shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.

     “Pension Plan” shall mean an employee pension benefit plan, as defined in
Section 3(2) of ERISA, which is not an individual account plan, as defined in
Section 3(34) of ERISA, and which any Loan Party or any ERISA Affiliate
maintains, contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any of them.

     “Permitted Acquisition” shall mean an acquisition (whether pursuant to an
acquisition of Stock, assets or otherwise) by Borrower or any Subsidiary from
any Person of a business or of all or substantially all of the assets or of all
of the Stock of any domestic Person (or any division thereof) in which the
following conditions are satisfied:

     (a) immediately before and after giving effect to such acquisition, no
Default shall have occurred and be continuing or would result therefrom
(including under Sections 6.5 and 6.10);

     (b) Borrower shall have delivered to the Agent, in form and substance
satisfactory to the Agent, (i) a compliance certificate for the period of four
full Fiscal Quarters immediately preceding such acquisition giving pro forma
effect to the consummation of such acquisition and any Revolving Credit
Advances necessary in connection therewith and evidencing compliance, if
applicable, with the covenant set forth in Section 6.10; (ii) the most recent
annual and interim financial statements for the Person being acquired and
related statements of income and cash flows showing positive cash flows for the
preceding fiscal year of such Person; (iii) detailed forecasts of cash flows
for the Person being acquired forecasting positive future cash flows; and (iv)
new detailed Projections for Borrower and its Subsidiaries through the
Commitment Termination Date giving pro forma effect to such acquisition, based
on assumptions satisfactory to the Agent and demonstrating pro forma
compliance, if applicable, with the financial covenant contained in Section
6.10, in each case, prepared in good faith and in a manner and using such
methodology which is consistent with the most recent financial statements
delivered pursuant to Section 4.1 and Annex D and in form reasonably
satisfactory to the Agent, provided that Borrower shall not be required to
comply with this clause (b) in respect of any acquisition of a series of up to
ten (10) related retail stores (whether through the acquisition of Stock or
assets), which acquisitions of retail stores (the “Retail Store Acquisitions”)
shall not exceed $20,000,000 (excluding Inventory) in the aggregate during any
Fiscal Year;

     (c) concurrently with the consummation of such acquisition, the Borrower
will have complied with the requirements of Section 5.16, including that the
documentation for such acquisition shall permit the Agent to obtain a Lien
thereon to the extent provided in Section 5.16;

     (d) Agent shall receive at least 30 days prior written notice of such
proposed acquisition, which notice shall include a reasonably detailed
description of such proposed acquisition;

A-23

 

     (e) such acquisition shall only involve assets located in the United
States and comprising a business, or those assets of a business, of the type
engaged in by Borrower as of the Closing Date, and which business would not
subject Agent or any Lender to regulatory or third party approvals in
connection with the exercise of its rights and remedies under this Agreement or
any other Loan Documents other than approvals applicable to the exercise of
such rights and remedies with respect to Borrower prior to such acquisition;

     (f) such acquisition shall be consensual and shall have been approved by
such Person’s board of directors; and

     (g) on or prior to the date of such acquisition, Agent shall have
received, in form and substance reasonably satisfactory to Agent, copies of the
acquisition agreement and related agreements and instruments, and all opinions,
certificates, lien search results and other documents reasonably requested by
Agent.

     “Permitted Encumbrances” shall mean: (a) Liens for Charges provided
payment thereof shall not at the time be required under Section 5.2; (b)
deposits, Liens or pledges of cash collateral to secure obligations under
workmen’s compensation, unemployment insurance, social security or public
liability laws or similar legislation or other public or statutory obligations
arising in the ordinary course of business; (c) deposits, Liens or pledges of
cash collateral to secure the performance of bids, tenders, contracts (other
than contracts for the payment of money), obligations of a tenant under an
Operating Lease, or surety, stay or appeal bonds or similar obligations arising
in the ordinary course of business; (d) workers’, mechanics’, suppliers’,
carriers’, warehousemen’s Liens or other similar Liens arising by operation of
law in the ordinary course of business and securing sums which are not past
due; (e) any attachment or judgment Lien which does not constitute a Default,
unless the judgment it secures shall not, within 15 days after the entry
thereof, have been discharged or execution thereof stayed pending appeal, or
shall not have been discharged within 15 days after the expiration of any such
stay; (f) zoning restrictions, easements, licenses, or other restrictions on
the use of real property (whether owned or leased) or other minor
irregularities in title (including leasehold title) thereto, so long as the
same do not materially impair the use, value, or marketability of such real
property, leases or leasehold estates; (g) Liens created by statute or common
law in favor of landlords for unpaid rent and related amounts that are not more
than fifteen days past due, unless contested in good faith by appropriate
proceedings, provided, that (i) adequate reserves with respect to such contest
are maintained on the books of such Loan Party, in accordance with GAAP; (ii)
no Liens shall be imposed to secure payment of such amounts that are superior
to any of the Liens securing the Obligations in an aggregate amount in excess
of $2,000,000 at any time outstanding; (iii) such contest is maintained and
prosecuted continuously and with diligence and operates to suspend collection
or enforcement of such amounts; (iv) none of the Collateral becomes subject to
forfeiture or loss as a result of such contest; (v) such Loan Party shall
promptly pay or discharge such contested amounts and all additional charges,
interest, penalties and expenses, if any, and shall deliver to Agent evidence
reasonably acceptable to Agent of such compliance, payment or discharge, if
such contest is terminated or discontinued adversely to such Loan Party or the
conditions set forth in this proviso are no longer met; and (vi) Agent has not
advised Borrower in writing that Agent reasonably believes that nonpayment or
nondischarge thereof could have or result in a Material Adverse Effect; (h)
subject to the blocked account agreements, if any, Liens of a banking
institution encumbering deposits (including setoff rights) held by such banking

A-24

 

institution incurred in the ordinary course of business and which are
within the general parameters customary in the banking industry; and (i) Liens
listed in Schedule 6.7 existing on the Closing Date.

     “Permitted Holders” shall mean any member of the Stack Family.

     “Permitted Investments” shall mean, at any time, (a) any evidence of
Indebtedness with a maturity date of three years or less from the date of
acquisition issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof; provided, that, the
full faith and credit of the United States of America is pledged in support
thereof; (b) obligations of state and local governments or agencies thereof
(including variable rate demand notes and auction rate securities) with a
maturity date or reset period of one year or less from the date of acquisition;
(c) commercial paper with a maturity of one year or less from the date of
acquisition issued by a corporation (except an Affiliate of Borrower) organized
under the laws of any State of the United States of America or the District of
Columbia and rated at least A-1 by Standard & Poor’s Ratings Service, a
division of The McGraw-Hill Companies, Inc. (“S&P”) or at least P-1 by Moody’s
Investors Service, Inc. (“Moody’s”); (d) corporate notes (including variable
rate demand notes, auction rate securities and Eurodollar notes) issued by a
corporation (except an Affiliate of Borrower) organized under the laws of any
State of the United States of America or the District of Columbia and rated at
least A2 by S&P or at least A by Moody’s with a maturity date of two years or
less from the date of acquisition; (e) repurchase obligations with a term of
not more than thirty (30) days for underlying securities of the types described
in clause (a) above entered into with any financial institution having combined
capital and surplus and undivided profits of not less than $500,000,000; (f)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United States of
America or issued by any governmental agency thereof and backed by the full
faith and credit of the United States of America, in each case maturing within
one year or less from the date of acquisition; provided, that, the terms of
such agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions with Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985; and (g)
investments in money market funds and mutual funds which invest substantially
all of their assets in securities of the type described in clauses (a) through
(f) above.

     “Permitted Sale and Leaseback Transaction” shall mean, after the
consummation of the Merger, (i) any sale and leaseback transaction related
solely to Borrower’s or any of its Subsidiaries’ Fixtures and Equipment in a
transaction or series of transactions in which any such Loan Party receives
fair consideration for each such sale; provided, that (a) no Default has
occurred and is continuing or would occur as a result of such transfer; (b)
such Net Proceeds (including such fair consideration) are immediately deposited
into the Concentration Account; and (c) the lease pertaining to such Fixtures
and Equipment is an Operating Lease for purposes of GAAP, and (ii) any sale and
leaseback transaction of any assets of the Borrower or any of its Subsidiaries
in a transaction or series of transactions in which any such Loan Party
receives fair consideration for each such sale; provided, that (a) no Default
has occurred and is continuing or would occur as a result of such transfer; (b)
such Net Proceeds (including such fair consideration) are immediately deposited
into the Concentration Account; (c) the lease pertaining to such Fixtures and
Equipment is an Operating Lease for purposes of GAAP or a

A-25

 

Capital Lease; and (d) the aggregate net book value of the properties sold
or transferred in any such transactions does not exceed $15,000,000 after the
Closing Date.

     “Person” shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, entity or
government (whether Federal, state, county, city, municipal or otherwise,
including any instrumentality, division, agency, body or department thereof).

     “Plan” shall mean, with respect to Borrower or any ERISA Affiliate, at any
time, an employee benefit plan, as defined in Section 3(3) of ERISA, which
Borrower maintains, contributes to or has an obligation to contribute to on
behalf of participants who are or were employed by any of them.

     “Pledge Agreement” shall mean the Amended and Restated Pledge Agreement,
dated as of the date hereof, attached hereto as Exhibit F, made by the Loan
Parties signatory thereto in favor of Agent for the benefit of Lenders.

     “Prior Lender” shall mean the lenders under the Existing Galyan’s Credit
Agreement.

     “Prior Lender Obligations” shall mean the “Obligations” as defined in the
Existing Galyan’s Credit Agreement.

     “Proceeds” shall mean “proceeds,” as such term is defined in the Code,
including (a) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to any Loan Party from time to time with respect to any of the
Collateral, (b) any and all payments (in any form whatsoever) made or due and
payable to any Loan Party from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any Governmental Authority (or any Person acting under color of
governmental authority), (c) any claim of any Loan Party against third parties
(i) for past, present or future infringement of any Patent or Patent License,
or (ii) for past, present or future infringement or dilution of any Copyright,
Copyright License, Trademark or Trademark License, or for injury to the
goodwill associated with any Trademark or Trademark License, (d) any recoveries
by any Loan Party against third parties with respect to any litigation or
dispute concerning any of the Collateral including claims arising out of the
loss or nonconformity of, interference with the use of, defects in, or
infringement of rights in, or damage to, Collateral, (e) all amounts collected
on, or distributed on account of, other Collateral, including dividends,
interest, distributions and Instruments with respect to Investment Property and
pledged Stock, and (f) any and all other amounts, rights to payment or other
property acquired upon the sale, lease, license, exchange or other disposition
of Collateral and all rights arising out of Collateral.

     “Projections” shall mean (i) the projections as of any date of the
consolidated balance sheet, statements of income and cash flow for Borrower and
its Subsidiaries (including forecasted Capital Expenditures and Excess
Availability), (ii) the Annual Operating Plan, the Liquidity Projections and
(iii) any other projections required to be delivered by the Loan Parties to
Agent and Lenders under the Agreement, including the Closing Date Projections.

     “Proportionate Share” shall mean, with respect to any Lender, the
following: (a) for the purpose of repayment of principal, interest and Fees
with respect to the Revolving Credit Loan

A-26

 

and Letter of Credit Obligations, a fraction (expressed as a percentage),
the numerator of which shall be the aggregate principal amount of Revolving
Credit Advances held by such Lender (including Agent), and the denominator of
which shall be the principal amount of the Revolving Credit Loan; and (b) for
all other purposes, the fraction (expressed as a percentage), the numerator of
which shall be the Revolving Credit Commitment of such Lender and the
denominator of which shall be the Aggregate Revolving Credit Commitment.

     “Qualified Plan” shall mean, for any Loan Party, an employee pension
benefit plan, as defined in Section 3(2) of ERISA, which is intended to be
tax-qualified under IRC Section 401(a), and which such Loan Party or any ERISA
Affiliate maintains, contributes to or has an obligation to contribute to on
behalf of participants who are or were employed by any of them.

     “Refinancing” shall mean the repayment in full by Galyan’s of the
obligations under the Existing Galyan’s Credit Agreement on the Closing Date.

     “Register” shall have the meaning assigned to it in Section 10.2(c).

     “Registration Rights Agreement” shall mean that certain Registration
Rights Agreement entered into among the Borrower, Merrill, Lynch, Pierce,
Fenner & Smith Incorporated and any other initial purchasers of the Convertible
Notes, as amended, supplemented or otherwise modified in accordance with the
terms hereof and thereof.

     “Regulatory Change” shall mean, with respect to any Lender, any change
after the date of this Agreement in federal, state or foreign law or
regulations (including Regulation D) or the adoption or making after such date
of any interpretation, directive or request applying to a class of lenders
including such Lender of or under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.

     “Relationship Bank” shall have the meaning assigned to it in Annex B.

     “Release” shall mean, as to any Person, any release or any spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping, disposing or migration of a Hazardous Material
into the indoor or outdoor environment by such Person (or by a person under
such Person’s direction or Control), including the movement of a Hazardous
Material through or in the air, soil, surface water, ground water or property;
but shall exclude any release, discharge, emission or disposal in material
compliance with a then effective permit, order, rule regulation or law of a
Governmental Authority.

     “Reportable Event” shall mean any of the events described in Section
4043(c) (1), (2), (3), (5), (6), (8) or (9) of ERISA, as to which the duty to
report has not been waived by regulation.

     “Required Lenders” shall mean, at any time, Lenders holding at least
sixty-six and two-thirds percent (66 2/3%) of the aggregate of the Revolving
Credit Commitments of all Lenders at such time (or, at any time after which the
Revolving Credit Commitments of all of Lenders shall

A-27

 

have expired or terminated, Lender’s holding sixty-six and two-thirds
percent (66 2/3%) of the principal of the Revolving Credit Loan outstanding at
such time).

     “Required Payment” shall have the meaning assigned to it in Section 1.11.

     “Reserves” shall mean such reserves as the Agent from time to time
determines in its discretion as being appropriate to reflect the impediments to
the Agent’s ability to realize upon the Collateral. Without limiting the
generality of the foregoing, Reserves may include (but are not limited to)
reserves based on reserves established by Agent from time to time against (a)
Eligible Inventory pursuant to Section 5.12, (b) reserves established pursuant
to Section 5.5, (c) the Lease Payment Reserve, (d) the Galyan’s Tender Reserve,
and (e) reserves based on (i) Gift Certificates and Merchandise Credit
Liability, (ii) frequent shopper programs, (iii) layaways and customer
deposits, (iv) customs, duties, and other costs to release Inventory which is
being imported into the United States, and (v) outstanding taxes and other
governmental charges, including, ad valorem, real estate, personal property,
and other taxes which might have priority over the interests of the Agent in
the Collateral and either which have not been paid when due (unless such taxes
are the subject of a bona fide dispute and are supported by funded reserves) or
which the Agent, in its discretion, believes may impede the Agent’s ability to
realize upon the Collateral.

     “Restricted Payment” shall mean, with respect to any Person, either
directly or indirectly, (a) the declaration or payment of any dividend or the
incurrence of any liability to make any other payment or distribution of cash
or other property or assets in respect of such Person’s Stock, (b) any payment
on account of the purchase, redemption, defeasance or other retirement, or to
obtain the surrender of, such Person’s Stock or any other payment or
distribution made in respect thereof, (c) any payment, loan, contribution, or
other transfer of funds or other property to any Stockholder or Affiliate of
such Person other than relating to salaries, bonuses and other compensation to
such Person’s officers, directors and employees in the ordinary course of
business consistent with past practice, (d) any payment, purchase, redemption,
retirement, or other acquisition for value or setting apart of any money for a
sinking, or other analogous fund for the purchase, redemption, retirement or
other acquisition of, or to obtain the surrender of, or any payment (scheduled,
voluntary or other) of principal of or interest on, or any other amount owing
in respect of any Subordinated Debt or any Convertible Note or (e) any payment
of a claim for the rescission of the purchase or sale of, or for material
damages arising from the purchase or sale of any Stock of such Person, or of a
claim for indemnification or contribution arising out of or relating to any
such claim for damages or rescission.

     “Retiree Welfare Plan” shall refer to any Welfare Plan providing for
continuing coverage or benefits for any participant or any beneficiary of a
participant after such participant’s termination of employment, other than
continuation coverage provided pursuant to Section 4980B of the IRC and at the
sole expense of the participant or the beneficiary of the participant.

     “Revolving Credit Advance” shall have the meaning assigned to it in
Section 1.1(a).

     “Revolving Credit Commitment” shall mean, as to each Lender, the
commitment of such Lender to make Revolving Credit Advances or incur Letter of
Credit Obligations pursuant to Section 1.1 and the other provisions hereof in
the aggregate principal amount outstanding not to

A-28

 

exceed the amount set forth opposite such Lender’s name on Appendix 1, as
such amount may be reduced or modified pursuant to this Agreement.

     “Revolving Credit Loan” shall mean the aggregate amount of Revolving
Credit Advances of all Lenders (including Revolving Credit Advances made by
Agent pursuant to Section 1.13 and Revolving Credit Advances made pursuant to
the terms of the Existing Credit Agreement) outstanding at any time.

     “Revolving Credit Notes” shall mean the promissory notes provided for by
Section 1.1(e) and all promissory notes delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented and in
effect from time to time.

     “Schedule of Documents” shall mean the schedule attached hereto as Annex
C, including all appendices, exhibits or schedules thereto, listing certain
documents and information to be delivered in connection with the Loan Documents
and the transactions contemplated thereunder.

     “SEC” shall have the meaning assigned to it in Section 11.15.

     “Settlement Period” shall have the meaning assigned to it in Section 1.13.

     “Shares” shall have the meaning assigned to it in the Recitals to this
Agreement.

     “Short Form Merger Threshold” shall mean the number of shares required in
accordance with applicable law to permit the Merger to occur without a vote of
the shareholders of Galyan’s.

     “Software” shall mean all “software” as such term is defined in the Code,
now owned or hereafter acquired by any Loan Party, other than software embedded
in any category of goods, including all computer programs and all supporting
information provided in connection with a transaction related to any program.

     “Solvent” and “Solvency” mean, with respect to any Person on a particular
date, that on such date (a) the fair value of the property of such Person is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair salable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (c) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person’s ability to pay as such
debts and liabilities mature and (d) such Person is not engaged in business or
a transaction, and is not about to engage in business or a transaction, for
which such Person’s property would constitute an unreasonably small capital.
The amount of contingent liabilities at any time shall be computed as the
amount that, in the light of all the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become an actual
or matured liability.

     “Stack Family” shall mean Nancy and Richard Heichemer, Kim and Tim Myers,
Donna and Richard J. Stack, Edward W. Stack, Karin Lea Stack, Martin J. Stack,
Stacey A. Stack and Richard T. Stack. and/or any Class B Permitted Holder (as
defined in the Borrower’s Amended and Restated Certificate of Incorporation, as
amended up to the Closing Date).

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     “Standby Letter of Credit” shall mean any Letter of Credit other than a
Documentary Letter of Credit.

     “Stock” shall mean all shares, options, warrants, general or limited
partnership interests, membership interests, participation or other equivalents
(regardless of how designated) of or in a corporation, partnership, limited
liability company or equivalent entity whether voting or nonvoting, including
common stock, preferred stock, or any other “equity security” (as such term is
defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as amended).

     “Stockholder” shall mean each holder of Stock of Borrower.

     “Subject Property” shall mean all real property owned, leased or operated
by any Loan Party.

     “Subordinated Debt” shall mean any Indebtedness of Borrower which is
subordinated in right of payment to the Obligations.

     “Subsidiary” shall mean, with respect to any Person, (a) any corporation
of which an aggregate of 50% or more of the outstanding Stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of 50% or more of such Stock whether by proxy, agreement,
operation of law or otherwise, and (b) any partnership or limited liability
company in which such Person and/or one or more Subsidiaries of such Person
shall have an interest (whether in the form of voting or participation in
profits or capital contribution) of 50% or more or of which any such Person is
a general partner or managing member, as the case may be, or may exercise the
powers of a general partner or managing member, as the case may be.

     “Subsidiary Security Agreement” shall mean the Amended and Restated
Subsidiary Security Agreement, dated as of the date hereof, attached hereto as
Exhibit D-2, made by Loan Parties (other than Borrower, and prior to
consummation of the Merger, other than Galyan’s and its Subsidiaries) and in
favor of Agent for the benefit of Lenders, which, if prior to consummation of
the Merger, shall include, among other things, a collateral assignment of the
Acquirer Intercompany Note, the Galyan’s Intercompany Note and the Galyan’s
Pledge in favor of Agent for the benefit of Lenders.

     “Supporting Obligations” shall mean all supporting obligations as such
term is defined in the Code, including letters of credit and guaranties issued
in support of Accounts, Chattel Paper, Documents, General Intangibles,
Instruments, or Investment Property.

     “Taxes” shall mean taxes, levies, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto, excluding taxes,
levies, imposts, deductions, charges or withholdings and liabilities with
respect thereto that are imposed on or measured by the net income of any Lender
or are imposed for the privilege of any Lender doing business in any

A-30

 

jurisdiction by the United States of America, the jurisdiction under the
laws of which Lender is organized or the jurisdiction in which such Lender’s
applicable lending office is located or, in each case, any political
subdivision thereof.

     “Tender Offer” shall have the meaning assigned to it in the Recitals to
this Agreement.

     “Termination Date” shall mean the date on which (a) the Aggregate
Revolving Credit Commitment has been terminated in full and Agent and Lenders
shall have no further obligation to make any Revolving Credit Advances or any
other credit extensions or financial accommodations hereunder or under any
other Loan Document, and (b) all Obligations have been irrevocably paid in full
and Borrower shall have funded the amounts required, if any, under the Loan
Documents into the Cash Collateral Account in respect of Letter of Credit
Obligations, if any, then outstanding.

     “Title IV Plan” shall mean a Pension Plan, other than a Multiemployer
Plan, which is covered by Title IV of ERISA.

     “Trademark License” shall mean, with respect to any Person, rights under
any written agreement now owned or hereafter acquired by such Person granting
any right to use any Trademark or Trademark registration.

     “Trademark Security Agreement” shall mean an Amended and Restated
Trademark Security Agreement, made by the Loan Parties signatory thereto in
favor of Agent.

     “Trademarks” shall mean, with respect to any Person, all of the following
in which such Person now holds or hereafter acquires any interest: (a) all
common law and statutory trademarks, trade names, corporate names, business
names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature, now existing or
hereafter adopted or acquired, all registrations and recordings thereof, and
all applications in connection therewith, including registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States of America, any State or
Territory thereof, or any other country or any political subdivision thereof;
(b) all reissues, extensions or renewals thereof; and (c) all licenses
thereunder and together with the goodwill associated with and symbolized by
such trademark.

     “Transaction Documents” shall mean the Merger Agreement, and all other
agreements or instruments executed in connection with the Transaction.

     “Transaction” shall mean, collectively, the initial Revolving Credit
Advance on the Closing Date, the Acquisition, the Refinancing, the Tender
Offer, the Merger, and the execution and delivery of all of the Loan Documents
and the Transaction Documents, and the payment of all fees, costs and expenses
associated with all of the foregoing.

     “Uniform Commercial Code jurisdiction” shall mean any jurisdiction that
had adopted all or substantially all of Article 9 as contained in the 2000
Official Text of the Uniform Commercial Code, as recommended by the National
Conference of Commissioners on Uniform

A-31

 

State Laws and the American Law Institute, together with any subsequent
amendments or modifications to the Official Text.

     “Welfare Plans” shall mean any welfare plan, as defined in Section 3(1) of
ERISA, which is maintained or contributed to by Borrower or any ERISA
Affiliate.

     2. Certain Matters of Construction. Any accounting term used in the
Agreement or the other Loan Documents shall have, unless otherwise specifically
provided therein, the meaning customarily given such term in accordance with
GAAP, and all financial computations thereunder shall be computed, unless
otherwise specifically provided therein, in accordance with GAAP consistently
applied. That certain items or computations are explicitly modified by the
phrase “in accordance with GAAP” shall in no way be construed to limit the
foregoing.

     All other undefined terms contained in the Agreement or the other Loan
Documents shall, unless the context indicates otherwise, have the meanings
provided for by the Code as in effect in the State of New York to the extent
the same are used or defined therein. The words “herein,” “hereof” and
“hereunder” or other words of similar import refer to the Agreement as a whole,
including the exhibits and schedules thereto, as the same may from time to time
be amended, modified or supplemented, and not to any particular section,
subsection or clause contained in this Agreement.

     Whenever any provision in any Loan Document refers to the “knowledge” of
any Person, such provision is intended to mean that such Person has actual
knowledge or awareness of a particular fact or circumstance, or that such
Person, if it had exercised reasonable diligence, should have known or been
aware of such fact or circumstance.

     For purposes of this Agreement and the other Loan Documents, the following
additional rules of construction shall apply: (a) wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter; (b) the term “including” shall not be limiting or exclusive, unless
specifically indicated to the contrary; (c) all references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations; and (d) all references to any instruments or
agreements, including references to any of the Loan Documents, shall include
any and all modifications or amendments thereto and any and all extensions or
renewals thereof, in each case, made in accordance with the terms of the Loan
Documents.

A-32

 

ANNEX B

to

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

CASH MANAGEMENT SYSTEM

     Each Loan Party shall, and shall cause its Subsidiaries to, establish and
maintain the Cash Management Systems described below:

          (a) On or before the Closing Date (or such later date set forth in Section
5.14(b) or as Agent shall consent in writing) and until the Termination Date,
the Loan Parties shall (i) enter into blocked account agreements as set forth
in clause (c) below for each account (each a “Blocked Account” and
collectively, the “Blocked Accounts”) set forth on Schedule 3.20 with the banks
identified on such Schedule 3.20 (each, a “Relationship Bank”) and request in
writing and otherwise take such reasonable steps to ensure that all Account
Debtors forward payments directly to such Blocked Accounts and (ii) deposit and
cause its Subsidiaries to deposit or cause to be deposited promptly, and in any
event no later than the first Business Day after the date of receipt thereof,
all cash, checks, drafts or other similar items of payment relating to or
constituting payments made in respect of any and all Collateral into one or
more Blocked Accounts in such Loan Party’s name or any such Subsidiary’s name
at a Relationship Bank. On or before the Closing Date, Borrower shall have
established a concentration account in its name (the “Concentration Account”)
at the bank which shall be designated as the Concentration Account bank for
Borrower on Schedule 3.20 (the “Borrower Concentration Account Bank”), which
bank shall be satisfactory to Agent. Within the period set forth in Section
5.14(b), Galyan’s shall have established a concentration account in its name
(the “Galyan’s Concentration Account”) at the bank which shall be designated as
the Concentration Account bank for Galyan’s (the “Galyan’s Concentration
Account Bank”; the Borrower Concentration Account Bank and the Galyan’s
Concentration Account Bank are each a “Concentration Account Bank” and
collectively, the “Concentration Account Banks”), which bank shall be
satisfactory to Agent.

          (b) Borrower may maintain, in its name, an account (each a “Disbursement
Account” and collectively, the “Disbursement Accounts”) at a bank acceptable to
Agent into which Agent shall, from time to time, deposit proceeds of Revolving
Credit Advances pursuant to Section 1.1 for use by Borrower solely in
accordance with the provisions of Section 1.3.

          (c) On or before the Closing Date (or such later date set forth in Section
5.14(b) or as Agent shall consent in writing), each Concentration Account Bank,
Relationship Bank and each bank where a Disbursement Account is maintained,
shall have entered into tri-party blocked account agreements with Agent, for
the benefit of itself and Lenders, and the applicable Loan Party, in form and
substance acceptable to Agent, which shall become operative on or prior to the
Closing Date; provided that the balance in each Blocked Account or Disbursement
Account held by such banks identified on Schedule 3.20 for which blocked
account agreements have not been obtained shall not be greater than $100,000 at
any time. Each such blocked account agreement shall provide, among other
things, that (i) all items of payment deposited in such account and proceeds
thereof deposited in the applicable Concentration Account, Disbursement Account
or Blocked Account are held by such bank as agent or bailee-in-possession for
Agent, on behalf of itself and Lenders, (ii) the bank executing such agreement

B-1

 

has no rights of setoff or recoupment or any other claim against such
account, as the case may be, other than for payment of its service fees and
other charges directly related to the administration of such account and for
returned checks or other items of payment, and (iii) from and after the date of
execution of such agreement with respect to a Blocked Account, such bank agrees
to sweep on a daily basis all amounts in such Blocked Account to the
Concentration Account (or, in respect of Galyan’s and its Subsidiaries, to
sweep on a daily basis all amounts in such Blocked Account to the Galyan’s
Concentration Account, and to sweep on a daily basis all amounts in the
Galyan’s Concentration Account to the Concentration Account) and (iv) from and
after the date of execution of such agreement with respect to the Borrower
Concentration Account Bank or each bank where a Disbursement Account is held,
such bank agrees, from and after the receipt of a notice (an “Activation
Notice”) from Agent (which Activation Notice may be given by Agent at any time
at which (1) a Default or Event of Default shall have occurred and be
continuing or (2) Excess Availability has at any time been less than
$30,000,000 (each of the foregoing being referred to herein as an “Activation
Event”)), to immediately forward all amounts received in the Concentration
Account or the applicable Disbursement Account to the Collection Account
through daily sweeps from the Concentration Account or such Disbursement
Account into the Collection Account. From and after the date Agent has
delivered an Activation Notice to any bank with respect to the Concentration
Account or any Disbursement Account(s), no Loan Party shall, or shall cause or
permit any Subsidiary thereof to, accumulate or maintain cash in disbursement
or payroll accounts as of any date of determination in excess of checks
outstanding against such accounts as of that date and amounts necessary to meet
minimum balance requirements. In the event the Agent shall have delivered an
Activation Notice to bank at which the Concentration Account is held, and
thereafter the Borrower has Excess Availability in excess of $50,000,000 for a
period of ninety consecutive Business Days, at the written request of Borrower,
the Agent, subject to no Default or Event of Default existing at such time,
shall deliver a written notice to such bank rescinding the Activation Notice
previously delivered.

          (d) So long as no Default or Event of Default has occurred and is
continuing, Borrower may amend Schedule 3.20 to add or replace a Relationship
Bank or Blocked Account or to replace the Concentration Account or any
Disbursement Account; provided, however, that (i) Agent shall have consented in
writing in advance to the opening of such account with the relevant bank and
(ii) prior to the time of the opening of such account, the applicable Loan
Party and/or the Subsidiaries thereof, as applicable, and such bank shall have
executed and delivered to Agent a tri-party blocked account agreement or such
other agreement, in form and substance satisfactory to Agent. The Loan Parties
shall close any of their accounts (and establish replacement accounts in
accordance with the foregoing sentence) promptly and in any event within thirty
(30) days of notice from Agent that the creditworthiness of any bank holding an
account is no longer acceptable in Agent’s reasonable judgment, or as promptly
as practicable and in any event within sixty (60) days of notice from Agent
that the operating performance, funds transfer and/or availability procedures
or performance with respect to accounts or lockboxes of the bank holding such
accounts or Agent’s liability under any tri-party blocked account agreement or
such other agreement with such bank is no longer acceptable in Agent’s
reasonable judgment.

          (e) The Blocked Accounts, Disbursement Accounts, the Galyan’s
Concentration Account and the Concentration Account shall be cash collateral
accounts, with all cash, checks and other similar items of payment in such
accounts securing payment of the

B-2

 

Revolving Credit Loan and all other Obligations, and in which the Loan
Parties shall have granted a Lien to Agent, on behalf of itself and Lenders,
pursuant to the Borrower Security Agreement or the Subsidiary Security
Agreement, as applicable.

      (f) All amounts deposited in the Collection Account shall be deemed
received by Agent in accordance with Section 1.8 of the Agreement and shall be
applied (and allocated) by Agent in accordance with Section 1.10 of the
Agreement. In no event shall any amount be so applied unless and until such
amount shall have been credited in immediately available funds to the
Collection Account.

      (g) Each Loan Party shall and shall cause its Affiliates, officers,
employees, agents, directors or other Persons acting for or in concert with
such Loan Party (each a “Related Person”) to (i) hold in trust for Agent, for
the benefit of itself and Lenders, all checks, cash and other items of payment
received by such Loan Party or any such Related Person on behalf of any Loan
Party, and (ii) within one (1) Business Day after receipt by such Loan Party or
any such Related Person of any checks, cash or other items or payment received
on behalf of any Loan Party, deposit the same into a Blocked Account of such
Loan Party. Each Loan Party and each Related Person thereof acknowledges and
agrees that all cash, checks or items of payment constituting proceeds of
Collateral are the property of Agent and Lenders. All proceeds of the sale or
other disposition of any Collateral, shall be deposited directly into the
applicable Blocked Accounts or the Concentration Account if required by Section
6.8 of the Agreement.

B-3

 

ANNEX C

to

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

SCHEDULE OF CLOSING DOCUMENTS

      Subject to making the deliveries otherwise required in the Agreement on a
timely basis, the obligation of Agent and Lenders to make and/or continue any
Revolving Credit Advances hereunder, to incur any Letter of Credit Obligations,
or to take, fulfill, or perform any other action hereunder, are subject to the
satisfaction of the condition precedent that Agent and Lenders shall have
received the following, in form and substance satisfactory to Agent, Lenders
and their counsel, unless the context otherwise requires or as otherwise
specified below:

I. PRINCIPAL LOAN DOCUMENTS.

      (A) Credit Agreement. The Second Amended and Restated Credit Agreement
duly executed by Loan Parties.

      (B) Revolving Credit Notes. A duly executed Revolving Credit Note to the
order of each Lender.

      (C) Borrowing Base Certificate. The Closing Date Borrowing Base
Certificate duly executed by the Chief Executive Officer or Chief Financial
Officer of Borrower.

      (D) Notice of Revolving Credit Advance. An original Notice of Revolving
Credit Advance duly executed by the Chief Executive Officer or Chief Financial
Officer of Borrower.

II. COLLATERAL DOCUMENTS.

      (A) Security Agreements. An executed copy of each of the Borrower
Security Agreement and the Subsidiary Security Agreement, together with (to the
extent not previously delivered in connection with the Existing Credit
Agreement) delivery to Agent and Lenders of:

         (1) Acknowledgement Copies of Financing Statements. Acknowledgement
copies of proper Financing Statements (Form UCC-l) (the “Financing
Statements”) duly filed under the Uniform Commercial Code, or chattel
mortgages duly filed under other applicable law, of all jurisdictions as may
be necessary or, in the opinion of Agent, desirable to perfect the Lien
created by the Borrower Security Agreement and the Subsidiary Security
Agreement.

         (2) Other Evidence of Filing and Perfection. Certified copies of
Requests for Information (Form UCC-11), or other evidence satisfactory to
Agent, listing the Financing Statements or chattel mortgages referred to in
paragraph (1) above and all other effective financing statements or chattel
mortgages which name Borrower or any other Loan Party (under its present
name, any previous name or any trade or doing business name) as debtor and
which are filed in the jurisdictions referred to in paragraph (1) above,
together with copies of such other financing statements (none of which shall
cover the Collateral purported to be covered by the Collateral Documents).

C-1

 

         (3) Intellectual Property Documents. Agreements relating to the
granting to Agent, for the benefit of Lenders, of a security interest in
Intellectual Property of Loan Parties to the extent applicable in a form
suitable for filing with the appropriate Federal or State filing office.

         (4) Other Recordings and Filings. Evidence of the completion of all
other recordings and filings (including UCC-3 termination statements and
other Lien release documentation) as may be necessary or, in the opinion of
and at the request of Agent, desirable to perfect the Lien created by the
Borrower Security Agreement and the Subsidiary Security Agreement.

         (5) Collateral Assignment. If applicable, a pledge of the Acquirer
Intercompany Note and the Galyan’s Intercompany Note and a collateral
assignment of the Security Agreement securing the obligations of Galyan’s
under the Galyan’s Intercompany Note.

      (B) Pledge Agreements. The Pledge Agreement duly executed by applicable
Loan Parties together with (to the extent not previously delivered in
connection with the Existing Credit Agreement) delivery to Agent of:

            (1) Certificates or other evidences of ownership representing the
Pledged Shares (as defined therein) and appropriate undated stock powers (or
the equivalent thereof) executed in blank; and

            (2) Evidence that all action necessary or, in the opinion of and at the
request of Agent, desirable to perfect and protect the security interests
created by the Pledge Agreement has been taken, including delivery to the
Agent of the Acquirer Intercompany Note, the Galyan’s Intercompany Note and
the Intercompany Notes.

     (C) Guaranty. The Guaranty duly executed by the Loan Parties, other than
Galyan’s and its Subsidiaries prior to the Merger.

III. THIRD PARTY AGREEMENTS.

     (A) Landlord Consents. Unless otherwise agreed to in writing by Agent and
to the extent not already delivered pursuant to the Existing Credit Agreement,
the Loan Parties shall use commercially reasonable best efforts to deliver duly
executed Landlord’s Waivers from the landlords of all of Borrower’s leased
locations where Inventory is held, in each case, in form and substance
satisfactory to Agent.

     (B) Bailee Consents. Unless otherwise agreed to in writing by Agent and
to the extent not already delivered pursuant to the Existing Credit Agreement,
the Loan Parties shall use commercially reasonable best efforts to deliver duly
executed waiver and license agreements from any bailees, owners, or operators
of any non-leased locations where Borrower’s Inventory is located, in each
case, in form and substance satisfactory to Agent.

     (C) Cash Management System. Duly executed blocked account agreements as
contemplated by Annex B.

C-2

 

     (D) Payoff and Letter of Credit Agreement; Termination Statements. Copies
of duly executed payoff letter (the “Payoff and Letter of Credit Agreement”),
in form and substance satisfactory to Agent, by and between the administrative
agent for the Prior Lenders party to the Existing Galyan’s Credit Agreement
evidencing repayment in full of all Prior Lender Obligations, assumption by the
Borrower of the letter of credit obligations under the Existing Galyan’s Credit
Agreement, and continuation of the JPMorgan Letters of Credit under this
Agreement, together with (a) UCC-3 or other appropriate termination statements,
in form and substance satisfactory to Agent, executed by the Prior Lender, if
necessary, releasing all Liens of Prior Lender upon any of the property of
Galyan’s and its Subsidiaries, and (b) termination of all blocked account
agreements, bank agency agreements or other similar agreements or arrangements
or arrangements in favor of Prior Lender or relating to the Prior Lender
Obligations.

IV. DOCUMENTS DELIVERED BY LOAN PARTIES.

     (A) Board Resolutions and Incumbency Certificates. A certificate of the
Secretary or an Assistant Secretary of each applicable Loan Party certifying
(i) the resolutions adopted by the Board of Directors of such Loan Party
approving each Loan Document (other than any Loan Document which was previously
delivered in connection with the Existing Credit Agreement) to which such Loan
Party is a party and the transactions contemplated thereby, (ii) all documents
evidencing other necessary corporate action by Borrower and required
governmental and third party approvals with respect to each such Loan Document,
and (iii) the names and true signatures of the authorized officers of such Loan
Party.

     (B) Articles of Incorporation; By-Laws and Good Standing Certificates.
Each of the following documents:

         (1) the certificate of incorporation of each Loan Party (including
Galyan’s and its Subsidiaries) as in effect on the Closing Date, certified
by the Secretary of State or other appropriate authority of the State of its
incorporation as of a recent date, and the by-laws of each Loan Party
(including Galyan’s and its Subsidiaries) as in effect on the Closing Date,
certified by the Secretary, Assistant Secretary or other appropriate officer
or director of such Loan Party (including Galyan’s and its Subsidiaries);

         (2) a good standing certificate for each Loan Party (including Galyan’s
and its Subsidiaries) from the Secretary of State or other appropriate
authority of the State of its incorporation as of a recent date.

     (C) Financial Statements and Projections. Copies of the Financial
Statements and Closing Date Projections.

     (D) [Intentionally Omitted]

     (E) Existing Indebtedness. To the extent not delivered in connection with
the Existing Credit Agreement, copies of any document or instrument evidencing
or relating to existing Indebtedness of each Loan Party together with all
certificates, opinions, instruments, security documents and other documents
relating thereto, all of which shall be satisfactory in

C-3

 

form and substance to Agent, certified by an authorized officer of such
Loan Party as true, correct and complete copies thereof.

     (F) Stock Agreements and Material Contracts. To the extent not previously
delivered in connection with the Existing Credit Agreement, copies of any
agreement with shareholders of Borrower or ASL in effect on the Closing Date,
and all Material Contracts in each case in form and substance satisfactory to
Agent, certified by an authorized officer of the applicable Loan Party as true,
correct and complete copies thereof.

     V. LEGAL OPINION. An opinion of Buchanan Ingersoll PC, counsel to the
Loan Parties, and an opinion of Baker & Daniels, Indiana counsel to Galyan’s,
each in form and substance satisfactory to Agent and Lenders.

     VI. MISCELLANEOUS.

     (A) Appointment of Agent for Service. An appointment of Corporation
Service Company as each applicable Loan Party’s agent for service of process.

     (B) Letter of Direction. Duly executed originals of a letter of direction
from Borrower addressed to Agent, on behalf of itself and Lenders, with respect
to the disbursement on the Closing Date of the proceeds of the Revolving Credit
Advance to be made on such date.

     (C) Solvency Certificate. The applicable Loan Parties shall deliver to
Agent for the benefit of Lenders a solvency certificate reasonably satisfactory
in form and substance satisfactory to Agent.

     (D) Fee Letter. Duly executed originals of the GE Capital Fee Letter.

     (E) Master Documentary Agreement. Duly executed originals of the Master
Documentary Agreement.

     (F) Master Standby Agreement. Duly executed originals of the Master
Standby Agreement.

C-4

 

ANNEX D

to

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

FINANCIAL STATEMENTS AND NOTICES

     1. To Agent: (a) at any time Excess Availability is greater than or equal
to $50,000,000, no less frequently than 15 days after the end of each Fiscal
Month (together with a copy of all or any part of the following reports
requested by any Lender in writing after the Closing Date), a Borrowing Base
Certificate, which shall be prepared by the Borrower as of the last day of the
immediately preceding Fiscal Month, or (b) at any time Excess Availability is
less than $50,000,000, by no later than every Tuesday of each week, a Borrowing
Base Certificate as of Saturday of the preceding week.

     2. Solely to Agent, as of the last day of each fiscal month an Inventory
(including Inventory of Galyan’s and its Subsidiaries) listing and a schedule
detailing Inventory by location and type and, if requested by Agent, supporting
perpetual inventory reports in form and substance satisfactory to Agent, each
such listing and schedule to be delivered to Agent no later than the date
required for the of delivery of the financial statements for such period set
forth in paragraph 3 and 4, as applicable.

     3. Solely to Agent, by no later than the 30th day after the end of each
fiscal month, other than the last month of any Fiscal Quarter:

      (a) an internally prepared consolidated statement of operations, cash
flows and changes in stockholders’ equity for such fiscal month and that
portion of the current Fiscal Year ending as of the close of such fiscal month,
and consolidated balance sheets as at the end of such fiscal month, in each
case, for Borrower and its Subsidiaries (including Galyan’s and its
Subsidiaries), which financial and other information shall provide comparisons
to the prior year’s equivalent period, both on a monthly and year-to-date
basis, and to budget;

      (b) in the event a Long Form Event has occurred and the Prior Lender
Obligations remain outstanding, an internally prepared consolidated statement
of operations, cash flows and changes in stockholders’ equity for such fiscal
month and that portion of the current Fiscal Year ending as of the close of
such fiscal month, and consolidated balance sheets as at the end of such fiscal
month, in each case, for Galyan’s and its Subsidiaries, which financial and
other information shall provide comparisons to the prior year’s equivalent
period, both on a monthly and year-to-date basis, and to budget;

      (c) a certification of the Chief Executive Officer or Chief Financial
Officer of Borrower that all such financial statements are complete and correct
and present fairly the financial position, the results of operations, cash
flows and the changes in stockholders’ equity of Borrower and its Subsidiaries
(including Galyan’s and its Subsidiaries) as at the end of such fiscal month
and for the period then ended in accordance with GAAP, except there being an
absence of footnotes and subject to normal audit adjustments, that all rent and
other obligations of each Loan Party with respect to its Leases were paid in
accordance with the terms thereof

D-1

 

(without giving effect to any grace periods) as at the end of such fiscal
month and setting forth the aggregate amount so paid or specifying those
instances when rent or such other obligations were not so paid together with a
detailed explanation of the reasons for the failure of any Loan Party to make
such payments and the aggregate amount of such payments not made, and that
there was no Default in existence as of such time or specifying those Defaults
of which he or she was aware;

      (d) a report of the Chief Executive Officer or the Chief Financial Officer
of Borrower setting forth management’s discussion and analysis of all current
income statement, balance sheet and cash flow financial trends and a comparison
to the prior year’s equivalent period, both on a monthly and a year-to-date
basis, and to budget;

      (e) a reconciliation of the Inventory listing and schedule by location and
type referred to in paragraph 2 above as of the last day of such fiscal month
to Borrower’s general ledger for such fiscal month and financial statements for
such fiscal month, in each case accompanied by such supporting detail and
documentation as Agent may request; and

      (f) as of the end of such fiscal month, a report in form and substance
satisfactory to Agent setting forth the balance of the intercompany obligations
between Loan Parties (including the Acquirer Loan and the Galyan’s Loan, which,
prior to consummation of the Merger in the case of the Galyan’s Loan, shall
also be set forth in the Borrowing Base Certificate).

     4. By no later than the 45th day after the end of each Fiscal Quarter:

      (a) a copy of the Borrower’s Form 10-Q as filed with the Securities and
Exchange Commission or an internally prepared consolidated statement of
operations, cash flows and changes in stockholders’ equity for such Fiscal
Quarter and that portion of the current Fiscal Year ending as of the close of
such Fiscal Quarter, and consolidated balance sheets as at the end of such
Fiscal Quarter, in each case, for Borrower and its Subsidiaries (including
Galyan’s and its Subsidiaries), which financial and other information shall
provide comparisons to the prior year’s equivalent period, both on a monthly
and year-to-date basis, and to budget;

      (b) in the event a Long Form Event has occurred and the Prior Lender
Obligations remain outstanding, an internally prepared consolidated statement
of operations, cash flows and changes in stockholders’ equity for such Fiscal
Quarter and that portion of the current Fiscal Year ending as of the close of
such Fiscal Quarter, and consolidated balance sheets as at the end of such
Fiscal Quarter, in each case, for Galyan’s and its Subsidiaries, which
financial and other information shall provide comparisons to the prior year’s
equivalent period, both on a monthly and year-to-date basis, and to budget;

      (c) a certification of the Chief Executive Officer or Chief Financial
Officer of Borrower that all such financial statements are complete and correct
and present fairly the financial position, the results of operations, cash
flows and the changes in stockholders’ equity of Borrower and its Subsidiaries
(including Galyan’s and its Subsidiaries) as at the end of such Fiscal Quarter
and for the period then ended in accordance with GAAP, except there being an
absence of footnotes and subject to normal audit adjustments, that all rent and
other obligations

D-2

 

of each Loan Party with respect to its Leases were paid in accordance with
the terms thereof (without giving effect to any grace periods) as at the end of
such fiscal month and setting forth the aggregate amount so paid or specifying
those instances when rent or such other obligations were not so paid together
with a detailed explanation of the reasons for the failure of any Loan Party to
make such payments and the aggregate amount of such payments not made, and that
there was no Default in existence as of such time or specifying those Defaults
of which he or she was aware;

      (d) a report showing a comparison to the prior year’s equivalent period,
both on a quarterly and a year-to-date basis, and to budget;

      (e) a reconciliation of the Inventory listing and schedule by location and
type referred to in paragraph 2 above as of the last day of such Fiscal Quarter
to Borrower’s general ledger for such fiscal month and financial statements for
such Fiscal Quarter, in each case accompanied by such supporting detail and
documentation as Agent may request;

      (f) as of the end of such Fiscal Quarter, a report in form and substance
satisfactory to Agent setting forth the balance of the intercompany obligations
between Loan Parties (including the Acquirer Loan and the Galyan’s Loan, which,
prior to consummation of the Merger in the case of the Galyan’s Loan, shall
also be set forth in the Borrowing Base Certificate); and

      (g) Within 45 days after the close of each Fiscal Quarter a statement in
reasonable detail showing the calculations used in determining Borrower’s
compliance with the financial covenant set forth in Section 6.10.

     5. Within 90 days after the close of each Fiscal Year:

      (a) a copy of the Borrower’s Form 10-K as filed with the Securities and
Exchange Commission or copies of the annual audited consolidated financial
statements of Borrower and its Subsidiaries consisting of a balance sheet and
statement of operations, changes in stockholders’ equity and cash flows,
setting forth in comparative form the figures for the previous Fiscal Year,
which financial statements shall be prepared in accordance with GAAP, certified
without qualification by Deloitte & Touche LLP or another firm of independent
certified public accountants of recognized standing selected by Borrower and
reasonably acceptable to Agent, and accompanied by (i) if applicable, a
statement in reasonable detail showing the calculations used in determining
Borrower’s compliance with the financial covenant set forth in Section 6.10,
and (ii) a report from such accountants to the effect that in connection with
their audit examination, they did not become aware of any Default, or
specifying those Defaults, of which they became aware;

      (b) in the event a Long Form Event has occurred and the Prior Lender
Obligations remain outstanding, copies of the annual audited consolidated
financial statements of Galyan’s and its Subsidiaries consisting of a balance
sheet and statement of operations, changes in stockholders’ equity and cash
flows, setting forth in comparative form the figures for the previous Fiscal
Year, which financial statements shall be prepared in accordance with GAAP,
certified without qualification by Deloitte & Touche LLP or another firm of
independent

D-3

 

certified public accountants of recognized standing selected by Borrower
and reasonably acceptable to Agent;

      (c) a report showing a comparison to the prior Fiscal Year, and to budget;

      (d) the annual letter from Borrower’s Chief Executive Officer or Chief
Financial Officer to such accountants in connection with their audit
examination detailing each Loan Party’s contingent liabilities and material
litigation, ERISA, labor and environmental matters; and

      (e) a certification of the Chief Executive Officer or Chief Financial
Officer of Borrower that all such financial statements are complete and correct
and present fairly in accordance with GAAP the financial position, the results
of operations and the changes in financial position of Borrower and its
Subsidiaries as at the end of such Fiscal Year and for the period then ended,
and that there was no Default in existence as of such time or specifying those
Defaults of which he or she was aware.

     6. Solely to Agent not later than the end of each Fiscal Year, a final
operating plan for each Loan Party reasonably acceptable to Agent for the
following Fiscal Year approved by Borrower’s board of directors, provided,
however, that such operating plan shall be delivered to Agent and Lenders if
Excess Availability is less than $50,000,000 for three consecutive Business
Days during any Fiscal Year (the “AOP Trigger Date”), in which case Borrower
shall promptly provide a revised operating plan to Agent and Lenders for the
remainder of such Fiscal Year (and if the AOP Trigger Date occurs during the
last Fiscal Quarter of such Fiscal Year, an operating plan for the following
Fiscal Year delivered prior to the first day of such Fiscal Year). Each such
operating plan shall include the following:

      (a) projected balance sheets of each Loan Party for such Fiscal Year, on a
monthly basis:

      (b) projected cash flow statements and forecasted Excess Availability,
including summary details of cash disbursements (including Capital
Expenditures) for such Fiscal Year, on a monthly basis;

      (c) projected statements of operations of each Loan Party for such Fiscal
Year, on a monthly basis;

      (d) a monthly budget which will in reasonable detail acceptable to Agent
integrate operating profit and cash flow projections and personnel facilities
and plans and include a Capital Expenditures budget; and

      (e) projected annual balance sheet, cash flow statements, and statements
of operations of each Loan Party for such Fiscal Year;

together with a description of major assumptions used in generating such
balance sheets, cash flows and income statements, and operating plan, and other
appropriate supporting details as reasonably requested by Agent.

D-4

 

     6A. Not later than the end of each Fiscal Year, statements of projected
Inventory, projected Excess Availability and projected aggregate Revolving
Credit Advances outstanding for the following Fiscal Year, each in form and
substance reasonably acceptable to Agent (the “Liquidity Projections”).

     7. As soon as practicable, but in any event within one Business Day after
Borrower becomes aware of the existence of any Default, or any development or
other information that, individually or in the aggregate, could reasonably be
expected to have or result in a Material Adverse Effect, telephonic or
facsimile notice specifying the nature of such Default or development or
information, including the anticipated effect thereof, which notice shall be
promptly confirmed in writing within four (4) Business Days.

     8. Upon Agent’s request, copies of all federal, state, local and foreign
tax returns, information returns and reports in respect of income, franchise or
other taxes on or measured by income (excluding sales, use or like taxes) filed
by any Loan Party.

     9. [Intentionally Omitted].

     10. Promptly upon the mailing thereof to the shareholders of Borrower,
and, prior to the consummation of the Merger, Galyan’s, generally, copies of
all financial statements, reports and proxy statements so mailed; provided that
Borrower shall not be required to deliver any such information to Agent if
Borrower delivers electronic notification to Agent of the posting of any such
information with the SEC on EDGAR.

     11. [Intentionally Omitted].

     12. As soon as possible, and in any event within 10 days after Borrower
knows or has reason to believe that any of the events or conditions specified
below with respect to any Plan or Multiemployer Plan has occurred or exists, a
statement signed by the Chief Financial Officer of Borrower setting forth
details respecting such event or condition and the action, if any, that
Borrower or any ERISA Affiliate proposes to take with respect thereto (and a
copy of any report or notice required to be filed with or given to PBGC by
Borrower or any ERISA Affiliate with respect to such event or condition):

      (a) any reportable event, as defined in Section 4043(b) of ERISA and the
regulations issued thereunder, with respect to a Plan, as to which PBGC has not
by regulation waived the requirement of Section 4043(a) of ERISA that it be
notified within 30 days of the occurrence of such event (provided that a
failure to meet the minimum funding standard of Section 412 of the IRC or
Section 302 of ERISA shall be a reportable event regardless of the issuance of
any waivers in accordance with Section 412(d) of the IRC);

      (b) the filing under Section 4041 of ERISA of a notice of intent to
terminate any Plan or the termination of any Plan;

      (c) the institution by PBGC of proceedings under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any Plan, or
the receipt by Borrower or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by PBGC with respect to such Multiemployer
Plan;

D-5

 

      (d) the complete or partial withdrawal by Borrower or any ERISA Affiliate
under Section 4201 or 4204 of ERISA from a Multiemployer Plan, or the receipt
by Borrower or any ERISA Affiliate of notice from a Multiemployer Plan that it
is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or
that it intends to terminate or has terminated under Section 4041A of ERISA;
and

      (e) the institution of a proceeding by a fiduciary of any Multiemployer
Plan against Borrower or any ERISA Affiliate to enforce Section 515 of ERISA,
which proceeding is not dismissed within 30 days.

     13. As soon as practicable, but in any event within one Business Day after
any Loan Party (including Galyan’s and its Subsidiaries) receives a notice of
any payment default or any other material default or a notice of termination
under any of its Leases, telephonic or facsimile notice specifying the nature
of such notice and default, if applicable, including the anticipated effect
thereof, which notice shall be promptly confirmed in writing within four (4)
Business Days.

     14. Such other reports and information respecting Borrower’s or any other
Loan Party’s business, financial condition or prospects as Agent or any Lender
may, from time to time, reasonably request.

     15. To Agent and Lenders, promptly upon their becoming available, copies
of: (i) all Financial Statements, regular, periodic and special reports,
notices and proxy statements made publicly available by any Loan Party to its
security holders; (ii) all regular and periodic reports and all registration
statements and prospectuses, if any, filed by any Loan Party with any national
securities exchange or with the Securities and Exchange Commission (or any
governmental agency substituted therefor) or any governmental or private
regulatory authority; and (iii) all press releases and other statements made
available by any Loan Party to the public concerning material changes or
developments in the business of any such Person.

D-6

 

ANNEX E

to

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

INSURANCE REQUIREMENTS

      I. Coverage Requirements. The insurance policies maintained by the Loan
Parties provide for, without limitation, the following insurance coverage:

     (a) “All Risk” physical damage insurance on all of each Loan Party’s
tangible real and personal property and assets, wherever located, and covers,
without limitation, fire and extended coverage, boiler and machinery coverage,
flood, earthquake, theft, burglary, explosion, collapse, and all other hazards
and risks ordinarily insured against by owners or users of such properties in
similar businesses. All policies of insurance on such real and personal
property contain an endorsement, in form and substance acceptable to Agent,
naming each Loan Party as Agent’s Loss Payee (ISO Form CP 12 18 or its
equivalent). Such endorsement, or an independent instrument furnished to
Agent, provides that the insurance companies will give Agent at least thirty
(30) days prior written notice before any such policy or policies of insurance
shall be altered or canceled and that no act or default of any Loan Party or
any other Person shall affect the right of Agent to recover under such policy
or policies of insurance in case of loss or damage;

     (b) Commercial general liability insurance on an “occurrence basis”
against claims for personal injury, bodily injury and property damage with a
minimum limit of $1,000,000 per occurrence and $2,000,000 in the aggregate.
Such coverage includes, without limitation, premises/operations, broad form
contractual liability, underground, explosion and collapse hazard, independent
contractors, broad form property coverage, products and completed operations
liability;

     (c) Statutory limits of worker’s compensation insurance which includes
employee’s occupational disease and employer’s liability in the amount of
$500,000 for each accident or occurrence;

     (d) Automobile liability insurance for all owned, non-owned or hired
automobiles against claims for personal injury, bodily injury and property
damage with a minimum combined single limit of $1,000,000 per occurrence;

     (e) Umbrella insurance of $25,000,000 per occurrence and $25,000,000 in
the aggregate; and

     (f) Crime insurance with respect to employee dishonesty in an amount not
less than $250,000.

     All of such policies: (i) shall have deductibles acceptable to Agent (it
being understood that current deductibles are acceptable); (ii) shall provide
that Agent will be notified by written notice at least thirty (30) days prior
to such policy’s cancellation or modification; (iii) are in full force and
effect; (iv) are in form and with insurers recognized as adequate by Agent
(insurers

E-1

 

with an A.M. Best rating lower than “A” will not be considered adequate);
and (v) provide coverage of such risks and for such amounts as is customarily
maintained for businesses of the scope and size of Loan Parties’ and as
otherwise acceptable to Agent. Each property insurance policy contains a
clause which provides that Agent’s interest under such policy shall not be
invalidated by any act or omission to act of, or any breach of warranty by, the
insured, or by any change in the title, ownership or possession of the insured
property, or by the use of the property for purposes more hazardous than is
permitted in such policy. Subject to Section 5.16(c), the Loan Parties have
delivered to Agent a certificate of insurance that evidences the existence of
each policy of insurance, payment of all premiums therefor and compliance with
all provisions of this Agreement.

E-2

 

ANNEX F

to

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

LETTERS OF CREDIT

     (a) Issuance. Subject to the terms and conditions of the Agreement, Agent
and Lenders agree to incur, from time to time prior to the Commitment
Termination Date, upon the request of Borrower and for Borrower’s account (but
on behalf of Borrower or any of its Subsidiaries), Letter of Credit Obligations
by causing Letters of Credit to be issued by GE Capital or a Subsidiary thereof
or a bank or other legally authorized Person selected by or acceptable to Agent
in its sole discretion (each, an “L/C Issuer”) for Borrower’s account (but on
behalf of Borrower or any of its Subsidiaries) and guaranteed by Agent;
provided that if the L/C Issuer is a Lender, then such Letters of Credit shall
not be guaranteed by Agent but rather each Lender shall, subject to the terms
and conditions hereinafter set forth, purchase (or be deemed to have purchased)
risk participations in all such Letters of Credit issued with the written
consent of Agent, as more fully described in paragraph (b)(ii) below. The
aggregate amount of all such Letter of Credit Obligations shall not at any time
exceed the lesser of (i) $75,000,000 (the “L/C Sublimit”) and (ii) the lesser
of (A) the Aggregate Revolving Credit Commitment less the aggregate outstanding
principal balance of the Revolving Credit Loan and the Letter of Credit
Obligations; and (B) Borrowing Base less the aggregate outstanding principal
balance of the Revolving Credit Loan and the Letter of Credit Obligations (the
determination of availability described in this sentence is herein referred to
as the “L/C Availability”). No such Letter of Credit shall have an expiry date
which is more than (i) if such Letter of Credit is a Documentary Letter of
Credit, six (6) months following the date of issuance thereof or such longer
period with the consent of Agent or (ii) any other Letter of Credit, one (1)
year following the date of issuance thereof. Agent shall be under no
obligation to incur Letter of Credit Obligations in respect of any Letter of
Credit having an expiry date that is later than the Commitment Termination
Date. The letters of credit set forth on Schedule F-1 issued by JPMorgan Chase
Bank shall be deemed to be Letters of Credit issued under this Agreement (the
“JPMorgan Letters of Credit”) and represent Letter of Credit Obligations under
this Agreement, provided that such JPMorgan Letters of Credit shall be subject
to the terms of the Payoff and Letter of Credit Assumption Agreement as well as
the provisions set forth in this Agreement.

     (b) (i) Advances Automatic; Participations. In the event that Agent or
any Lender shall make any payment on or pursuant to any Letter of Credit
Obligation, such payment shall then be deemed automatically to constitute a
Revolving Credit Advance under Section 1.1(a) of the Agreement regardless of
whether a Default or Event of Default shall have occurred and be continuing and
notwithstanding Borrower’s failure to satisfy the conditions precedent set
forth in Section 2, and each Lender shall be obligated to pay its Proportionate
Share thereof in accordance with the Agreement. The failure of any Lender to
make available to Agent for Agent’s own account its Proportionate Share of any
such Revolving Credit Advance or payment by Agent under or in respect of a
Letter of Credit shall not relieve any other Lender of its obligation hereunder
to make available to Agent its Proportionate Share thereof, but no Lender shall
be responsible for the failure of any other Lender to make available such other
Lender’s Proportionate Share of any such payment.

F-1

 

     (ii) If the L/C Issuer is a Lender, or if it shall be illegal or unlawful
for Borrower to incur Revolving Credit Advances as contemplated by paragraph
(b)(i) above because of an Event of Default described in Section 8.1(g) or (h)
or otherwise or if it shall be illegal or unlawful for any Lender to be deemed
to have assumed a ratable share of the reimbursement obligations owed to an L/C
Issuer, then (A) immediately and without further action whatsoever, each Lender
shall be deemed to have irrevocably and unconditionally purchased from Agent
(or such L/C Issuer, as the case may be) an undivided interest and
participation equal to such Lender’s Proportionate Share (based on the
Revolving Credit Commitments) of the Letter of Credit Obligations in respect of
all Letters of Credit then outstanding and (B) thereafter, immediately upon
issuance of any Letter of Credit, each Lender shall be deemed to have
irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as
the case may be) an undivided interest and participation in such Lender’s
Proportionate Share (based on the Revolving Credit Commitments) of the Letter
of Credit Obligations with respect to such Letter of Credit on the date of such
issuance. Each Lender shall fund its participation in all payments or
disbursements made under the Letters of Credit in the same manner as provided
in the Agreement with respect to Revolving Credit Advances.

     (c) Cash Collateral. (i) If Borrower is required to provide cash
collateral for any Letter of Credit Obligations pursuant to the Agreement prior
to the Commitment Termination Date, Borrower will pay to Agent for the ratable
benefit of itself and the Lenders cash or Cash Equivalents acceptable to Agent
in an amount equal to one-hundred five percent (105%) of the maximum amount
then available to be drawn under each applicable Letter of Credit outstanding.
Such funds or Cash Equivalents shall be held by Agent in a cash collateral
account (the “Cash Collateral Account”) maintained at a bank or financial
institution acceptable to Agent. The Cash Collateral Account shall be in the
name of Borrower and shall be pledged to, and subject to the control of, Agent,
for the benefit of Agent and Lenders, in a manner satisfactory to Agent.
Borrower hereby pledges and grants to Agent, on behalf of itself and Lenders, a
security interest in all such funds and Cash Equivalents held in the Cash
Collateral Account from time to time and all proceeds thereof, as security for
the payment of all amounts due in respect of the Letter of Credit Obligations
and other Obligations, whether or not then due. The Agreement, including this
Annex F, shall constitute a security agreement under applicable law.

     (ii) If any Letter of Credit Obligations, whether or not then due and
payable, shall for any reason be outstanding on the Commitment Termination
Date, Borrower shall either (A) provide cash collateral therefor in the manner
described above, or (B) cause all such Letters of Credit and guaranties thereof
to be canceled and returned, or (C) deliver a Standby Letter (or letters) of
Credit in guaranty of such Letter of Credit Obligations, which Standby Letter
(or letters) of Credit shall be of like tenor and duration as, and in an amount
equal to one-hundred and five percent (105%) of the aggregate maximum amount
then available to be drawn under, the Letters of Credit to which such
outstanding Letter of Credit Obligations relate and shall be issued by a
Person, and shall be subject to such terms and conditions, as are be
satisfactory to Agent in its sole discretion.

     (iii) From time to time after funds are deposited in the Cash Collateral
Account by Borrower, whether before or after the Commitment Termination Date,
Agent may apply such funds or Cash Equivalents then held in the Cash Collateral
Account to the payment of any

F-2

 

amounts, in such order as Agent may elect, as shall be or shall become due
and payable by Borrower to Lenders with respect to such Letter of Credit
Obligations and, upon the satisfaction in full of all Letter of Credit
Obligations of Borrower, to any other Obligations then due and payable.

     (iv) Neither Borrower nor any Person claiming on behalf of or through
Borrower shall have any right to withdraw any of the funds or Cash Equivalents
held in the Cash Collateral Account, except that upon the termination of all
Letter of Credit Obligations and the payment of all amounts payable by Borrower
to Lenders in respect thereof, any funds remaining in the Cash Collateral
Account shall be applied to other Obligations when due and owing and upon
payment in full of such Obligations, any remaining amount shall be paid to
Borrower or as otherwise required by law.

     (d) Fees and Expenses. Borrower agrees to pay to Agent for the benefit of
Lenders, as compensation to such Lenders for Letter of Credit Obligations
incurred hereunder, (i) all costs and expenses incurred by Agent or any Lender
on account of such Letter of Credit Obligations, and (ii) for each month during
which any Letter of Credit Obligation shall remain outstanding, a fee (the
“Letter of Credit Fee”) in an amount equal to (A) with respect to Documentary
Letters of Credit, one-half of one percent per annum (0.50%) less than the
Applicable Margin for LIBOR Loans from time to time in effect and (B) with
respect to any Standby Letter of Credit, the Applicable Margin for LIBOR Loans
from time to time in effect, in each case multiplied by the maximum amount
available from time to time to be drawn under the applicable Letter of Credit.
Such fee shall be paid to Agent for the benefit of the Lenders in arrears, on
the first day of each month. In addition, Borrower shall pay to any L/C
Issuer, within five (5) days after demand, such costs and expenses, charges and
expenses of such L/C Issuer in respect of the issuance, negotiation,
acceptance, amendment, transfer and payment of such Letter of Credit or
otherwise payable pursuant to the application and related documentation under
which such Letter of Credit is issued. The Letter of Credit fees shall be
calculated on the basis of a 360-day year and actual days elapsed.

     (e) Request for Incurrence of Letter of Credit Obligations. Borrower
shall give Agent at least two (2) Business Days prior written notice requesting
the incurrence of any Letter of Credit Obligation, specifying the date such
Letter of Credit Obligation is to be incurred, identifying the beneficiary and
describing the nature of the transactions proposed to be supported thereby;
provided, however, that Borrower need not obtain approval and need not provide
notice to Agent for the incurrence of a Letter of Credit Obligation if (i) the
issuance of such Letter of Credit Obligation would not violate any provision of
this Annex F, (ii) the amount of such Letter of Credit Obligation is less than
$300,000 and (iii) the aggregate amount of all Letter of Credit Obligations
issued in such week is less than $300,000. The notice shall be accompanied by
the form of the Letter of Credit (which shall be acceptable to the L/C Issuer).
For administrative purposes, by Monday of the following week, the L/C Issuer
shall distribute a summary sheet to Agent stating the amount requested during
such week and the date of all Letter of Credit Obligations issued during such
week. The notice shall be accompanied by the form of the Letter of Credit
(which shall be acceptable to the L/C Issuer) and a completed application for
Standby Letter of Credit or application for Documentary Letter of Credit, as
applicable. Notwithstanding anything contained herein to the contrary, Letter
of Credit applications by Borrower and approvals by Agent and the L/C Issuer
may be made and transmitted pursuant to electronic codes

F-3

 

and security measures mutually agreed upon and established by and among
Borrower, Agent and the L/C Issuer.

     (f) Obligation Absolute. The obligation of Borrower to reimburse Agent
and Lenders for payments made with respect to any Letter of Credit Obligation
shall be absolute, unconditional and irrevocable, without necessity of
presentment, demand, protest or other formalities, and the obligations of each
Lender to make payments to Agent or the L/C Issuer if it is a Lender with
respect to Letters of Credit shall be unconditional and irrevocable. Such
obligations of Borrower and Lenders shall be paid strictly in accordance with
the terms hereof under all circumstances including the following circumstances:

	(i)	 	any lack of validity or enforceability of any
Letter of Credit or the Agreement or the other Loan Documents
or any other agreement;
	 
	(ii)	 	the existence of any claim, set-off, defense or
other right which Borrower or any of its Affiliates or any
Lender may at any time have against a beneficiary or any
transferee of any Letter of Credit (or any Persons or
entities for whom any such transferee may be acting), Agent,
any Lender, or any other Person, whether in connection with
the Agreement, the Letter of Credit, the transactions
contemplated herein or therein or any unrelated transaction
(including any underlying transaction between Borrower or any
of its Affiliates and the beneficiary for which the Letter of
Credit was procured);
	 
	(iii)	 	any draft, demand, certificate or any other
document presented under any Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any
respect;
	 
	(iv)	 	payment by Agent or any L/C Issuer under any
Letter of Credit or guaranty thereof against presentation of
a demand, draft or certificate or other document which does
not comply with the terms of such Letter of Credit or such
guaranty, except as set forth in the proviso to clause (C) of
the second paragraph of paragraph (g) below;
	 
	(v)	 	any other circumstance or happening whatsoever,
which is similar to any of the foregoing; or
	 
	(vi)	 	the fact that a Default or an Event of Default
shall have occurred and be continuing.

     (g) Indemnification; Nature of Lenders’ Duties. (i) In addition to
amounts payable as elsewhere provided in the Agreement, Borrower hereby agrees
to pay and to protect, indemnify, and save harmless Agent and each Lender from
and against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including attorneys’ fees and allocated costs of internal
counsel) which Agent or any Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit or guaranty
thereof, or (ii) the failure of Agent or any Lender seeking indemnification or
of any L/C Issuer to honor a

F-4

 

demand for payment under any Letter of Credit or guaranty thereof as a
result of any act or omission, whether rightful or wrongful, of any present or
future de jure or de facto government or Governmental Authority, in each case
other than to the extent solely as a result of the gross negligence or willful
misconduct of Agent or such Lender (as finally determined by a court of
competent jurisdiction). No Agent or Lender shall enter into any compromise or
settlement in any action as to which such Person intends to seek
indemnification hereunder without the prior written consent of the Loan Party
from whom indemnification hereunder is sought, which consent shall not be
unreasonably withheld or delayed.

     (ii) As between Agent and any Lender and Borrower, Borrower assumes all
risks of the acts and omissions of, or misuse of any Letter of Credit by
beneficiaries thereof. In furtherance and not in limitation of the foregoing,
to the fullest extent permitted by law neither Agent nor any Lender shall be
responsible: (A) for the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document issued by any party in connection with the
application for and issuance of any Letter of Credit, even if it should in fact
prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (B) for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (C) for
failure of the beneficiary of any Letter of Credit to comply fully with
conditions required in order to demand payment under such Letter of Credit;
provided that, in the case of any payment by Agent or the L/C Issuer if it is a
Lender under any Letter of Credit or guaranty thereof, Agent or such L/C Issuer
shall be liable to the extent such payment was made solely as a result of its
gross negligence or willful misconduct (as finally determined by a court of
competent jurisdiction) in determining that the demand for payment under such
Letter of Credit or guaranty thereof complies on its face with any applicable
requirements for a demand for payment under such Letter of Credit or guaranty
thereof; (D) for errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher; (E) for errors in interpretation of technical
terms; (F) for any loss or delay in the transmission or otherwise of any
document required in order to make a payment under any Letter of Credit or
guaranty thereof or of the proceeds thereof; (G) for the credit of the proceeds
of any drawing under any Letter of Credit or guaranty thereof; and (H) for any
consequences arising from causes beyond the control of Agent or any Lender.
None of the above shall affect, impair, or prevent the vesting of any of
Agent’s or any Lender’s rights or powers hereunder or under the Agreement.

     (iii) Nothing contained herein shall be deemed to limit or to expand any
waivers, covenants or indemnities made by Borrower in favor of any L/C Issuer
in any letter of credit application, reimbursement agreement or similar
document, instrument or agreement between or among Borrower and such L/C
Issuer, including a Master Documentary Agreement and a Master Standby Agreement
entered into with Agent.

F-5

 

SCHEDULE F-1

JP MORGAN LETTERS OF CREDIT

F-6

 

ANNEX G

to

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

ADDITIONAL CONDITIONS PRECEDENT

     The following additional conditions precedent shall apply:

     (a) The Offer Materials shall have been furnished to Agent and shall be in
form and substance reasonably satisfactory to Agent.

     (b) Subject to Section 5.17, the Tender Offer shall have been, or shall be
concurrently, consummated pursuant to the Offer Materials and the Merger
Agreement; and no provision of the Tender Offer or the Merger Agreement shall
have been amended, supplemented, waived or otherwise modified without the
consent of Agent.

     (c) The approval of board of directors of Borrower and Galyan’s of the
Tender Offer and the Merger shall not have been withdrawn or qualified in a
manner adverse to Borrower, Acquirer or Lenders.

     (d) Acquirer shall have acquired on or before September 15, 2004 and
concurrently with the making of the first Revolving Credit Advance under the
Agreement, not fewer than the Minimum Shares.

     (e) To the extent required, each Lender shall have received Form FR U-1 or
Form FR G-3, as applicable, executed by Borrower.

     (f) The consummation of the Transaction shall not (i) violate any
applicable law, statute, rule or regulation or (ii) conflict with, or result in
a default or event of default under, any organic documents or any material
agreement of Borrower or any of their respective Subsidiaries (other than
change of control provisions in material agreements representing Indebtedness
being paid in full on the date of such change of control) after giving effect
to the Transaction.

     (g) Galyan’s and its Subsidiaries shall have no outstanding Indebtedness,
Liens or preferred equity after giving effect to the Tender Offer other than,
the Indebtedness under and Liens in respect of Capital Leases, purchase money
Liens or as otherwise permitted under the Agreement.

     (h) The corporate and capital structure and ownership of Borrower,
Galyan’s and their respective Subsidiaries after the Tender Offer and as
contemplated by the Merger Agreement shall be reasonably satisfactory to Agent.

     (i) Agent and Lenders shall have been given ongoing access to the
management, outside consultants, records, books of account, contracts, and
properties of Borrower, Galyan’s and their respective Subsidiaries and shall
have received such financial, business, legal, and other

G-1

 

information or documents regarding Borrower, Galyan’s and their respective
Subsidiaries, in each case as Agent, Lenders and their respective counsel shall
have requested.

     (j) Agent and Lenders shall be reasonably satisfied with the insurance
protection for Borrower, Galyan’s and their respective Subsidiaries, in every
case, given the industry, size, risk and the collateral position (terms,
underwriter, scope and coverage to be reasonably acceptable to Agent and
Lenders including, without limitation, flood insurance as necessary, and
non-renewal, cancellation and amendment riders to provide thirty (30) days
advance notice to Agent (or shorter notice as may be reasonably acceptable to
Agent) and Agent shall be named as loss payee with respect to the Collateral
and additional insured, as the case may be, on the policies of Borrower and
their respective Subsidiaries.

     (k) There shall not have occurred any of the following which is material
and adverse to the interests of Lenders or the Transaction: (1) any general
suspension of trading in securities on the New York Stock Exchange or in the
Nasdaq National Market System, for a period in excess of three hours (excluding
suspensions or limitations resulting solely from physical damage or
interference with such exchanges not related to market conditions), (2) a
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States (whether or not mandatory), (3) any limitation or
proposed limitation (whether or not mandatory) by any United States
governmental entity that has a material adverse effect generally on the
extension of credit by banks or other financial institutions, (4) the
commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States or (5) in the case
of any of the situations in clauses (1) through (4) of this paragraph existing
at the time of the commencement of the Tender Offer, a material acceleration or
worsening thereof.

G-2exv10w1

 

Exhibit 10.1

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

ARTICLES OF RESTATEMENT

AS OF MAY 7, 2004

     1. Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (the
“Corporation”), desires to restate its charter as currently in effect and as
hereinafter amended.

     2. The following provisions are all the provisions of the charter
currently in effect:

     FIRST: The name of the corporation (“Corporation”) is: Starwood Hotels &
Resorts Worldwide, Inc.

     SECOND: The purposes for which the Corporation is formed are as follows:

     (a) To lease hotels, to acquire hotels, to manage hotels and other real
property, either directly or by entering into management contracts, to
perform services relating to real estate and to engage in other activities
involving hotels and other real estate.

     (b) To engage in any lawful act or activity for which corporations may
be organized under, and to have and exercise any and all powers or
privileges now or hereafter conferred by, the Maryland General Corporation
Law or any Act amendatory thereof or supplemental thereto or in substitution
therefor.

     THIRD: The post office address of the principal office of the Corporation
in Maryland is:

	 
	The Corporation Trust Incorporated

	300 East Lombard Street

	Baltimore, Maryland 21202

     FOURTH: The name and post office address of the resident agent of the
Corporation in Maryland is:

	 
	The Corporation Trust Incorporated

	300 East Lombard Street

	Baltimore, Maryland 21202

     FIFTH: (a) The total number of shares of stock which the Corporation has
authority to issue is one billion three hundred and fifty million
(1,350,000,000) shares, consisting of (a) one billion (1,000,000,000) shares of
common stock with a par value of $0.01 per share, (b) two hundred million
(200,000,000) shares of preferred stock with a par value of $0.01 per share,
(c) fifty million (50,000,000) shares of excess common stock with a par value
of $0.01 per share, and (d) one hundred million (100,000,000) shares of excess
preferred stock with a par value of $0.01 per share. The preferred stock may be
issued in such series and with such

 

 

preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications, and terms
and conditions of redemption, if any, as may be fixed by the Board of
Directors. The excess common stock and the excess preferred stock shall have
the rights provided in the NINTH Article hereof. The aggregate par value of all
shares of stock which the Corporation has authority to issue is thirteen
million five hundred thousand Dollars ($13,500,000). The Board of Directors may
authorize the issuance from time to time of shares of stock of the Corporation
of any class or series, whether now or hereafter authorized, or securities or
rights convertible into shares of its stock of any class or series, whether now
or hereafter authorized, for such consideration (whether in cash, property,
past or future services, obligation for future payment or otherwise) as the
Board of Directors may deem advisable (or without consideration in the case of
a stock split or stock dividend), subject to such restrictions or limitations,
if any, as may be set forth in the charter or the Bylaws.

     (b) Series A Junior Participating Preferred Stock of the
Corporation. Under a power contained in Article FIFTH of the charter of
the Corporation (the “Charter”) in accordance with Section 2-208 of the
Maryland General Corporation Law (the “MGCL”), the Board of Directors, by
resolution duly adopted at a meeting duly called and held, classified and
designated 1,000,000 shares (the “Shares”) of preferred stock of the
Corporation, par value $.01 per share, as shares of Series A Junior
Participating Preferred Stock of the Corporation, par value $.01 per share (the “Series A Preferred Stock”), with the preferences, conversion
and other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications and terms and
conditions of redemption as follows:

     1. Designation and Amount. The shares of such series shall
be designated as “Series A Junior Participating Preferred Stock”
and the number of shares constituting such series shall be
1,000,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors and filing of articles
supplementary in accordance with the MGCL stating that such
increase or decrease has been so authorized; provided, however,
that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares of
Series A Preferred Stock then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options,
rights or warrants or upon conversion of any outstanding securities
issued by the Corporation convertible into shares of Series A
Preferred Stock.

     2. Dividends and Distributions. (A) Subject to the prior
and superior rights of the holders of any shares of any series of
preferred stock ranking prior and superior to the shares of Series
A Preferred Stock with respect to dividends, the holders of shares
of Series A Preferred Stock shall be entitled to receive, when, as
and if authorized by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on
the first business day of March, June, September and December in
each year (each such date being referred to herein as a “Quarterly
Dividend Payment Date”), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a
share of Series A Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $.01 or (b)
subject to the provisions for

2

 

adjustment hereinafter set forth, (i) 1000 times the aggregate
per share amount of all cash dividends, and 1000 times the
aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable in shares of common stock, par value $.01 per share, of the
Corporation (the “Common Stock”) or a subdivision of the
outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately
preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of
any share or fraction of a share of Series A Preferred Stock, plus
(ii) 1000 times the aggregate per share amount of all cash
dividends, and 1000 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions other
than a dividend payable in Class B Shares of beneficial interest,
par value $.01 per share, of Starwood Hotels & Resorts, a Maryland
real estate investment trust, or any successor (the “Trust”), or
any shares of beneficial interest in the Trust into which such
Class B Shares may be changed (such Class B Shares and any such shares into which such Class B Shares are changed being herein
referred to as the “Class B Shares”) or a subdivision of the
outstanding Class B Shares (by reclassification or otherwise),
declared on the Class B Shares since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the
event the Corporation shall at any time after March 15, 1999 (the
“Rights Declaration Date”) (x) declare any dividend on Common Stock
payable in shares of Common Stock, (y) subdivide the outstanding
Common Stock or (z) combine the outstanding Common Stock into a
smaller number of shares, then in each case the amount to which
holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b)(i) of the next
preceding sentence shall be adjusted by multiplying such amount by
a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. In the event the
Trust shall at any time after the Rights Declaration Date (X)
declare any dividend on the Class B Shares payable in Class B Shares, (Y) subdivide the outstanding Class B Shares or (Z) combine
the outstanding Class B Shares into a smaller number of shares,
then in each case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under
clause (b)(ii) of the second preceding sentence shall be adjusted
by multiplying such amount by a fraction the numerator of which is
the number of Class B Shares outstanding immediately after such
event and the denominator of which is the number of Class B Shares
that were outstanding immediately prior to such event.

     (B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common
Stock) or the Trust declares a dividend or distribution on the
Class B Shares (other than a dividend payable in Class B Shares);
provided, however, that, in the event no dividend or distribution
shall

3

 

have been declared on the Common Stock or the Class B Shares
during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, subject to the
prior and superior rights of the holders of any shares of any
series of Preferred Stock ranking prior to and superior to the shares of Series A Preferred Stock with respect to dividends, a
dividend of $.01 per share on the Series A Preferred Stock shall
nevertheless by payable on such subsequent Quarterly Dividend
Payment Date.

     (C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from
such Quarterly Dividend Payment Date. Accrued but unpaid dividends
shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares
at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more
than 60 days prior to the date fixed for the payment thereof.

     3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:

     (A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the
holder thereof to 1000 votes on all matters submitted to a vote of
the stockholders of the Corporation. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare and
pay any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in
each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior
to such event shall be adjusted by multiplying such number by a
fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

     (B) Except as otherwise provided herein, the holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock shall vote

4

 

collectively as one class on all matters submitted to a vote
of stockholders of the Corporation.

     (C) (i) If at any time dividends on any Series A Preferred
Stock shall be in arrears in an amount equal to six quarterly
dividends thereon, the occurrence of such contingency shall mark
the beginning of a period (herein called a “default period”) which
shall extend until such time when all accrued and unpaid dividends
for all previous quarterly dividend periods and for the current
quarterly dividend period on all shares of Series A Preferred Stock
then outstanding shall have been declared and paid or set apart for
payment. During each default period, all holders of Preferred
Stock (including holders of the Series A Preferred Stock) with
dividends in arrears in an amount equal to six quarterly dividends
thereon, voting as a class, irrespective of series, shall have the
right to elect two Directors.

     (ii) During any default period, such voting right of the
holders of Series A Preferred Stock may be exercised initially at a
special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of stockholders, and
thereafter at annual meetings of stockholders, provided that such
voting right shall not be exercised unless the holders of 10% in
number of shares of Preferred Stock outstanding shall be present in
person or by proxy. The absence of a quorum of the holders of
Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting rights. At any meeting at which the
holders of Preferred Stock shall exercise such voting rights
initially during an existing default period, they shall have the
right, voting as a class, to elect Directors to fill such
vacancies, if any, in the Board of Directors as may then exist up
to two Directors or, if such right is exercised at an annual
meeting, to elect two Directors. If the number which may be so
elected at any special meeting does not amount to the required
number, the holders of the Preferred Stock shall have the right to
make such increase in the number of Directors as shall be necessary
to permit the election by them of the required number. After the
holders of the Preferred Stock shall have exercised their right to
elect Directors in any default period and during the continuance of
such period, the number of Directors shall not be increased or
decreased except by vote of the holders of Preferred Stock as
herein provided or pursuant to the rights of any equity securities
ranking senior to or pari passu with the Series A Preferred Stock.

     (iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to
elect Directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less than
10% of the total number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of a special
meeting of the holders of Preferred Stock, which meeting shall
thereupon be called by the Chairman of the Board, the Chief
Executive Officer, the President, a Vice President or the Secretary
of the Corporation. Notice of such meeting and of any annual
meeting at which holders of Preferred Stock are entitled to vote
pursuant to this paragraph (C)(iii) shall be given to each holder
of record of Preferred Stock by mailing a copy of such notice to
him or her at his or her last address as the same appears on

5

 

the books of the Corporation. Such meeting shall be called
for a time not earlier than 10 days and not later than 50 days
after such order or request, or in default of the calling of such
meeting within 50 days after such order or request, such meeting
may be called on similar notice by any stockholder or stockholders
owning in the aggregate not less than 10% of the total number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this paragraph (C)(iii), no such special meeting
shall be called during the period within 50 days immediately
preceding the date fixed for the next annual meeting of the
stockholders.

     (iv) In any default period, the holders of Common Stock, and,
if applicable, other classes of stock of the Corporation, shall
continue to be entitled to elect the whole number of Directors
until the holders of Preferred Stock shall have exercised their
right, voting as a class, to elect two Directors, after the
exercise of which right (x) the Directors so elected by the holders
of Preferred Stock shall continue in office until their successors
shall have been elected by such holders or until the expiration of
the default period and (y) any vacancy in the Board of Directors
may (except as provided in paragraph (C)(ii) of this Section 3) be
filled by vote of a majority of the remaining Directors theretofore
elected by the holders of the class of stock that elected the
Director whose office shall have become vacant. References in this
paragraph (C) to Directors elected by the holders of a particular
class of stock shall include Directors appointed by such Directors
to fill vacancies as provided in clause (y) of the foregoing
sentence.

     (v) Immediately upon the expiration of a default period, (x)
the right of the holders of Preferred Stock as a class to elect
Directors shall cease, (y) the term of any Directors elected by the
holders of Preferred Stock as a class shall terminate and (z) the
number of Directors shall be such number as may be provided for in
the Charter or by-laws irrespective of any increase made pursuant
to the provisions of paragraph (C)(ii) of this Section 3 (such
number being subject, however, to change thereafter in any manner
provided by law or in the Charter or by-laws). Any vacancies in
the Board of Directors effected by the provisions of clauses (y)
and (z) in the preceding sentence may be filled by a majority of
the remaining Directors.

     (D) Except as set forth herein, holders of Series A Preferred
Stock shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any
corporate action (including any merger or any issuance of Preferred
Stock senior in right of payment or otherwise to the Series A
Preferred Stock).

     4. Certain Restrictions. (A) Whenever quarterly dividends
or other dividends or distributions payable on the Series A
Preferred Stock as provided in Section 2 are in arrears, thereafter
and until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall
not:

6

 

     (i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;

     (ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, except dividends paid ratably on the
Series A Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;

     (iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or

     (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after consideration of
the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine
in good faith will result in fair and equitable treatment among the
respective series or classes.

     (B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could,
under paragraph (A) of this Section 4, purchase or otherwise
acquire such shares at such time and in such manner.

     5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred
Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance
set forth herein.

     6. Liquidation, Dissolution or Winding Up. (A) Upon any
liquidation (voluntary or otherwise), dissolution or winding up of
the Corporation (a “Liquidation Event”), no distribution shall be
made to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received the sum (the
“Series A

7

 

Liquidation Preference”) of (a) $1000 per share, plus (b) an
amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, plus
(c) an amount equal to the fair market value (as determined in good
faith by the Board of Directors) as of such date of all securities
(or fractions thereof) then attached to a share of Common Stock for
purposes of the Amended and Restated Intercompany Agreement dated
as of January 6, 1999, between the Corporation and the Trust, as
amended from time to time. Following the payment of the full
amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A
Preferred Stock unless, prior thereto, the holders of shares of
Common Stock shall have received an amount per share (the “Common
Adjustment”) equal to the quotient obtained by dividing (i) the sum
of (X) $1000 per share plus (Y) an amount equal to accrued and
unpaid dividends and distributions on the Series A Preferred Stock,
whether or not declared, to the date of payment of the Series A
Liquidation Preference by (ii) 1000 (as appropriately adjusted as
set forth in subparagraph (C) below to reflect such events as stock
splits, stock dividends and recapitalizations with respect to the
Common Stock) (such number in clause (ii), the “Adjustment
Number”). Following the payment of the full amount of the Series A
Liquidation Preference and the Common Adjustment in respect of all
outstanding shares of Series A Preferred Stock and Common Stock,
respectively, and the payment of liquidation preferences of all
other shares of stock which rank prior to or on a parity with
Series A Preferred Stock, holders of Series A Preferred Stock and
holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in
the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis,
respectively. In determining whether a distribution (other than
upon the occurrence of a Liquidation Event), by dividend,
redemption or other acquisition of shares of stock of the
Corporation or otherwise, is permitted under Maryland law, amounts
that would be needed, if the Corporation were to be dissolved at
the time of the distribution, to satisfy the preferential rights
upon dissolution of the holders of the Series A Preferred Stock
whose preferential rights upon dissolution are senior to those
receiving the distribution shall not be added to the Corporation’s
total liabilities.

     (B) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A
Liquidation Preference and the liquidation preferences of all other
series of Preferred Stock, if any, which rank on a parity with the
Series A Preferred Stock, then such remaining assets shall be
distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the
event, however, that there are not sufficient assets available to
permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of
Common Stock.

     (C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare and pay any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in

8

 

each such case the Adjustment Number in effect immediately
prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such event.

     7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for
or changed into other stock or securities, cash and/or any other
property, then in any such case each share of Series A Preferred
Stock shall at the same time be similarly exchanged or changed into
an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in
kind), as the case may be, that would be held or receivable upon
the consummation of such consolidation, merger, combination or
other transaction by a holder of a Unit. In the event the
Corporation shall at any time after the Rights Declaration Date (i)
declare and pay any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares
of Series A Preferred Stock shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.

     8. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.

     9. Ranking. The Series A Preferred Stock shall rank junior
to all other series of the Corporation’s Preferred Stock as to the
payment of dividends and the distribution of assets, whether or not
upon the dissolution, liquidation or winding up of the Corporation,
unless the terms of any such series shall provide otherwise.

     10. Amendment. The Charter shall not be amended in any
manner that would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock, as
set forth herein, so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the
outstanding shares of Series A Preferred Stock, voting separately
as a class.

     11. Fractional Shares. Series A Preferred Stock may be
issued in fractions of a share which shall entitle the holder, in
proportion to such holder’s fractional shares, to exercise voting
rights, receive dividends, participate in distributions and to have
the benefit of all other rights of holders of Series A Preferred
Stock.

9

 

     SIXTH: (a) The Corporation shall have nine Directors, which number may be
changed from time to time in such manner as the By-Laws of the Corporation
shall provide. At each annual meeting of stockholders beginning at the annual
meeting of stockholders in 2005, all Directors shall be elected and hold office
for a term of one year. Directors may be re-elected any number of times. Each
Director shall hold office until the election and qualification of his or her
successor.

     (b) Except as otherwise required by law, unless the Board of Directors
otherwise determines, newly created Directorships resulting from any
increase in the authorized number of Directors or any vacancies on the Board
of Directors resulting from any cause shall be filled only by a majority
vote of the Directors then in office, though less than a quorum, and
Directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director’s successor shall
have been duly elected and qualified. No decrease in the numbers of
authorized Directors constituting the entire Board of Directors shall
shorten the term of any incumbent Director.

     (c) The names of the Directors of the Corporation as of the restatement
of the Charter herein set forth are as follows:

	 
	Charlene Barshefsky

	Jean-Marc Chapus

	Bruce W. Duncan

	Eric Hippeau

	Stephen R. Quazzo

	Thomas O. Ryder

	Barry S. Sternlicht

	Daniel W. Yih

	Kneeland C. Youngblood

     SEVENTH: Notwithstanding the provisions of the SIXTH Article or any
limitations on removal of Directors, the stockholders of the Corporation may
remove any director, but only for cause, and only by the affirmative vote of
two-thirds (2/3) of all the votes entitled to be cast for the election of
Directors.

     EIGHTH: No holder of capital stock of the Corporation shall be entitled as
a matter of right to subscribe for, purchase or receive any part of any new or
additional issue of capital stock of any class or any options or warrants for
such stock or any rights to subscribe to or purchase such stock or securities
convertible into or exchangeable for such stock whether now or hereafter
authorized or whether issued for money, for a consideration other than money,
or for no consideration.

     NINTH: Restrictions on the transferability of stock of the Corporation are
as follows:

10

 

     (a) Subject to paragraphs (b), (c) and (d) of this NINTH Article, upon
surrender to the Corporation or to any transfer agent of the Corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, the Corporation, or its
transfer agent, shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon the
Corporation’s books.

     (b) Beginning at the time that the payment of a distribution in kind of
the shares of common stock of the Corporation shall have occurred
(“effective time of the restriction”), and continuing thereafter until such
time as the limitation on transfer provided for in the Pairing Agreement to
be entered into by Starwood Lodging Trust, a Maryland real estate investment
trust (“SLT”), and the Corporation shall be terminated:

     (i) The shares of common stock of the Corporation shall not be
transferable, and shall not be transferred on the books of the
Corporation unless (1) a simultaneous transfer of a like number of shares
of SLT is made by the same transferor to the same transferee, or (2) such
transferor has previously arranged with SLT for the acquisition by the
transferee of a like number of shares of SLT, and in each case such shares are paired with one another.

     (ii) Each certificate evidencing ownership of shares of SLT issued
and not canceled prior to the effective time of the restriction shall be
deemed to evidence a like number of shares of common stock of the
Corporation.

     (iii) Any registered holder of a certificate evidencing ownership of shares of SLT issued prior to the effective time of the restriction may,
upon request and presentation of such certificate to the Corporation’s
transfer agent, obtain in substitution therefor a certificate or
certificates registered in such holder’s name evidencing the same number
of shares of common stock of the Corporation and a like number of shares
of SLT.

     (iv) A legend shall be placed on the face of each certificate
evidencing ownership of shares of common stock of the Corporation issued
after the effective time of the restriction, referring to the
restrictions on transfer set forth herein.

     (c) Restrictions on Transfer.

     (i) Definitions. The following terms shall have the following
meanings:

     “Beneficial Ownership” shall mean ownership of shares of
capital stock by a Person who would be treated as an owner of such shares of capital stock directly, indirectly or constructively
through the application of Section 318(a) of the Code, as modified
by Section 856(d)(5) of the Code, or Section 544 of the Code, as
modified by Section 856(h) of the Code. The terms “Beneficial
Owner”, “Beneficially Owns” and “Beneficially Owned” shall have
correlative meanings.

11

 

     “Charitable Beneficiary” shall mean the organization or
organizations described in Sections 170(c)(2) and 501(c)(3) of the
Code selected by the Excess Share Trustee.

     “Code” shall mean the Internal Revenue Code of 1986 as amended
from time to time.

     “Excess Shares” shall mean the excess common stock and the
excess preferred stock.

     “Excess Share Trust” shall mean the trust created pursuant to
paragraph (d) of this NINTH Article.

     “Excess Share Trust Beneficiary” shall mean a beneficiary of
the Excess Share Trust as determined pursuant to paragraph (d) of
this NINTH Article.

     “Excess Share Trustee” shall mean Nina Matis or any successor
appointed pursuant to paragraph (d) of this NINTH Article.

     “Market Price” of any class of shares of capital stock on any
date shall mean the average of the Closing Price for the five (5)
consecutive trading days ending on such date, or if such date is
not a trading date, the five consecutive trading days preceding
such date. The “Closing Price” on any date shall mean (1) the last
sale price, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange, or (2) if such
class of shares of capital stock is not listed or admitted to
trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on
which such class of shares of capital stock is listed or admitted
to trading, or (3) if such class of shares of capital stock is not
listed or admitted to trading on any national securities exchange,
the last quoted price, or if not so quoted, the average of the high
bid and low asked prices in the            over-the-counter market,
as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System or, if such system is no longer in use,
the principal other automated quotations system that may then be in
use, or (4) if such class of shares of capital stock is not quoted
by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market
in such class of shares of capital stock selected by the Board of
Directors.

     “Ownership Limit” shall mean (i) in the case of a Person other
than an Existing Holder (as defined below), Beneficial Ownership of
more than eight percent (8.0%), by value, vote or number, of the shares of capital stock and (ii) in the case of a Person who or
which was the Beneficial Owner, as of February 1, 1995 (the
“Amendment Date”), of more than 8.0% (by vote, value or number) of

12

 

the shares of capital stock (any such Person being referred to
as an “Existing Holder”), a percentage (by vote, value or number)
equal to the lesser of (a) 9.9% and (b) the percentage of shares of
capital stock Beneficially Owned by such Existing Holder as of the
Amendment Date; provided that if, at any time and from time to time
after the Amendment Date, the percentage of shares of capital stock
Beneficially Owned by an Existing Holder shall decrease (whether by
reason of a disposition by such Existing Holder, an increase in the
number of outstanding shares of capital stock or otherwise), then
from and after the time of such decrease the Ownership Limit in the
case of such Existing Holder shall be a percentage (by vote, value
or number) equal to the greater of (x) 8.0% and (y) the percentage
of shares of capital stock Beneficially Owned by such Existing
Holder after giving effect to such decrease.

     “Person” shall mean any individual, corporation, partnership,
joint stock company or association, joint venture, association,
company, trust, bank, limited liability company, estate, foundation
or other entity and any government, agency or political subdivision
thereof.

     “Purported Beneficial Holder” shall mean, with respect to any
event (other than a purported Transfer) which results in Excess Shares, the Person for whom the Purported Record Holder held shares
of capital stock that were, pursuant to paragraph (c)(iii) of this
NINTH Article, automatically converted into Excess Shares upon the
occurrence of such event.

     “Purported Beneficial Transferee, shall mean, with respect to
any purported Transfer which results in Excess Shares, the
purported beneficial transferee for whom the Purported Record
Transferee would have acquired shares of capital stock if such
Transfer had been valid under paragraph (c)(ii) of this NINTH
Article.

     “Purported Record Holder” shall mean, with respect to any
event (other than a purported Transfer) which results in Excess Shares, the record holder of the shares of capital stock that were,
pursuant to paragraph (c)(iii) of this NINTH Article, automatically
converted into Excess Shares upon the occurrence of such event.

     “Purported Record Transferee” shall mean, with respect to any
purported Transfer which results in Excess Shares, the record
holder of the shares of capital stock if such Transfer had been
valid under paragraph (c)(ii) of this NINTH Article.

     “REIT” shall mean a real estate investment trust for federal
income tax purposes.

     “Restriction Termination Date” shall mean the first day of the
taxable year for which the Trustees of SLT have determined to
terminate SLT’s status as a REIT.

13

 

     “Transfer” shall mean any sale, transfer, gift, hypothecation,
pledge, assignment, devise or other disposition of shares of
capital stock (including (1) the granting of any option or interest
similar to an option (including an option to acquire an option or
any series of such options) or entering into any agreement for the
sale, transfer or other disposition of shares of capital stock or
(2) the sale, transfer, assignment or other disposition of any
securities or rights convertible into or exchangeable for shares of
capital stock), whether voluntary or involuntary, whether of
record, constructively or beneficially and whether by operation of
law or otherwise. For purposes of this definition, whether
securities or rights are convertible or exchangeable for capital
stock shall be determined in accordance with Sections 318 and 544
of the Code.

     (ii) Restrictions on Transfers and Other Events. On or after the
Restriction Termination Date, the provisions of paragraphs (c) and (d) of
this NINTH Article shall be of no further force and effect. Prior to the
Restriction Termination Date and except as provided in
subparagraph (ix) below:

     (1) No Person shall Beneficially Own shares of capital stock in
excess of the Ownership Limit;

     (2) Any Transfer that, if effective, would result in any Person
Beneficially Owning shares of capital stock in excess of the Ownership
Limit shall be void ab initio as to the Transfer of that number of shares of capital stock which would be otherwise Beneficially Owned by
such Person in excess of the Ownership Limit and the intended transferee
shall acquire no rights in such shares of capital stock in excess of the
Ownership Limit;

     (3) Any Transfer that, if effective, would result in the shares of
capital stock being Beneficially Owned by fewer than one hundred (100)
Persons (determined without reference to any rules of attribution) shall
be void ab initio and the intended transferee shall acquire no rights in
such shares of capital stock; and

     (4) Any Transfer of shares of capital stock that, if effective,
would result in the Corporation being “closely held” within the meaning
of Section 856(h) of the Code (applied as if the Corporation
was a REIT) shall be void ab initio as to the Transfer of that number of shares of capital stock which would cause SLT to be “closely held”
within the meaning of Section 856(h) of the Code and the intended
transferee shall acquire no rights in such shares of capital stock.

     (iii) Conversion into Excess Shares.

     (1) If, notwithstanding the other provisions contained in this
NINTH Article, at any time prior to the Restriction Termination Date,
there is a purported Transfer or other event such that any Person would
Beneficially Own shares of capital stock in excess of the Ownership
Limit, then, except as otherwise provided in subparagraph (ix) below,
such shares of capital stock which would be in excess of the Ownership
Limit

14

 

(rounded up to the nearest whole share), shall automatically be
converted into that number of shares of excess common stock or excess
preferred stock, as appropriate, equal to the number of shares of
capital stock being converted, as further described in clause (3) below.
Such conversion shall be effective as of the close of business on the
business day prior to the date of the Transfer or other event.

     (2) If, notwithstanding the other provisions contained in this
NINTH Article, at any time prior to the Restriction Termination Date,
there is a purported Transfer or other event which, if effective, would
cause the Corporation to become “closely held” within the meaning of
Section 856(h) of the Code (applied as if the Corporation was a REIT),
then the shares of capital stock being Transferred or which are
otherwise affected by such event and which, in either case, would cause,
when taken together with all other shares of capital stock, the
Corporation to be “closely held” within the meaning of Section 856(h) of
the Code (rounded up to the nearest whole share) shall automatically be
converted into that number of shares of excess common stock or excess
preferred stock, as appropriate, equal to the number of shares of
capital stock being converted, as further described in clause (3) below.
Such conversion shall be effective as of the close of business on the
business day prior to the date of the Transfer or change in capital
structure.

     (3) Upon conversion of common stock or preferred stock into Excess Shares pursuant to subparagraph (iii), common stock shall be converted
into excess common stock and preferred stock shall be converted in
excess preferred stock.

     (iv) Remedies for Breach. If the Board of Directors or its
designees shall at any time determine in good faith that a purported
Transfer or other event has taken place in violation of paragraph (c)(ii)
of this NINTH Article or that a Person intends to acquire or has
attempted to acquire Beneficial Ownership of any shares of capital stock
in violation of paragraph (c)(ii) of this NINTH Article, the Board of
Directors or its designees may take such action as it deems advisable to
refuse to give effect to or to prevent such Transfer or other event,
including, but not limited to, refusing to give effect to such Transfer
or other event on the books of the Corporation or instituting proceedings
to enjoin such Transfer or other event or transaction; provided, however,
that any Transfers or attempted Transfers (or, in the case of events
other than a Transfer, Beneficial Ownership) in violation of paragraph
(c)(ii) of this NINTH Article, shall be void ab initio and automatically
result in the conversion described in paragraph (c)(iii), irrespective of
any action (or non-action) by the Board of Directors or its designees.

     (v) Notice of Restricted Transfer. Any Person who acquires or
attempts to acquire shares of capital stock in violation of paragraph
(c)(ii) of this NINTH Article, or any Person who is a purported
transferee such that Excess Shares result under paragraph
(c)(iii), shall immediately give written notice to the Corporation of
such Transfer, attempted Transfer or other event and shall provide to the
Corporation such other information as the Corporation may request in
order to determine the effect, if any, of such Transfer or attempted
Transfer or other event on SLT’s status as a REIT.

15

 

     (vi) Owners Required to Provide Information. Prior to the
Restriction Termination Date:

     (1) Every Beneficial Owner of five percent (5% or more, by value,
vote or number, or such lower percentages as required pursuant to
regulations under the Code (applied as if the Corporation was a REIT),
of the outstanding shares of capital stock shall, before January 30 of
each year, give written notice to the Corporation stating the name and
address of such Beneficial Owner, the general ownership structure of
such Beneficial Owner, the number of shares of each class of capital
stock Beneficially Owned, and a description of how such shares are held.

     (2) Each Person who is a Beneficial Owner of shares of capital
stock and each Person (including the shareholder of record) who is
holding shares of capital stock for a Beneficial owner shall provide on
demand to the Corporation such information as the Corporation may
request from time to time in order to ensure compliance with the
ownership Limit and SLT’s compliance with the REIT requirements of the
Code and the regulations published thereunder.

     (vii) Remedies Not Limited. Subject to paragraph (c)(xii) of this
NINTH Article, nothing contained in this NINTH Article shall limit the
authority of the Board of Directors to take such other action as it deems
necessary or advisable to protect SLT and the interests of the
Corporation’s stockholders by preservation of SLT’s status as a REIT and
to ensure compliance with the Ownership Limit.

     (viii) Ambiguity. In the case of an ambiguity in the application of
any of the provisions of this paragraph (c) or paragraph (d), including
any definition contained in subparagraph(c)(i), the Board of Directors
shall have the power to determine the application of the provisions of
this paragraph (c) or paragraph (d) with respect to any situation based
on the facts known to them.

     (ix) Exception. The Board of Directors upon receipt of a ruling from
the Internal Revenue Service or an opinion of tax counsel, satisfactory
to them in their sole and absolute discretion, in each case to the effect
that SLT’s status as a REIT will not be jeopardized, may exempt a Person
from the Ownership Limit if the Board of Directors obtains such
representations and undertakings from such Person as are reasonably
necessary to ascertain that such Person’s Beneficial Ownership of shares
of capital stock will not jeopardize SLT’s status as a REIT.

     (x) Legend. Until the Restriction Termination Date, each certificate
for the respective class of shares of capital stock shall bear the
following legend:

     The shares of capital stock represented by this
certificate are subject to restrictions on transfer. Unless
excepted by the Board of Directors, no Person may (1)
Beneficially Own shares of capital stock in excess of 8.0%
of the outstanding shares of capital stock, by value, vote
or number, determined as provided in the Corporation’s
Articles of Incorporation, as the same may be amended from
time to time (the

16

 

“Articles”), and computed with regard to all
outstanding shares of capital stock and, to the extent
provided by the Code, all shares of capital stock issuable
under existing options and exchange rights that have not
been exercised; or (2) Beneficially Own shares of capital
stock which would result in SLT being “closely held.” Unless
so excepted, any acquisition of shares of capital stock and
continued holding of ownership constitutes a continuous
representation of compliance with the above limitations, and
any Person who attempts to Beneficially Own shares of
capital stock in excess of the above limitations has an
affirmative obligation to notify the Corporation immediately
upon such attempt. If the restrictions on transfer are
violated, the transfer will be void ab initio and the shares
of capital stock represented hereby will be automatically
converted into Excess Shares that will be held in trust.
Excess Shares may not be transferred at a profit and may be
purchased by the Corporation. In addition, certain
Beneficial Owners must give written notice as to certain
information on demand and on an annual basis. All terms not
defined in this legend have the meanings provided in the
Articles. The Corporation will mail without charge to any
requesting stockholder a copy of the Articles, including the
express terms of each class and series of the authorized shares of capital stock of the Corporation, within five (5)
days after receipt of a written request therefor.

     (xi) Severability. If any provision of this NINTH Article or any
application of any such provision is determined to be invalid by any
Federal or state court having jurisdiction over the issues, the validity
of the remaining provisions shall not be affected, and other applications
of such provision shall be affected only to the extent necessary to
comply with the determination of such court.

     (xii) New York Stock Exchange Transactions. Nothing in this NINTH
Article shall preclude the settlement of any transaction entered into
through the facilities of the New York Stock Exchange.

     (d) Excess Shares.

     (i) Ownership In Trust. Upon any purported Transfer or other event
that results in Excess Shares pursuant to paragraph (c)(iii) of this
NINTH Article, such Excess Shares shall be deemed to have been
transferred to Nina Matis (or any successor Excess Share
Trustee), as Excess Share Trustee of the Excess Share Trust for the
benefit of such Excess Share Trust Beneficiary or Beneficiaries and the
Charitable Beneficiary effective as of the close of business on the
business day prior to the date of the Transfer or other event. Excess Shares so held in trust shall be issued and outstanding shares of the
Corporation. The Purported Record Transferee or Purported Record Holder
shall have no rights in such Excess Shares. The Purported Beneficial
Transferee or Purported Beneficial Holder shall have no rights in such
Excess Shares except as provided in paragraph (d)(v). Nina Matis, or any
successor Excess Share Trustee, may resign by appointing a person
independent of SLT, the Corporation or any Excess Share Trust Beneficiary
as the Excess Share Trustee. The Excess Share Trustee shall, from time to

17

 

time, designate one or more charitable organization or organizations
as the Charitable Beneficiary.

     (ii) Dividend Rights. Excess Shares shall be entitled to the same
dividends determined as if no conversion into Excess Shares had occurred.
Any dividend or distribution paid prior to the discovery by the
Corporation that the shares of capital stock have been converted into
Excess Shares shall be repaid to the Excess Share Trust upon demand. Any
dividend or distribution declared but unpaid shall be paid to the Excess Share Trust. All
dividends received or other income earned by the Excess Share Trust shall be paid over to the Charitable Beneficiary.

     (iii) Rights Upon Liquidation. Excess Shares shall not be entitled
to receive any portion of the assets of the Corporation on the
liquidation or dissolution of the Corporation. Upon conversion of Excess Shares into shares of
capital stock pursuant to paragraph (d)(v), such shares shall be entitled to receive their pro rata share of the assets of
the Corporation as a result of the liquidation or dissolution of the
Corporation.

     (iv) Voting Rights. The Excess Share Trustee shall vote the Excess Shares which shall have the same voting rights as the shares of capital
stock into which they are to be converted pursuant to paragraph (d)(v).
Any vote cast by the Purported Beneficial Transferee or Purported Record
Transferee will, at the option of the Excess Share Trustee, be void ab
initio.

     (v) Restrictions On Transfer; Designation of Excess Share Trust
Beneficiary. (1) Excess Shares shall not be transferable. The Excess Share Trustee may freely designate an Excess Share Trust Beneficiary of
all or any portion of the beneficial interest in the Excess Share Trust
(representing the number of Excess Shares held by the Excess Share Trust
attributable to a purported Transfer or other event that results in
Excess Shares and designated as to number and class of shares pursuant to
the notice provision of this clause), if the Excess Shares held in the
Excess Share Trust would not be Excess Shares in the hands of such Excess Share Trust Beneficiary. If the Excess Shares resulted from a purported
Transfer, the Purported Beneficial Transferee shall receive a payment
from the Excess Share Trustee that reflects a price per share for such
Excess Shares equal to the lesser of (A) the price per share received by
the Excess Share Trustee and (B) (x) the price per share such Purported
Beneficial Transferee paid for the Share of Beneficial Interest in the
purported Transfer that resulted in the Excess Shares, or (y) if the
Purported Beneficial Transferee did not give value for such shares of
Excess Shares (through a gift, devise or other transaction), a price per share of Excess Shares equal to the Market Price of the shares of capital
stock on the date of the purported Transfer that resulted in the Excess Shares. If Excess Shares resulted from an event other than a purported
Transfer, the Purported Beneficial Holder shall receive a payment from
the Excess Share Trustee that reflects a price per share of Excess Shares equal to the lesser of (A) the price per share received by the
Excess Share Trustee or (B) the Market Price of the shares of capital
stock on the date of the event that resulted in Excess Shares. Upon such
transfer of an interest in the Excess Share Trust, the corresponding shares of Excess Shares in the Excess Share Trust shall be automatically
converted into such number of shares of common or preferred stock (of the
same class as the shares that were converted

18

 

into such Excess Shares) as is equal to the number of shares of
Excess Shares, and such shares of common or preferred stock shall be
transferred of record to the Excess Share Trust Beneficiary of the
interest in the Excess Share Trust designated by the Excess Share Trustee
as described above if such shares of capital stock would not be Excess Shares in the hands of such Excess Share Trust Beneficiary. Prior to any
transfer of any interest in the Excess Share Trust, the Corporation must
have waived in writing its purchase rights, if any, under paragraph
(d)(vi). Any funds received by the Excess Share Trustee in excess of the
funds payable to the Purported Beneficial Holder or the Purported
Beneficial Transferor shall be paid to the Charitable Beneficiary. The
Corporation shall pay the costs and expenses of the Excess Share Trustee.

     (2) Notwithstanding the foregoing, if a Purported Beneficial
Transferee, Purported Beneficial Holder or the Excess Share Trustee
receives a price for an interest in the Excess Share Trust that exceeds
the amounts allowable under paragraph (d)(v)(1) of this NINTH Article,
such Purported Beneficial Transferee or Purported Beneficial Holder
shall be personally liable to, and shall pay, or cause the Excess Share
Trust Beneficiary of the interest in the Excess Share Trust to pay, such
excess to the Excess Share Trustee who shall pay over such excess to the
Charitable Beneficiary.

     (3) Notwithstanding the foregoing, if the provisions of this
paragraph (d)(v) are determined to be void or invalid by virtue of any
legal decision, statute, rule or regulation, then the Purported
Beneficial Transferee or Purported Beneficial Holder of any shares of
Excess Shares may be deemed, at the option of the Corporation, to have
acted as an agent on behalf of the Corporation, in acquiring or holding
such Excess Shares and to hold such Excess Shares on behalf of the
Corporation.

     (vi) Purchase Right in Excess Shares. Excess Shares shall be deemed
to have been offered for sale by the Excess Share Trustee to the
Corporation, or its designee, at a price per Excess Share equal to (I) in
the case of Excess Shares resulting from a purported Transfer, the lesser
of (A) the price per share of the shares of capital stock in the
transaction that created such Excess Shares (or, in the case of devise or
gift, the Market Price of the shares of capital stock at the time of such
devise or gift), or (B) the lowest Market Price of the class of shares of
capital stock which resulted in the Excess Shares at any time after the
date such shares were converted into Excess Shares and prior to the date
the Corporation, or its designee, accepts such offer or (II) in the case
of Excess Shares resulting from an event other than a purported Transfer,
the lesser of (A) the Market Price of the shares of capital stock on the
date of such event or (B) the lowest Market Price for shares of capital
stock which resulted in the Excess Shares at any time from the date of
the event resulting in such Excess Shares and prior to the date the
Corporation, or its designee, accepts such offer. The Corporation shall
have the right to accept such offer for a period of ninety (90) days
after the later of (i) the date of the Transfer which resulted in such
Excess Shares and (ii) the date the Board of Directors determines in good
faith that a Transfer or other event resulting in Excess Shares has
occurred, if the Corporation does not receive a notice of such Transfer
or other event pursuant to paragraph (c)(v) of this NINTH Article.

19

 

     (e) Notwithstanding any other provision of these Articles of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of capital stock required by law or these
Articles of Incorporation, the affirmative vote of the holders of at least
two-thirds (2/3) of the voting power of all the then-outstanding shares of
capital stock of the Corporation, voting together as a single class, shall
be required to alter, amend or repeal this NINTH Article.

     TENTH: The Corporation shall indemnify (A) its directors and officers,
whether serving the Corporation or at its request any other entity, to the full
extent required or permitted by the General Laws of the State of Maryland now
or hereafter in force, including the advance of expenses under the procedures
and to the full extent permitted by law and (B) other employees and agents to
such extent as shall be authorized by the Board of Directors or the
Corporation’s By-Laws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such by-laws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment of the
charter of the Corporation or repeal of any of its provisions shall limit or
eliminate the right to indemnification provided hereunder with respect to acts
or omissions occurring prior to such amendment or repeal.

     ELEVENTH: The provisions for the regulation of the internal affairs of the
Corporation are to be stated in the Bylaws of the Corporation, as the same may
be amended from time to time.

     TWELFTH: Any amendments to these Articles of Incorporation shall be
approved by the stockholders of the Corporation by the affirmative vote of a
majority of all the votes entitled to be cast on the matter.

     THIRTEENTH: The Corporation shall not consummate a consolidation, merger, exchange or sale, lease, exchange or other transfer of all or
substantially all of its assets, the stockholder approval of which is required
by applicable law, unless such transaction is approved by the stockholders of
the Corporation by the affirmative vote of a majority of all the votes entitled
to be cast on the matter.

     FOURTEENTH: To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted from time to time, no director or
officer of the Corporation shall be liable to the Corporation or its
stockholders for money damages. No amendment to these Articles of Incorporation
or repeal of any of its provisions shall limit or eliminate the effect of this
FOURTEENTH Article with respect to any act or omission which occurs prior to
such amendment or repeal.

     FIFTEENTH: In order to enable the Corporation and any Subsidiary (as
hereinafter defined) to secure and maintain in good standing all licenses,
franchises and other regulatory approvals issued by Gaming Authorities (as
hereinafter defined) which are necessary for the lawful operation of gaming and
related businesses now or hereafter engaged in by the

20

 

Corporation or any Subsidiary within or without the United States of
America, which licenses, franchises or other regulatory approvals are
conditioned upon some or all of the holders of the Corporation’s stock
possessing prescribed qualifications (the “Gaming Licenses”), and in order to
insure that the business of the Corporation and its Subsidiaries will be
carried on in compliance with the laws and regulations governing the conduct of
gaming and related businesses (the “Gaming Laws”), the following provisions are
made and shall apply for so long as the Corporation is subject to Gaming Laws:

     (a) Securities (as hereinafter defined) of the Corporation shall be
subject to redemption by the Corporation, pursuant to Section 78.196 of the
Nevada Revised Statutes or any other applicable provision of law, to the
extent necessary to prevent the loss or to secure the reinstatement of any
Gaming License held by the Corporation or any Subsidiary.

     (b) Securities of the Corporation shall be held subject to the
condition that if a holder thereof is found by a Gaming Authority to be
disqualified or unsuitable pursuant to any Gaming Law (a “Disqualified
Holder”), such holder shall dispose of all of the Corporation’s Securities
held by such holder within the 120 day period (the “Disposition Period”)
commencing on the date (the “Notice Date”) upon which the Corporation shall
have received notice from a Gaming Authority of such holder’s
disqualification or unsuitability (the “Disqualification Notice”). Promptly
following its receipt of a Disqualification Notice, the Corporation shall
cause such Disqualification Notice to be delivered to the Disqualified
Holder named therein by personal delivery, by mailing it to the address
shown on the Corporation’s books and records or through the use of any other
reasonable means. Failure of the Corporation to provide such
Disqualification Notice to a Disqualified Holder after making reasonable
efforts to do so shall not preclude the Corporation from exercising its
rights.

     (c) If any Disqualified Holder fails to dispose of the Corporation’s
Securities within the Disposition Period, the Corporation may redeem such
Securities at the lesser of (1) the lowest closing sale price of such
Securities on any trading day during the Disposition Period or (2) such
Disqualified Holder’s original purchase price; provided, that if the
Securities to be so redeemed are paired with securities of SLT (the
Securities of the Corporation and the securities of SLT when so paired being
herein referred to as “Paired Securities”) pursuant to the Pairing
Agreement, dated as of June 25, 1980, as amended, between SLT and the
Corporation, the Corporation and SLT may redeem such Paired Securities for
an aggregate amount equal to the lesser of (1) the lowest closing sale price
of such Paired Securities on any trading day during the Disposition Period
or (2) such Disqualified Holder’s original purchase price for such Paired
Securities.

     (d) Commencing on the Notice Date, it shall be unlawful for a
Disqualified Holder to:

     (1) receive payments of dividends or interest upon any Securities
of the Corporation held by such Disqualified Holder,

     (2) exercise, directly or indirectly, any right conferred by the
Corporation’s Securities upon the holders thereof, or

21

 

     (3) receive any remuneration in any form, for services rendered or
otherwise, from the Subsidiary of the Corporation that holds a Gaming
License.

     (e) The Board of Directors shall have the power to determine, on the
basis of information known to the Board after reasonable inquiry, all
questions arising under this Article FIFTEENTH including, without
limitation, (1) whether a person is a Disqualified Holder, (2) whether a
Disqualified Holder has disposed of Securities pursuant to Paragraph (b) of
this Article FIFTEENTH and (3) the amount of Securities held directly or
indirectly by any person. Any such determination shall be binding and
conclusive on all such persons.

     (f) The Corporation shall be entitled to injunctive relief in any court
of competent jurisdiction to enforce the provisions of this Article
FIFTEENTH, and each holder of Securities of the Corporation will be deemed
to have acknowledged by acquiring or retaining Securities of the Corporation
that failure to comply with this Article FIFTEENTH will expose the
Corporation to irreparable injury for which there is not adequate remedy at
law and that the Corporation is entitled to injunctive relief to enforce the
provisions of this Article FIFTEENTH.

     (g) A Disqualified Holder shall indemnify the Corporation and its
Subsidiaries for any and all direct or indirect costs (including attorney’s
fees) incurred by the Corporation as a result of such holder’s continuing
ownership of or failure to divest the Securities.

     (h) The following definitions shall apply with respect to this Article
FIFTEENTH:

     (1) The term “Gaming Authorities” includes all governmental
authorities within or without the United States of America which issue
or grant any license, franchise or regulatory approval necessary or
appropriate for the lawful operation of gaming and related businesses.
With respect to the State of Nevada, the term “Gaming Authorities” shall
include, without limitation, the Nevada Gaming Commission, the Nevada
State Gaming Control Board or their respective successors; and with
respect to Atlantic City, New Jersey, the term “Gaming Authorities”
shall include, without limitation, the New Jersey Casino Control
Commission, the Division of Gaming Enforcement or their respective
successors.

     (2) The term “Securities” means any instrument evidencing a direct
or indirect beneficial ownership or creditor interest in the
Corporation, including but not limited to, Common Stock, Preferred
Stock, bonds, mortgages, debentures, security agreements, notes,
warrants, options and rights.

     (3) The term “Subsidiary” (A) in matters relating to Gaming Laws of
the State of New Jersey, shall have the definition set forth in the New
Jersey Statutes Annotated 5:12-47 or (B) in matters relating to Gaming
Laws outside of the State of New Jersey, means(i) a corporation, more
than 50% of the outstanding voting securities of which the Corporation
or a Subsidiary of the Corporation owns or has the power to vote or (ii)
a firm, association, partnership, limited liability company, trust or
other form of business organization, not a natural person, of which the
Corporation or a Subsidiary of the Corporation owns or has the power to
vote a majority interest.

22

 

          3. The foregoing restatement of the charter has been approved by a
majority of the entire Board of Directors.

          4. The charter is not amended by these Articles of Restatement.

          5. The current address of the principal office of the Corporation is as
set forth in Article Third of the foregoing restatement of the charter.

          6. The name and address of the Corporation’s current resident agent is as
set forth in Article Fourth of the foregoing restatement of the charter.

          7. The number of directors of the Corporation and the names of those
currently in office are as set forth in Article Sixth of the foregoing
restatement of the charter.

          The undersigned officer acknowledges these Articles of Restatement to be
the corporate act of the Corporation and as to all matters or facts required,
to be verified under oath, the undersigned officer acknowledges that to the
best of his knowledge, information and belief, these matters and facts are true
in all material respects and that this statement is made under the penalties
for perjury.

[SIGNATURE PAGE FOLLOWS]

23

 

          IN WITNESS WHEREOF, the Corporation has caused these Articles of
Restatement to be signed in its name and on its behalf by its Executive Vice
President, General Counsel and Secretary and attested to by its Assistant
Secretary on this 11th day of May, 2004.

	 	 	 	 	 	 	 
	ATTEST:	 	STARWOOD HOTEL & RESORTS WORLDWIDE, INC.	 	 
	 
	 	 	 	 	 	 
	

	 	By:
	 	 	 	(SEAL)
	

	 	 	 	
	 	 
	Jared T. Finkelstein

	 	 	 	Kenneth S. Siegel	 	 
	Assistant Secretary

	 	 	 	Executive Vice President,

General Counsel & Secretary	 	 

24

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