Document:

exv10w59

 

Exhibit 10.59

LOAN AND SECURITY AGREEMENT

WELLS FARGO RETAIL FINANCE, LLC

The Lender

REDENVELOPE, INC.

The Borrower

June 26, 2006

 

 

	 	 	 	 	 
	Article 1 - Definitions:
	 	 	1	 
	Article 2 - The Revolving Credit:
	 	 	16	 
	2.1. Establishment of Revolving Credit
	 	 	16	 
	2.2. Increase in Revolving Credit Ceiling
	 	 	16	 
	2.3. Advances in Excess of Borrowing Base (OverLoans)
	 	 	17	 
	2.4. Risks of Value of Collateral
	 	 	17	 
	2.5. Commitment to Make Revolving Credit Loans and Support Letters of Credit
	 	 	17	 
	2.6. Revolving Credit Loan Requests
	 	 	18	 
	2.7. Suspension of Revolving Credit
	 	 	19	 
	2.8. Making of Revolving Credit Loans
	 	 	19	 
	2.9. The Loan Account
	 	 	19	 
	2.10. The Revolving Credit Note
	 	 	20	 
	2.11. Payment of The Loan Account
	 	 	20	 
	2.12. Interest on Revolving Credit Loans
	 	 	21	 
	2.13. Closing Fee
	 	 	22	 
	2.14. Unused Line Fee
	 	 	22	 
	2.15. Service Fee
	 	 	22	 
	2.16. Early Termination Fee
	 	 	22	 
	2.17. Lender’s Discretion
	 	 	22	 
	2.18. Procedures For Issuance of L/C’s
	 	 	23	 
	2.19. Fees For L/C’s
	 	 	24	 
	2.20. Concerning L/C’s
	 	 	24	 
	2.21. Changed Circumstances
	 	 	25	 
	Article 3 - Conditions Precedent:
	 	 	26	 
	3.1. Corporate Due Diligence
	 	 	26	 
	3.2. Opinion
	 	 	26	 
	3.3. Additional Documents
	 	 	27	 
	3.4. Officers’ Certificates
	 	 	27	 
	3.5. Representations and Warranties
	 	 	28	 
	3.6. All Fees and Expenses Paid
	 	 	28	 
	3.7. Borrower Not In Default
	 	 	28	 
	3.8. No Adverse Change
	 	 	28	 
	3.9. Minimum Availability
	 	 	28	 
	3.10. Benefit of Conditions Precedent
	 	 	28	 
	Article 4 - General Representations, Covenants and Warranties:
	 	 	28	 

ii

 

	 	 	 	 	 
	4.1. Payment and Performance of Liabilities
	 	 	29	 
	4.2. Due Organization; Authorization; No Conflicts
	 	 	29	 
	4.3. Trade Names
	 	 	30	 
	4.4. Infrastructure
	 	 	30	 
	4.5. Locations
	 	 	30	 
	4.6. Encumbrances
	 	 	31	 
	4.7. Indebtedness
	 	 	31	 
	4.8. Insurance
	 	 	31	 
	4.9. Licenses
	 	 	32	 
	4.10. Leases
	 	 	32	 
	4.11. Requirements of Law
	 	 	32	 
	4.12. Labor Relations
	 	 	33	 
	4.13. Maintain Properties
	 	 	33	 
	4.14. Taxes
	 	 	34	 
	4.15. No Margin Stock
	 	 	34	 
	4.16. ERISA
	 	 	35	 
	4.17. Hazardous Materials
	 	 	35	 
	4.18. Litigation
	 	 	35	 
	4.19. Dividends; Investments; Corporate Action
	 	 	36	 
	4.20. Loans
	 	 	36	 
	4.21. Protection of Assets
	 	 	36	 
	4.22. Line of Business
	 	 	37	 
	4.23. Affiliate Transactions
	 	 	37	 
	4.24. Further Assurances
	 	 	37	 
	4.25. Adequacy of Disclosure
	 	 	38	 
	4.26. No Restrictions on Liabilities
	 	 	38	 
	4.27. Other Covenants
	 	 	38	 
	Article 5 - Financial Reporting and Performance Covenants:
	 	 	38	 
	5.1. Maintain Records
	 	 	38	 
	5.2. Access to Records
	 	 	39	 
	5.3. Immediate Notice to Lender
	 	 	39	 
	5.4. Borrowing Base Certificate
	 	 	40	 
	5.5. Monthly Reports
	 	 	40	 
	5.6. Annual Reports
	 	 	40	 
	5.7. Officers’ Certificates
	 	 	41	 

iii

 

	 	 	 	 	 
	5.8. Inventories, Appraisals, and Audits
	 	 	41	 
	5.9. Additional Financial Information
	 	 	42	 
	5.10. Financial Performance Covenant
	 	 	43	 
	Article 6
- Use of Collateral:
	 	 	43	 
	6.1. Use of Inventory Collateral
	 	 	43	 
	6.2. Inventory Quality
	 	 	43	 
	6.3. Adjustments and Allowances
	 	 	43	 
	6.4. Validity of Accounts
	 	 	44	 
	6.5. Notification to Account Debtors
	 	 	44	 
	Article 7
- Cash Management. Payment of Liabilities:
	 	 	44	 
	7.1. The Concentration, Blocked, and Operating Accounts
	 	 	44	 
	7.2. Credit Card and Other Credit Financing Receipts
	 	 	44	 
	7.3. Proceeds and Collections
	 	 	45	 
	7.4. Payment of Liabilities
	 	 	45	 
	7.5. The Operating Account
	 	 	46	 
	Article 8
- Grant of Security Interest:
	 	 	46	 
	8.1. Grant of Security Interest
	 	 	46	 
	8.2. Extent and Duration of Security Interest
	 	 	47	 
	Article 9
- Lender As Borrower’s Attorney-In-Fact:
	 	 	47	 
	9.1. Appointment as Attorney-In-Fact
	 	 	47	 
	9.2. No Obligation to Act
	 	 	48	 
	Article 10
- Events of Default:
	 	 	48	 
	10.1. Failure to Pay the Revolving Credit
	 	 	48	 
	10.2. Failure To Make Other Payments
	 	 	48	 
	10.3. Failure to Perform Covenant or Liability (No Grace Period)
	 	 	49	 
	10.4. Failure to Perform Covenant or Liability (Grace Period)
	 	 	49	 
	10.5. Misrepresentation
	 	 	49	 
	10.6. Extension of Lease for Distribution Facility
	 	 	49	 
	10.7. Acceleration of Other Debt; Breach of Lease
	 	 	49	 
	10.8. Default Under Other Agreements
	 	 	49	 
	10.9. Uninsured Casualty Loss
	 	 	49	 
	10.10. Attachment; Judgment; Restraint of Business
	 	 	50	 
	10.11. Business Failure
	 	 	50	 
	10.12. Bankruptcy
	 	 	50	 
	10.13. Indictment - Forfeiture
	 	 	50	 

iv

 

	 	 	 	 	 
	10.14. Challenge to Loan Documents
	 	 	50	 
	10.15. Change in Control
	 	 	51	 
	Article 11
- Rights and Remedies Upon Default:
	 	 	51	 
	11.1. Acceleration
	 	 	51	 
	11.2. Rights of Enforcement
	 	 	51	 
	11.3. Sale of Collateral
	 	 	51	 
	11.4. Occupation of Business Location
	 	 	52	 
	11.5. Grant of Nonexclusive License
	 	 	52	 
	11.6. Assembly of Collateral
	 	 	52	 
	11.7. Rights and Remedies
	 	 	52	 
	Article 12
- Notices:
	 	 	53	 
	12.1. Notice Addresses
	 	 	53	 
	12.2. Notice Given
	 	 	54	 
	12.3. Wire Instructions. Notice Given
	 	 	54	 
	Article 13
- Term:
	 	 	54	 
	13.1. Termination of Revolving Credit
	 	 	54	 
	13.2. Actions On Termination
	 	 	54	 
	Article 14
- General:
	 	 	55	 
	14.1. Protection of Collateral
	 	 	55	 
	14.2. Confidentiality
	 	 	55	 
	14.3. Publicity
	 	 	56	 
	14.4. Successors and Assigns
	 	 	56	 
	14.5. Severability
	 	 	56	 
	14.6. Amendments. Course of Dealing
	 	 	57	 
	14.7. Power of Attorney
	 	 	57	 
	14.8. Application of Proceeds
	 	 	57	 
	14.9. Increased Costs
	 	 	57	 
	14.10. Costs and Expenses of the Lender
	 	 	58	 
	14.11. Copies and Facsimiles
	 	 	58	 
	14.12. Massachusetts Law
	 	 	58	 
	14.13. Consent to Jurisdiction
	 	 	59	 
	14.14. Indemnification
	 	 	59	 
	14.15. Rules of Construction
	 	 	59	 
	14.16. Intent
	 	 	61	 
	14.17. Right of Set-Off
	 	 	61	 

v

 

	 	 	 	 	 
	14.18. Pledges To Federal Reserve Banks
	 	 	62	 
	14.19. Patriot Act Compliance
	 	 	62	 
	14.20. Maximum Interest Rate
	 	 	62	 
	14.21. Waivers
	 	 	62	 

vi

 

EXHIBITS

	 	 	 	 	 
	2.10
	 	:	 	Revolving Credit Note
	4.2
	 	:	 	Organizational ID; Affiliates
	4.3
	 	:	 	Trade Names
	4.5
	 	:	 	Locations
	4.6
	 	:	 	Permitted Encumbrances
	4.7
	 	:	 	Permitted Indebtedness
	4.8
	 	:	 	Insurance
	4.10
	 	:	 	Capital Leases; Other Leases
	4.14
	 	:	 	Taxes
	4.18
	 	:	 	Litigation
	5.4
	 	:	 	Borrowing Base Certificate
	5.5
	 	:	 	Monthly Financial Reporting Requirements
	7.2
	 	:	 	Credit Card Arrangements

vii

 

LOAN AND SECURITY AGREEMENT

June 26, 2006

THIS AGREEMENT is made between

     WELLS FARGO RETAIL FINANCE, LLC (in such capacity, herein the “Lender”), a Delaware limited
liability company with offices at One Boston Place — 19th Floor, Boston, Massachusetts
02108;

     and

     REDENVELOPE, INC. (the “Borrower”), a Delaware corporation with its principal executive
offices at 149 Montgomery Street, San Francisco, California 94105,

     in consideration of the mutual covenants contained herein and benefits to be derived herefrom,

WITNESSETH:

Article 1 — Definitions:

     As used herein, the following terms have the following meanings or are defined in the section
of this Agreement so indicated:

     "Account Debtor”: Has the meaning given that term in the UCC.

     "Accounts” and “Accounts Receivable”: Include, without limitation, “accounts” as defined in
the UCC, and also all: accounts, accounts receivable, receivables, and rights to payment (whether
or not earned by performance) for: property that has been or is to be sold, leased, licensed,
assigned, or otherwise disposed of; services rendered or to be rendered; a policy of insurance
issued or to be issued; a secondary obligation incurred or to be incurred; energy provided or to be
provided; for the use or hire of a vessel; arising out of the use of a credit or charge card or
information contained on or used with that card; winnings in a lottery or other game of chance; and
also all Inventory which gave rise thereto, and all rights associated with such Inventory,
including the right of stoppage in transit; all reclaimed, returned, rejected or repossessed
Inventory (if any) the sale of which gave rise to any Account.

     "ACH”: Automated clearing house.

     "Affiliate”: The following:

     (a) With respect to any two Persons, a relationship in which one Person, directly or
indirectly, through one or more intermediaries, is Controlled by, Controls, or is under common
Control with the other Person.

     (b) Any Person which: could have such enterprise’s tax returns or financial statements
consolidated with the Borrower’s; could be a member of the same controlled group of corporations
(within the meaning of Section 1563(a)(1), (2) and (3) of the Internal Revenue Code of 1986, as
amended from time to time) of which the Borrower is a member; or controls or is controlled by the
Borrower.

     "Applicable Law”: As to any Person: (i) All statutes, rules, regulations, orders, or other
requirements having the force of law and (ii) all court orders and injunctions, arbitrator’s
decisions, and/or similar rulings, in each instance ((i) and (ii)) of or by any federal, state,
municipal, and other governmental authority, or court, tribunal, panel, or other body which has or
claims jurisdiction over such Person, or any property of such Person, or of any other Person for
whose conduct such Person would be responsible.

1

 

     “Appraisal Percentage”: Means 85%, provided however, that so long as Borrower
is not In Default, upon the Effective Date of any Seasonal Advance Rate Request given by the
Borrower to the Lender in any calendar year, the Appraisal Percentage shall be 90% until the
earlier of (i) sixty (60) days from such Effective Date or (ii) December 15th of such year.

     “Availability”: The result of the following:

     (i) The lesser of

     (A) The Revolving Credit Ceiling.

     or

     (B) The Borrowing Base.

     Minus

     (ii) The aggregate unpaid balance of the Loan Account.

     Minus

     (iii) The aggregate undrawn Stated Amount of all then outstanding L/C’s.

     Minus

     (iv) The aggregate of the Availability Reserves.

     “Availability Reserves”: Such reserves as the Lender from time to time determines in the
Lender’s reasonable discretion as being appropriate to reflect the impediments to the Lender’s
ability to realize upon the Collateral, or to address the anticipated expenditure of funds or the
incurrence of obligations by the Lender, which in each case are made, undertaken, or incurred in
the Lender’s reasonable discretion (i) to protect, preserve, or maintain, directly or indirectly,
the Collateral or the collateral interests granted by the Borrower, including the Borrower’s
business assets and infrastructure, such as with respect to the payment of rent under any of the
Borrower’s leases or the payment of salary or payroll to any of the Borrower’s employees, (ii) to
implement and exercise the Lender’s rights upon default with respect to any Collateral granted by
the Borrower, or (iii) to otherwise further and protect the Lender’s interests.

     “Average Excess Availability”: Means, for the subject period, the aggregate of the amount of
Availability on each day in the period, divided by the number of days in the subject period.

     “Bank Product Agreements”: Those certain cash management service agreements entered into from
time to time by the Borrower in connection with any of the Bank Products.

     “Bank Product Obligations”: All obligations, liabilities, contingent reimbursement
obligations, fees, and expenses owing by the Borrower to the Lender, Wells Fargo Bank, N. A., or
any of their Affiliates pursuant to or evidenced by the Bank Product Agreements and irrespective of
whether for the payment of money, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and including all such amounts that the Borrower is
obligated to reimburse to the Lender as a result of the Lender purchasing participations or
executing indemnities or reimbursement obligations with respect to the Bank Products provided to
the Borrower pursuant to the Bank Product Agreements.

     “Bank Products”: Any service or facility extended to the Borrower by Wells Fargo Bank, N. A.
or any of its Affiliates, including: (a) credit cards, (b) credit card processing services, (c)
debit cards, (d) purchase

2

 

cards, (e) ACH transactions, (f) cash management, including controlled disbursement, accounts or
services, or (g) hedge agreements.

     “Bank Product Reserves”: As of any date of determination, the amount of reserves that the
Lender has established (based upon Wells Fargo Bank, N. A.’s or its Affiliate’s reasonable
determination of the credit exposure in respect of then extant Bank Products) for Bank Product
Obligations then provided or outstanding.

     “Bankruptcy Code”: Title 11, U.S.C., as amended from time to time.

     “Blocked Account”: Is defined in Section 7.1(a)(ii).

     “Blocked Account Agreement”: An Agreement, in form reasonably satisfactory to the Lender,
which Agreement recognizes the Lender’s Collateral Interest in the contents of the Blocked Account
and provides that such contents shall be transferred only to the Concentration Account or as
otherwise instructed by the Lender.

     “Borrower”: Is defined in the Preamble.

     “Borrowing Base”: The aggregate of the following:

     The face amount of Eligible Credit Card Receivables multiplied by Eighty-five (85%).

     Plus

     The lesser of (a) the Cost of Eligible Inventory (net of Inventory Reserves) multiplied by the
Inventory Advance Rate, or (b) Appraisal Percentage of the NRLV.

     “Borrowing Base Certificate”: Is defined in Section 5.4.

     “Business Day”: Any day other than (a) a Saturday or Sunday; (b) any day on which banks in
Boston, Massachusetts or in San Francisco, California generally are not open to the general public
for the purpose of conducting commercial banking business; or (c) a day on which the principal
office of the Lender is not open to the general public to conduct business.

     “Business Plan”: The Borrower’s business plan, delivered to the Lender prior to the Closing
Date, and any revision, amendment, or update of such business plan to which the Lender has provided
its written sign-off.

     “Capital Expenditures”: The expenditure of funds or the incurrence of liabilities which may
be capitalized in accordance with GAAP.

     “Capital Lease”: Any lease which may be capitalized in accordance with GAAP.

     “Cash Dominion Event”: Either (i) the failure of the Borrower to maintain Availability in an
amount greater than or equal $4,000,000.00 at any time, or (ii) the Borrower becoming In Default or
the occurrence of any Event of Default.

     “Cash Equivalents”: Any of the following:

     (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United
States or obligations of a United States federal agency or government sponsored enterprises, in
each case maturing within 1 year from the date of acquisition thereof;

3

 

     (b) marketable direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing within 1 year from the
date of acquisition thereof
and, at the time of acquisition, having one of the two highest ratings obtainable from either
Standard & Poor’s Rating Group (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”);

     (c) commercial paper maturing no more than 270 days from the date of creation thereof and, at
the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody’s;

     (d) certificates of deposit or bankers’ acceptances maturing within 1 year from the date of
acquisition thereof issued by any bank organized under the laws of the United States or any state
thereof having at the date of acquisition thereof combined capital and surplus of not less than
$250,000,000;

     (e) Deposit Accounts maintained with (i) any bank that satisfies the criteria described in
clause (d) above, or (ii) any other bank organized under the laws of the United States or any state
thereof so long as the amount maintained with any such other bank is less than or equal to $100,000
and is insured by the Federal Deposit Insurance Corporation;

     (f) Master Notes, Repurchase Agreements (collateralized at least 102% by U.S. Government
securities) and Corporate Notes and floating rate notes which are rated A3/A- or better by S&P and
Moody’s, and

     (g) Investments in money market funds substantially all of whose assets are invested in the
types of assets described in clauses (a) through (f) above.

     “Change in Control”: The occurrence of any of the following, unless such event is on terms
and conditions acceptable to the Lender, in its sole and exclusive discretion, and the Lender has
confirmed its approval by providing written assent thereto:

     (a) Any change in the beneficial ownership (within the meaning of Rule 13d-3 of the Exchange
Act) by any group of persons (within the meaning of the Exchange Act) or by any Person, of 25% or
more of the issued and outstanding capital stock of the Borrower having the right, under ordinary
circumstances, to vote for the election of directors of the Borrower, that results in such Person
or group of Persons becoming the largest shareholder of Borrower.

     (b) More than half of the persons who were directors of the Borrower on the Closing Date
(together with any new directors whose nomination for election by the equity holders of the
Borrower, was approved by a vote of at least a majority of the directors then still in office who
were directors on the Closing Date or approved in this manner), cease, for any reason other than
death or disability, to be directors of the Borrower.

     “Chattel Paper”: Has the meaning given that term in the UCC.

     “Clean Down Event”: Is defined in Section 5.8.

     “Closing Date”: June 26, 2006.

     “Closing Fee”: Is defined in Section 2.13.

     “Collateral”: Is defined in Section 8.1.

     “Collateral Interest”: Any interest in property to secure an obligation, including, without
limitation, a security interest, mortgage, and deed of trust.

     “Concentration Account”: Is defined in Section 7.1.

4

 

     “Control”: The possession, directly or indirectly, of the power (a) to vote 50% or more of
the securities having ordinary voting power for the election of directors of a Person, or (b) to
direct or cause the direction of
the management or policies of a Person, whether through the ability to exercise voting power,
by contract or otherwise. The terms “Controlling” and “Controlled” have meanings
correlative thereto.

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

     (a) is the calculated cost of purchases, based upon the Borrower’s accounting practices, known
to the Lender, which practices are in effect on the date on which this Agreement was executed as
such calculated cost is determined from: invoices received by the Borrower; the Borrower’s purchase
journal; or the Borrower’s stock ledger.

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

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

     “Costs of Collection”: Includes, without limitation, all attorneys’ reasonable fees and
reasonable out-of-pocket expenses incurred by the Lender’s attorneys, and all reasonable
out-of-pocket costs incurred by the Lender in the administration of the Liabilities and/or the Loan
Documents, including, without limitation, reasonable costs and expenses associated with travel on
behalf of the Lender, where such costs and expenses are directly or indirectly related to or in
respect of the Lender’s: administration and management of the Liabilities; negotiation,
documentation, and amendment of any Loan Document; or efforts to preserve, protect, collect, or
enforce the Collateral, the Liabilities, and/or the Lender’s Rights and Remedies and/or any of the
rights and remedies of the Lender against or in respect of any guarantor or other person liable in
respect of the Liabilities (whether or not suit is instituted in connection with such efforts).
The Costs of Collection are Liabilities, and at the Lender’s option may bear interest at the then
effective Prime Margin Rate.

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

     “DDA”: Any checking or other demand daily depository account maintained by the Borrower other
than any Exempt DDA.

     “Deposit Account”: Has the meaning given that term in the UCC and also includes all demand,
time, savings, passbook, or similar accounts maintained with a bank.

     “Documents”: Has the meaning given that term in the UCC.

     “Documents of Title”: Has the meaning given that term in the UCC.

     “Effective Date”: Means the effective date of any increase to the Appraisal Percentage and the
Inventory Advance Rate set forth by Borrower in any Seasonal Advance Rate Request to Lender, which
date shall be not less than Fifteen (15) days after receipt by the Lender of such Seasonal Advance
Rate Request.

     “Eligible Credit Card Receivables”: Accounts due on a non-recourse basis from major credit
card processors (which, if due on account of a private label credit card program, are deemed in the
discretion of the Lender to be eligible) which are outstanding fewer than Six (6) days.

5

 

     “Eligible In-Transit Inventory” means, as of any date of determination thereof, without
duplication of other Eligible Inventory, Inventory:

     (a) Which has been shipped from a location for receipt by Borrower but which has not yet been
delivered to such Borrower;

     (b) For which the purchase order is in the name of Borrower and title has passed to such
Borrower;

     (c) For which the document of title reflects a Borrower as consignee or, if requested by the
Lender, names the Lender as consignee, and in each case as to which the Lender has control over the
documents of title which evidence ownership of the subject Inventory (such as, if requested by the
Lender, by the delivery of a customs broker agreement in form and substance reasonably satisfactory
to the Lender)

     (d) Which has been paid for in full by the Borrower;

     (e) Which is insured to the reasonable satisfaction of the Lender;

     (f) Which has not been in transit for more than sixty (60) days; and

     (g) Which otherwise would constitute Eligible Inventory.

     “Eligible In-Transit Inventory Cap” means $1,000,000.00 provided however, that
so long as Borrower is not In Default, upon the Effective Date of any Seasonal Advance Rate Request
given by the Borrower to the Lender in any calendar year, $2,000,000.00 until the earlier of (i)
sixty (60) days from such Effective Date or (ii) December 15th of such year.

     “Eligible Inventory”: without duplication, (i) Eligible In-Transit Inventory in the aggregate
amount not to exceed the Eligible In-Transit Inventory Cap and (ii) all of the following: Such of
the Borrower’s Inventory, at such locations, and of such types, character, qualities and
quantities, as the Lender, in its reasonable discretion, from time to time determines to be
acceptable for borrowing, as to which Inventory, the Lender has a perfected security interest which
is prior and superior to all security interests, claims, and Encumbrances (other than Permitted
Encumbrances).

     “Employee Benefit Plan”: As defined in ERISA.

     “Encumbrance”: Each of the following:

     (a) A Collateral Interest or agreement to create or grant a Collateral Interest; the interest
of a lessor under a Capital Lease; conditional sale or other title retention agreement; sale of
accounts receivable or chattel paper; or other arrangement pursuant to which any Person is entitled
to any preference or priority with respect to the property or assets of another Person or the
income or profits of such other Person; each of the foregoing whether consensual or non-consensual
and whether arising by way of agreement, operation of law, legal process or otherwise.

     (b) The filing of any financing statement under the UCC or comparable law of any jurisdiction.

     “End Date”: The date upon which all of the following conditions are met: (a) all payment
Liabilities described in Section 13.2(a) have been paid in full and (b) all obligations of
the Lender to make loans and advances and to provide other financial accommodations to the Borrower
hereunder shall have been irrevocably terminated and (c) those arrangements concerning L/C’s, Bank
Products, Bank Product Obligations, and indemnification obligations which are described in
Sections 13.2(b) and 13.2(d) have been made.

6

 

     “Environmental Laws”: All of the following:

     (a) Applicable Law which regulates or imposes any standard of conduct or liability on account
of or in respect to environmental protection matters, including, without limitation, Hazardous
Materials, as are now or hereafter in effect.

     (b) The common law relating to damage to Persons or property from Hazardous Materials.

     “Equipment”: Includes, without limitation, “equipment” as defined in the UCC, and also all
furniture, store fixtures, motor vehicles, rolling stock, machinery, office equipment, plant
equipment, tools, dies, molds, and other goods, property, and assets which are used and/or were
purchased for use in the operation or furtherance of the Borrower’s business, and any and all
accessions or additions thereto, and substitutions therefore.

     “ERISA”: The Employee Retirement Income Security Act of 1974, as amended.

     “ERISA Affiliate”: Any Person which is under common control with the Borrower within the
meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which would
be treated as a single employer under Section 414 of the Internal Revenue Code of 1986, as amended.

     “Events of Default”: Is defined in Article 10. An “Event of Default” shall be deemed to have
occurred and to be continuing unless and until that Event of Default has been duly waived by the
Lender.

     “Exchange Act ”: Means, the Securities Exchange Act of 1934, as amended.

     “Fee Letter”: Means that certain Fee letter dated June 26 2006 entered into by and between
the Lender and the Borrower.

     “Fiscal”: When followed by “month” or “quarter,” the relevant fiscal period based on the
Borrower’s fiscal year and accounting conventions (e.g. reference to “Fiscal 2007” is to the fiscal
month of the Borrower’s fiscal year ending in 2007). When followed by reference to a specific
year, the fiscal year which ends in a month of the year to which reference is being made (e.g. if
the Borrower’s fiscal year ends in March 2007, reference to that year would be to the Borrower’s
“Fiscal 2007”).

     “Fixtures”: Has the meaning given that term in the UCC.

     “GAAP”: Principles which are consistent with those promulgated or adopted by the Financial
Accounting Standards Board and its predecessors (or successors) in effect and applicable to that
accounting period in respect of which reference to GAAP is being made.

     “General Intangibles”: Includes, without limitation, “general intangibles” as defined in the
UCC; and also all: rights to payment for credit extended; deposits; amounts due to the Borrower;
credit memoranda in favor of the Borrower; warranty claims; tax refunds and abatements; insurance
refunds and premium rebates; all means and vehicles of investment or hedging, including, without
limitation, options, warrants, and futures contracts; records; customer lists; telephone numbers;
goodwill; causes of action; judgments; payments under any settlement or other agreement; royalties;
license and/or franchise fees; licenses; franchises; license agreements, including all rights of
the Borrower to enforce same; permits, certificates of convenience and necessity, and similar
rights granted by any governmental authority; patents, patent applications, patents pending, and
other intellectual property; internet addresses and domain names; developmental ideas and concepts;
proprietary processes; blueprints, drawings, designs, diagrams, plans, reports, and charts;
catalogs; manuals; technical data; computer software programs (including the source and object
codes therefore), computer records, computer software, rights of access to computer record service
bureaus, service bureau computer contracts, and computer data; tapes, disks, semi-conductor chips
and printouts; trade secret rights, copyrights, mask work rights and interests, and derivative
works and interests; user, technical reference, and

7

 

other manuals and materials; trade names,
trademarks, service marks, and all goodwill relating thereto; applications for registration of the
foregoing; and all other general intangible property of the Borrower in the
nature of intellectual property, proposals, cost estimates, and reproductions on paper, or
otherwise, of any and all concepts or ideas, and any matter related to, or connected with, the
design, development, manufacture, sale, marketing, leasing, or use of any or all property produced,
sold, or leased, by the Borrower or credit extended or services performed, by the Borrower, whether
intended for an individual customer or the general business of the Borrower, or used or useful in
connection with research by the Borrower.

     “Goods”: Has the meaning given that term in the UCC, and also includes all things movable
when a security interest therein attaches and also all computer programs embedded in goods and any
supporting information provided in connection with a transaction relating to the program if (i) the
program is associated with the goods in such manner that it customarily is considered part of the
goods or (ii) by becoming the owner of the goods, a Person acquires a right to use the program in
connection with the goods.

     “Hazardous Materials”: Any (a) substance which is defined or regulated as a hazardous
material in or under any Environmental Law and (b) oil in any physical state.

     “Indebtedness”: All indebtedness and obligations of or assumed by any Person on account of or
in respect to any of the following:

     (a) In respect of money borrowed (including any indebtedness which is non-recourse to the
credit of such Person but which is secured by an Encumbrance on any asset of such Person) whether
or not evidenced by a promissory note, bond, debenture or other written obligation to pay money.

     (b) In connection with any letter of credit or acceptance transaction (including, without
limitation, the face amount of all letters of credit and acceptances issued for the account of such
Person or reimbursement on account of which such Person would be obligated).

     (c) In connection with the sale or discount of accounts receivable or chattel paper of such
Person.

     (d) On account of deposits or advances.

     (e) As lessee under Capital Leases.

     (f) In connection with any sale and leaseback transaction.

     “Indebtedness” also includes:

     (x) Indebtedness of others secured by an Encumbrance on any asset of such Person, whether or
not such Indebtedness is assumed by such Person.

     (y) Any guaranty, endorsement, suretyship or other undertaking pursuant to which that Person
may be liable on account of any obligation of any third party (including, without limitation, the
posting of any bond to secure a Person’s performance under any agreement).

     (z) The Indebtedness of a partnership or joint venture for which such Person is liable as a
general partner or joint venturer.

     (For the avoidance of doubt, “Indebtedness” shall not include Customer Credit Liability)

     “In Default”: Any occurrence, circumstance, or state of facts with respect to the Borrower
which (a) is an Event of Default; or (b) would become an Event of Default if any requisite notice
were given and/or any requisite period of time were to run and such occurrence, circumstance, or
state of facts were not absolutely

8

 

cured within any applicable grace period, provided that the
Borrower shall no longer be deemed “In Default” if such occurrence, circumstance, or state of facts
has been cured prior to it becoming an Event of Default.

     “Indemnified Person”: Is defined in Section 14.14.

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

     “Instruments”: Has the meaning given that term in the UCC.

     “Interest Payment Date”: With reference to:

          Each Libor Loan: The last day of the Interest Period relating thereto; the Termination
Date; and the End Date.

          Each Prime Margin Loan: The first day of each month; the Termination Date; and the End
Date.

     “Interest Period”: The following:

     (a) With respect to each Libor Loan: Subject to Subsection (c), below, the period commencing
on the date of the making or continuation of, or conversion to, the subject Libor Loan and ending
one, two, or three months thereafter, as the Borrower may elect by notice (pursuant to Section
2.6) to the Lender.

     (b) With respect to each Prime Margin Loan: Subject to Subsection (c), below, the period
commencing on the date of the making or continuation of or conversion to such Prime Margin Loan and
ending on that date (i) as of which the subject Prime Margin Loan is converted to a Libor Loan, as
the Borrower may elect by notice (pursuant to Section 2.6) to the Lender, or (ii) on which
the subject Prime Margin Loan is paid by the Borrower.

     (c) The setting of Interest Periods is in all instances subject to the following:

     (i) Any Interest Period for a Prime Margin Loan which would otherwise end on a day
which is not a Business Day shall be extended to the next succeeding Business Day.

     (ii) Any Interest Period for a Libor Loan which would otherwise end on a day that is
not a Business Day shall be extended to the next succeeding Business Day, unless that
succeeding Business Day is in the next calendar month, in which event such Interest Period
shall end on the last Business Day of the month during which the Interest Period ends.

     (iii) Subject to Subsection (iv), below, any Interest Period applicable to a Libor
Loan, which Interest Period begins on a day for which there is no numerically corresponding
day in the calendar month during which such Interest Period ends, shall end on the last
Business Day of the month during which that Interest Period ends.

     (iv) Any Interest Period which would otherwise end after the Termination Date shall end
on the Termination Date.

     (v) The number of Interest Periods in effect at any one time is subject to Section
2.12(e).

     “Inventory”: Includes, without limitation, “inventory” as defined in the UCC and also all:
(a) Goods which are held by a Person for sale or to be furnished under a contract of service; are
furnished by a Person

9

 

under a contract of service; or consist of raw materials, work in process, or
materials used or consumed in a business; (b) Goods of said description in transit; (c) Goods of
said description which are returned, repossessed and rejected; (d) packaging, advertising, and
shipping materials related to any of the foregoing; (e) the
Borrower’s rights, if any, in and to all names, marks, and General Intangibles affixed or to
be affixed or associated thereto; and (f) Documents and Documents of Title which represent any of
the foregoing.

     “Inventory Advance Rate”: Means 62%, provided however, that so long as
Borrower is not In Default, upon the Effective Date of any Seasonal Advance Rate Request given by
the Borrower to the Lender in any calendar year, the Inventory Advance Rate shall be 76% until the
earlier of (i) sixty (60) days from such Effective Date or (ii) December 15th of such year.

     “Inventory Reserves”: Such Reserves as may be established from time to time by the Lender in
the Lender’s reasonable discretion with respect to the determination of the saleability, at retail,
of the Eligible Inventory or which reflect such other factors as affect the market value or the
NRLV of the Eligible Inventory.

     “Investment”: With respect to any Person (a) the direct or indirect purchase or acquisition
of any beneficial interest in, any share of capital stock of, evidence of Indebtedness of or other
security issued by any other Person, (b) any loan, advance or extension of credit to, or
contribution to the capital of, any other Person, excluding advances to employees in the ordinary
course of business for business expenses, (c) the guaranty of the obligations of any other Person,
or (d) any commitment or option to take any of the actions described in clauses (a), (b), or (c)
above.

     “Investment Property”: Has the meaning given that term in the UCC.

     “Issuer”: The issuer of any L/C.

     “L/C”: Any letter of credit, the issuance of which is procured by the Lender at the request
of the Borrower for the account of the Borrower and any acceptance made on account of such letter
of credit.

     “L/C Landing Costs”: To the extent not included in the Stated Amount of an L/C, customs,
duty, freight, and other out-of-pocket costs and expenses which will be expended to “land” the
Inventory, the purchase of which is supported by such L/C.

     “Lease”: Any lease or other agreement, no matter how styled or structured, pursuant to which
the Borrower is entitled to the use or occupancy of any space.

     “Leasehold Interest”: Any interest of the Borrower as lessee under any Lease.

     “Lender”: Is referred to in the Preamble.

     “Lender’s Rights and Remedies”: Is defined in Section 11.7.

     “Letter-of-Credit Right”: Has the meaning given that term in UCC and also refers to any right
to payment or performance under an L/C, whether or not the beneficiary has demanded or is at the
time entitled to demand payment or performance.

     “Liabilities”: Includes, without limitation, the following:

     (a) All and each of the following, whether now existing or hereafter arising under this
Agreement or under any of the other Loan Documents:

     (i) Any and all direct and indirect liabilities, debts, and obligations of the Borrower
to the Lender, each of every kind, nature, and description.

10

 

     (ii) Each obligation to repay any loan, advance, indebtedness, note, obligation,
overdraft, or amount now or hereafter owing by the Borrower to the Lender (including all
future advances whether or not made pursuant to a commitment by the Lender), whether or not
any of such are liquidated,
unliquidated, primary, secondary, secured, unsecured, direct, indirect, absolute,
contingent, or of any other type, nature, or description, or by reason of any cause of
action which the Lender may hold against the Borrower.

     (iii) All notes and other obligations of the Borrower now or hereafter assigned to or
held by the Lender, each of every kind, nature, and description.

     (iv) All interest, fees, and charges and other amounts which may be charged by the
Lender to the Borrower and/or which may be due from the Borrower to the Lender from time to
time.

     (v) All Bank Product Obligations.

     (vi) All costs and expenses incurred or paid by the Lender in respect of any agreement
between the Borrower and the Lender or instrument furnished by the Borrower to the Lender
(including, without limitation, Costs of Collection, attorneys’ reasonable fees, and all
court and litigation costs and expenses).

     (vii) Any and all covenants of the Borrower to or with the Lender and any and all
obligations of the Borrower to act or to refrain from acting in accordance with any
agreement between the Borrower and the Lender or instrument furnished by the Borrower to the
Lender.

     (viii) Each of the foregoing as if each reference to the “Lender” were to each
Affiliate of the Lender.

     (b) Any and all direct or indirect liabilities, debts, and obligations of the Borrower to the
Lender or any Affiliate of the Lender, each of every kind, nature, and description owing on account
of any service or accommodation provided to, or for the account of the Borrower pursuant to this or
any other Loan Document, including cash management services and the issuances of L/C’s and, for the
avoidance of doubt, without double-counting, including accounts payable of the Borrower to any
third party whose Accounts are factored to the Lender or an Affiliate of the Lender.

     “Libor Business Day”: Any day which is both a Business Day and a day on which the principal
interbank market for Libor deposits in London in which Wells Fargo Bank, N. A. participates is open
for dealings in United States Dollar deposits.

     “Libor Loan”: Any Revolving Credit Loan which bears interest at a Libor Rate.

     “Libor Margin”: The following applicable percentage, based upon the corresponding Average
Excess Availability:

	 	 	 	 	 	 	 
	Level	 	LIBOR Margin	 	Average Excess Availability
	I

	 	 	1.50	%	 	Greater than or equal to $6,000,000
	 
	 	 	 	 	 	 
	II

	 	 	1.75	%	 	Less than $6,000,000 but greater than
or equal to $3,000,000
	 
	 	 	 	 	 	 
	III

	 	 	2.00	%	 	Less than $3,000,000

11

 

     The Margin on the Closing Date shall be established at Level II and adjusted at the end of
each Fiscal quarter thereafter based upon the amount of Average Excess Availability during the
preceding quarter.

     “Libor Offer Rate”: That rate of interest (rounded upwards, if necessary, to the next 1/100
of 1%) determined by the Lender to be the highest prevailing rate per annum at which deposits on
U.S. Dollars are offered to Wells Fargo Bank, N. A., by first-class banks in the London interbank
market in which Wells Fargo Bank, N. A. participates at or about 10:00AM (Boston Time) Two (2)
Libor Business Days before the first day of the Interest Period for the subject Libor Loan, for a
deposit approximately in the amount of the subject loan for a period of time approximately equal to
such Interest Period.

     “Libor Rate”: That per annum rate which is the aggregate of the Libor Offer Rate plus the
Libor Margin except that, in the event that the Lender determines that the Lender may be subject to
the Reserve Percentage, the “Libor Rate” shall mean, with respect to any Libor Loans then
outstanding (from the date on which that Reserve Percentage first became applicable to such loans),
and with respect to all Libor Loans thereafter made, an interest rate per annum equal the sum of
(a) plus (b), where:

     (a) is the decimal equivalent of the following fraction:

	 	 	 	 	 
	Libor
	 	Offer
	 	Rate
	 
	1 minus the Reserve Percentage

     (b) is the applicable Libor Margin.

     “Liquidation”: The exercise, by the Lender, of those rights accorded to the Lender under the
Loan Documents as a creditor of the Borrower following and on account of the occurrence of an Event
of Default looking towards the realization on the Collateral. Derivations of the word
“Liquidation” (such as “Liquidate”) are used with like meaning in this Agreement.

     “Loan Account”: Is defined in Section 2.9(a).

     “Loan Documents”: This Agreement and each other instrument or document from time to time
executed and/or delivered in connection with the arrangements contemplated hereby or in connection
with any transaction with the Lender or any Affiliate of the Lender, including, without limitation,
any transaction which arises out of any cash management, depository, investment, letter of credit,
interest rate protection, or equipment leasing services provided by the Lender or any Affiliate of
the Lender, including any Bank Product Agreements, as each may be amended from time to time.

     “Material Adverse Change”: Any event, fact, circumstance, change in, or effect, on the
business of the Borrower, when taken as a whole, which, individually or in the aggregate or on a
cumulative basis with any other circumstance, changes in, or effects on, the Borrower or the
Collateral, constitutes any of the following:

     (a) A material adverse change in the business, operations, results of operations, assets,
liabilities, or condition (financial or otherwise) of the Borrower (when taken as a whole).

     (b) The material impairment of the Borrower’s ability to perform its material obligations
under the Loan Documents or of the Lender’s ability to enforce the Liabilities or to realize on any
of the Collateral.

     (c) A material adverse effect on the value of the Collateral or the amount which the Lender
likely would receive (after giving consideration to delays in payment and costs of enforcement).

     (d) A material impairment to the priority of the Lender’s Collateral Interests in the
Collateral.

     “Maturity Date”: June 30, 2010.

12

 

     “Non-Assignable Contractual Interest”: Leases, licenses and other agreements which by their
terms prohibit the Borrower from transferring, assigning or otherwise encumbering its rights
thereunder.

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

     “Operating Account”: Is defined in Section 7.1.

     “OverLoan”: A loan, advance, or providing of credit support (such as the issuance of any L/C)
to the extent that, immediately after its having been made, Availability is less than zero.

     “Payment Intangible”: As defined in the UCC and also any general intangible under which the
Account Debtor’s primary obligation is a monetary obligation.

     “Permitted Disposition”: (a) bulk sales of Inventory for fair consideration, which Inventory
has a value at the time of sale below the Borrower’s original cost, (b) other bulk sales of
Inventory as do not exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in any Twelve (12)
month period, and (c) sales of Inventory in the ordinary course of business.

     “Permitted Encumbrances”: The following:

     (a) Encumbrances in favor of the Lender;

     (b) Encumbrances securing taxes, assessments and other governmental charges or levies or the
claims of materialmen, suppliers, mechanics, carriers, warehousemen or landlords for labor,
materials, supplies or rentals incurred in the ordinary course of business;

     (c) Encumbrances arising out of or resulting from any judgment or award that do not
constitute an Event of Default under Section 10.10;

     (d) purchase money security interests in Equipment to secure Indebtedness otherwise permitted
hereby;

     (e) Encumbrances on amounts deposited in connection with obtaining worker’s compensation or
other unemployment insurance;

     (f) Encumbrances on amounts deposited in connection with the making or entering into of bids,
tenders, or leases in the ordinary course of business and not in connection with the borrowing of
money;

     (g) Encumbrances on amounts deposited as security for surety or appeal bonds in connection
with obtaining such bonds in the ordinary course of business;

     (h) with respect to any Leasehold Interest of the Borrower in real property, easements,
rights of way, and zoning restrictions that do not materially interfere with or impair the use or
operation thereof;

     (i) any interest or title of a licensor, lessor or sublicensor or sublessor under any Lease
or license permitted by this Agreement;

     (k) Encumbrances not attaching to any Collateral; and

     (m) Encumbrances listed on EXHIBIT 4.6.

     “Permitted Indebtedness”: The following:

13

 

     (a) any Indebtedness on account of the Revolving Credit;

     (b) the Indebtedness (if any) listed on EXHIBIT 4.7, annexed hereto,

     (c) Indebtedness on account of Equipment acquired in compliance with the requirements of
Section 4.6(c), the incurrence of which would not otherwise be prohibited by this Agreement,

     (d) trade Indebtedness incurred in the ordinary course of business, and

     (e) Indebtedness in respect of workers’ compensation claims, self-insurance obligations,
bankers’ acceptances, bids, performance, completion, appeal and surety bonds or guarantees, and
similar types of obligations in the ordinary course of business.

     “Permitted Investments”: The following:

     (a) Investments in cash and Cash Equivalents;

     (b) Investments in negotiable instruments for collection;

     (c) Advances made in connection with purchases of goods or services in the ordinary course of
business;

     (d) Investments received in settlement of amounts due to the Borrower effected in the ordinary
course of business or owing to the Borrower as a result of Insolvency Proceedings involving an
Account Debtor or upon the foreclosure or enforcement of any Encumbrance in favor of the Borrower;
and

     (e) Investments in Auction Rate Securities having one of the two highest ratings obtainable
from either S&P or Moody’s.

     “Person”: Any natural person, and any corporation, limited liability company, trust,
partnership, joint venture, or other enterprise or entity.

     “Prime”: The Prime Rate announced from time to time by Wells Fargo Bank, N. A. (or any
successor in interest to Wells Fargo Bank, N. A.). In the event that said bank (or any such
successor) ceases to announce such a rate, “Prime” shall refer to that rate or index announced or
published from time to time as the Lender, in good faith, designates as the functional equivalent
to said Prime Rate. Any change in “Prime” shall be effective, for purposes of the calculation of
interest due hereunder, when such change is made effective generally by the bank on whose rate or
index “Prime” is being set.

     “Prime Margin Loan”: Each Revolving Credit Loan while bearing interest at the Prime Margin
Rate.

     “Prime Margin Rate”: The aggregate of Prime plus the following applicable percentage, based
upon the corresponding Average Excess Availability:

	 	 	 	 	 	 	 
	Level	 	Prime Margin	 	Average Excess Availability
	I

	 	 	0.00	%	 	Greater than or equal to $6,000,000
	 
	 	 	 	 	 	 
	II

	 	 	0.00	%	 	Less than $6,000,000 but greater than or equal
to $3,000,000
	 
	 	 	 	 	 	 
	III

	 	 	0.00	 	 	Less than $3,000,000

14

 

     The Margin on the Closing Date shall be established at Level II and adjusted at the end of
each Fiscal quarter thereafter based upon the amount of Average Excess Availability during the
preceding quarter.

     “Proceeds”: Includes, without limitation, “Proceeds” as defined in the UCC and the proceeds
from the sale or other disposition of each type of property described in Section 8.1.

     “Receipts”: All cash, cash equivalents, money, checks, credit card slips, receipts and other
Proceeds from any sale of the Collateral.

     “Receivables Collateral”: That portion of the Collateral which consists of Accounts, Accounts
Receivable, General Intangibles, Chattel Paper, Instruments, Documents of Title, Documents,
Investment Property, Payment Intangibles, Letter-of-Credit Rights,
Health-Care-Insurance-Receivables, bankers’ acceptances, and all other rights to payment.

     “Requirements of Law”: As to any Person:

     (a) Applicable Law.

     (b) That Person’s organizational documents.

     (c) That Person’s by-laws and/or other instruments which deal with corporate or similar
governance, as applicable.

     “Reserves”: Availability Reserves and Inventory Reserves.

     “Reserve Percentage”: The decimal equivalent of that rate applicable to the Lender under
regulations issued from time to time by the Board of Governors of the Federal Reserve System for
determining the maximum reserve requirement of the Lender with respect to “Eurocurrency
liabilities” as defined in such regulations. The Reserve Percentage applicable to a particular
Eurodollar Loan shall be based upon that in effect during the subject Interest Period, with changes
in the Reserve Percentage which take effect during such Interest Period to take effect (and to
consequently change any interest rate determined with reference to the Reserve Percentage) if and
when such change is applicable to such loans.

     “Revolving Credit”: Is defined in Section 2.1.

     “Revolving Credit Ceiling”: $12,500,000.00 as of the Closing Date; which may be increased to
$20,000,000.00 in accordance with Section 2.2.

     “Revolving Credit Early Termination Fee”: Is defined in Section 2.16.

     “Revolving Credit Loans”: Loans made under the Revolving Credit, except that where the term
“Revolving Credit Loan” is used with reference to available interest rates applicable to the loans
under the Revolving Credit, it refers to so much of the unpaid principal balance of the Loan
Account as bears the same rate of interest for the same Interest Period. (See Section
2.12(d)).

     “Revolving Credit Note”: Is defined in Section 2.10.

     “Seasonal Advance Rate Request”: means a written notice from the Borrower to Lender delivered
on or after September 15th of any year but before November 30th of such year pursuant to which
Borrower requests that Lender increase the Appraisal Percentage and the Inventory Advance Rate on
the Effective Date as set forth in such Seasonal Advance Rate Request.

     “Service Fee”: Is defined in Section 2.15.

15

 

     “Stated Amount”: The maximum amount for which an L/C may be honored.

     “Supporting Obligation”: Has the meaning given that term in the UCC and also refers to a
Letter-of-Credit Right or secondary obligation which supports the payment or performance of an
Account, Chattel Paper, a Document, a General Intangible, an Instrument, or Investment Property.

     “Termination Date”: The earliest of (a) the Maturity Date; or (b) the occurrence of any event
described in Section 10.12; or (c) the Lender’s notice to the Borrower setting the
Termination Date on account of the occurrence of any Event of Default other than as described in
Section 10.12 or (d) the date which is Ten (10) days from the date on which Lender receives
written notice from the Borrower of its desire to terminate this Agreement.

     “Transfer”: Wire transfer pursuant to the wire transfer system maintained by the Board of
Governors of the Federal Reserve Board, or as otherwise may be agreed to from time to time by the
Lender. Wire instructions may be changed in the same manner that Notice Addresses may be changed
(Section 12.1), except that no change of the wire instructions for Transfers to the Lender
shall be effective without the consent of the Lender.

     “UCC”: The Uniform Commercial Code as in effect from time to time in Massachusetts.

     “Unused Line Fee”: Is defined in Section 2.14.

Article 2 —  The Revolving Credit:

     2.1. Establishment of Revolving Credit.

          (a) The Lender hereby establishes a revolving line of credit (the “Revolving Credit”) in the
Borrower’s favor pursuant to which the Lender, subject to, and in accordance with, this Agreement,
shall make loans and advances and otherwise provide financial accommodations to and for the account
of the Borrower as provided herein.

          (b) Loans, advances, and financial accommodations under the Revolving Credit shall be made
with reference to the Borrowing Base and shall be subject to Availability. The Borrowing Base and
Availability shall be determined by the Lender by reference to Borrowing Base Certificates
furnished as provided in Section 5.4, and shall be subject to the following:

          (i) Such determination shall take into account such Reserves as the Lender
may reasonably determine as being applicable thereto. As of the Closing Date, no Reserves
have been implemented by the Lender. Subsequent to the Closing Date, the Lender may, in
its reasonable discretion, implement Reserves to address those material matters as the
Lender reasonably may determine, in its discretion.

          (ii) The Cost of Eligible Inventory will be determined in a manner consistent with
current tracking practices, based on the Borrower’s stock ledger inventory.

          (c) The proceeds of borrowings under the Revolving Credit shall be used for the Borrower’s
working capital and Capital Expenditures, all solely to the extent permitted by this Agreement. No
proceeds of a borrowing under the Revolving Credit may be used, nor shall any be requested, with a
view towards the accumulation of any general fund or funded reserve of the Borrower other than in
the ordinary course of the Borrower’s business and consistent with the provisions of this
Agreement.

     2.2. Increase in Revolving Credit Ceiling.

16

 

          (a) So long as the Borrower is not In Default and no Event of Default exists or would arise
therefrom, the Borrower shall have the opportunity at any time from and after the Closing Date
through June 30, 2009, upon not less than Ten (10) Business Days written notice to the Lender, on
one or more occasions, to
request an increase to the Revolving Credit Ceiling by an amount up to $7,500,000.00 in the
aggregate, in minimum increments of $2,500,000.00 each, up to a total amount not to exceed
$20,000,000.00.

          (b) No increase to the Revolving Credit Ceiling shall become effective unless and until each
of the following conditions have been satisfied:

          (i) The Lender shall have approved the requested increase, in the Lender’s sole and
exclusive discretion, and the proposed increase shall be upon such terms and conditions as
the Lender may require, in its sole and exclusive discretion;

          (ii) The Borrower shall deliver to the Lender an officer’s certificate, in form and
substance reasonably satisfactory to the Lender, confirming the Borrower’s authorization to
obtain such increase;

          (iii) A new Note will be issued, to be in conformity with requirements of Section
2.10 (with appropriate modification) to the extent necessary to reflect the new
Revolving Credit Ceiling; and

          (iv) The Borrower shall have delivered such other instruments, documents and agreements
as the Lender may reasonably have requested.

     2.3. Advances in Excess of Borrowing Base (OverLoans)

     The Lender has no obligation to the Borrower to make any loan or advance, or otherwise to
provide any credit to or for the benefit of the Borrower where the result of such loan, advance, or
credit is an OverLoan.

     2.4. Risks of Value of Collateral.

     The Lender’s reference to a given asset in connection with the making of loans, credits, and
advances and the providing of financial accommodations under the Revolving Credit and/or the
monitoring of compliance with the provisions hereof shall not be deemed a determination by the
Lender relative to the actual value of the asset in question. All risks concerning the value of
the Collateral are and remain upon the Borrower. All Collateral secures the prompt, punctual, and
faithful performance of the Liabilities whether or not relied upon by the Lender in connection with
the making of loans, credits, and advances and the providing of financial accommodations under the
Revolving Credit.

     2.5. Commitment to Make Revolving Credit Loans and Support Letters of Credit.

     Subject to the provisions of this Agreement, the Lender shall make a loan or advance under the
Revolving Credit and the Lender shall endeavor to have an L/C issued for the account of the
Borrower, in each instance if duly and timely requested by the Borrower as provided herein provided
that:

          (a) No OverLoan is then outstanding and none will result therefrom.

          (b) Borrower is not then In Default and will not thereby become In Default.

          (c) The aggregate amount of the Borrower’s cash and Cash Equivalents, other than cash on
deposit in the Operating Account, is less than $250,000 as determined by the Lender based upon a
certificate furnished by an officer of the Borrower.

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     2.6. Revolving Credit Loan Requests.

          (a) Requests for loans and advances under the Revolving Credit or for the continuance or
conversion of an interest rate applicable to a Revolving Credit Loan may be requested by the
Borrower in such manner as may from time to time be acceptable to the Lender.

          (b) Subject to the provisions of this Agreement, including, without limitation, the definition
of Borrowing Base, the Borrower may request a Revolving Credit Loan and elect an interest rate and
Interest Period to be applicable to that Revolving Credit Loan by giving notice to the Lender by no
later than the following:

          (i) If such Revolving Credit Loan is to be, or is to be converted to, a
Prime Margin Loan: By 2:00PM on the Business Day on which the subject Revolving Credit Loan
is to be made or is to be so converted. Prime Margin Loans requested by the Borrower,
other than those resulting from the conversion of a Libor Loan, shall not be less than
$10,000.00.

          (ii) If such Revolving Credit Loan is to be, or is to be continued as, or
converted to, a Libor Loan: By 2:00PM Three (3) Libor Business Days before the commencement
of any new Interest Period or the end of the then applicable Interest Period. Libor Loans
and conversions to Libor Loans shall each be not less than $500,000.00 and in increments of
$250,000.00 in excess of such minimum.

          (iii) Any Libor Loan which matures while the Borrower is In Default shall be converted,
at the option of the Lender, to a Prime Margin Loan notwithstanding any notice from the
Borrower that such Loan is to be continued as a Libor Loan.

          (c) Any request for a Revolving Credit Loan or for the continuance or conversion of an
interest rate applicable to a Revolving Credit Loan which is made after the applicable deadline
therefore, as set forth above, shall be deemed to have been made at the opening of business on the
then next Business Day or Libor Business Day, as applicable.

          (d) The Borrower may request that the Lender cause the issuance by the Issuer of L/C’s for the
account of the Borrower as provided in Section 2.18.

          (e) The Lender may rely on any request for a loan or advance, or other financial accommodation
under the Revolving Credit which the Lender, in good faith, believes to have been made by a Person
duly authorized to act on behalf of the Borrower and may decline to make any such requested loan or
advance, or issuance, or to provide any such financial accommodation pending the Lender’s being
furnished with such documentation concerning that Person’s authority to act as may be satisfactory
to the Lender.

          (f) A request by the Borrower for a loan or advance, or other financial accommodation under
the Revolving Credit shall be irrevocable and shall constitute certification by the Borrower that
as of the date of such request, each of the following is true and correct:

          (i) There has been no Material Adverse Change in the Borrower’s financial
condition from the most recent financial information furnished to the Lender pursuant to
this Agreement.

          (ii) To the extent not therefore paid or set aside, all or a portion of any
loan or advance so requested will be set aside by the Borrower to cover the Borrower’s
obligations for sales tax on account of sales since the then most recent borrowing pursuant
to the Revolving Credit.

          (iii) Each representation which is made herein or in any of the Loan
Documents is then true and complete in all material respects as of and as if made on the
date of such request.

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          (iv) That the Borrower is not In Default, or if the Borrower is In Default,
it shall be accompanied by a written Certificate of the Borrower’s President or its Chief
Financial Officer describing (in reasonable detail) the facts and circumstances thereof and
the steps (if any) being taken to remedy such condition (but such Certificate shall not
relieve the Borrower from being In Default).

     2.7. Suspension of Revolving Credit.

     If, at any time or from time to time, the Borrower is In Default or there has occurred a
Material Adverse Change:

          (a) The Lender may suspend the Revolving Credit immediately, in which event, the Lender shall
not be obligated, during such suspension, to make any loans or advance, or to provide any financial
accommodation hereunder or to seek the issuance of any L/C.

          (b) The Lender may suspend the right of the Borrower to request any Libor Loan or to convert
any Prime Margin Loan to a Libor Loan.

     2.8. Making of Revolving Credit Loans.

          (a) A loan or advance under the Revolving Credit shall be made by the transfer of the proceeds
of such loan or advance to the Operating Account or as otherwise instructed by the Borrower.

          (b) A loan or advance shall be deemed to have been made under the Revolving Credit (and the
Borrower shall be indebted to the Lender for the amount thereof immediately) at the following:

          (i) The Lender’s initiation of the transfer of the proceeds of such loan or
advance in accordance with the Borrower’s instructions (if such loan or advance is of funds
requested by the Borrower).

          (ii) The charging of the amount of such loan to the Loan Account (in all
other circumstances).

          (c) There shall not be any recourse to or liability of the Lender, on account of:

          (i) Any delay in the making of any loan or advance requested under the
Revolving Credit.

          (ii) Any delay by any bank or other depository institution in treating the
proceeds of any such loan or advance as collected funds.

          (iii) Any delay in the receipt, and/or any loss, of funds which constitute a
loan or advance under the Revolving Credit, the wire transfer of which was properly
initiated by the Lender in accordance with wire instructions provided to the Lender by the
Borrower.

     2.9. The Loan Account.

          (a) An account (the “Loan Account”) shall be opened on the books of the Lender in which a
record shall be kept of all loans and advances made under the Revolving Credit.

          (b) The Lender shall also keep a record (either in the Loan Account or elsewhere, as the
Lender may from time to time elect) of all interest, fees, service charges, costs, expenses, and
other debits owed to the Lender on account of the Liabilities and of all credits against such
amounts so owed.

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          (c) All credits against the Liabilities shall be conditional upon final payment to the Lender
for the account of the Lender of the items giving rise to such credits. The amount of any item
credited against the Liabilities which is charged back against the Lender or is disgorged for any
reason or is not so paid shall be a Liability and shall be added to the Loan Account, whether or
not the item so charged back or not so paid is returned.

          (d) Except as otherwise provided herein, all fees, service charges, costs, and expenses for
which the Borrower is obligated hereunder are payable on demand. In the determination of
Availability, the Lender may deem fees, service charges, accrued interest, and other payments which
will be due and payable between the date of such determination and the first day of the then next
succeeding month as having been advanced under the Revolving Credit whether or not such amounts are
then due and payable.

          (e) The Lender, without the request of the Borrower, may advance under the Revolving Credit
any interest, fee, service charge, or other payment to which the Lender is entitled from the
Borrower pursuant hereto and may charge the same to the Loan Account notwithstanding that an
OverLoan may result thereby. Such action on the part of the Lender shall not constitute a waiver
of the Lender’s rights and the Borrower’s obligations under Section 2.11(b). Any amount
which is added to the principal balance of the Loan Account as provided in this Section
2.9(e) shall bear interest at the interest rate then and thereafter applicable to Prime Margin
Loans.

          (f) Any statement rendered by the Lender to the Borrower concerning the Liabilities shall be
considered correct and accepted by the Borrower and shall be conclusively binding upon the Borrower
unless the Borrower provides the Lender with written objection thereto within Twenty (20) days from
the mailing of such statement to the Borrower, which written objection shall indicate, with
particularity, the reason for such objection. The Loan Account and the Lender’s books and records
concerning the loan arrangement contemplated herein and the Liabilities shall be prima facie
evidence and proof of the items described therein.

     2.10. The Revolving Credit Note.

     The Borrower’s obligation to repay loans and advances under the Revolving Credit, with
interest as provided herein, shall be evidenced by a Note (the “Revolving Credit Note”) in the form
of EXHIBIT 2.10, annexed hereto, executed by the Borrower, payable to the Lender. Neither the
original nor a copy of the Revolving Credit Note shall be required, however, to establish or prove
any Liability. In the event that the Revolving Credit Note is ever lost, mutilated, or destroyed,
the Borrower shall execute a replacement thereof and deliver such replacement to the Lender.

     2.11. Payment of The Loan Account.

          (a) The Borrower may repay all or any portion of the principal balance of the Loan Account
from time to time until the Termination Date.

          (b) The Borrower, without notice or demand from the Lender, shall pay the Lender that amount,
from time to time, which is necessary so that there is no OverLoan outstanding.

          (c) The Borrower shall repay the then entire unpaid balance of the Loan Account and all other
Liabilities on the Termination Date.

          (d) The Lender shall endeavor to cause the application of payments (if any), pursuant to
Sections 2.12(a) and 2.12(b) against Libor Loans then outstanding in such manner as
results in the least cost to the Borrower, but shall have no liability on account of the Lender’s
failure to have done so. In no event shall action or inaction taken by the Lender excuse the
Borrower from any indemnification obligation under Section 2.11(e).

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          (e) The Borrower shall indemnify the Lender and hold the Lender harmless from and against any
loss, cost or expense (including loss of anticipated profits and amounts payable by the Lender on
account of “breakage fees” (so-called)) which the Lender may sustain or incur (including, without
limitation, by virtue of acceleration after the occurrence of any Event of Default) as a
consequence of the following:

          (i) Default by the Borrower in payment of the principal amount of or any
interest on any Libor Loan as and when due and payable, including any such loss or expense
arising from interest or fees payable by the Lender in order to maintain its Libor Loans.

          (ii) Default by the Borrower in making a borrowing or conversion after the
Borrower has given (or is deemed to have given) a request for a Revolving Credit Loan or a
request to convert a Revolving Credit Loan from one applicable interest rate to another.

          (iii) The making of any payment on a Libor Loan or the making of any
conversion of any such Loan to a Prime Margin Loan on a day that is not the last day of the
applicable Interest Period with respect thereto.

     2.12. Interest on Revolving Credit Loans.

          (a) Each Revolving Credit Loan shall bear interest at the Prime Margin Rate applicable to
Revolving Credit Loans, unless timely notice is given (as provided in Section 2.6) that the
subject Revolving Credit Loan (or a portion thereof) is, or is to be converted to, a Libor Loan.

          (b) Each Revolving Credit Loan which consists of a Libor Loan shall bear interest at the Libor
Rate applicable to Revolving Credit Loans.

          (c) Subject to, and in accordance with, the provisions of this Agreement, the Borrower may
cause all or a part of the unpaid principal balance of the Loan Account to bear interest at the
Prime Margin Rate or the Libor Rate as specified from time to time by the Borrower by notice to the
Lender.

          (d) For ease of reference and administration, each part of the Loan Account which bears
interest at the same rate of interest and for the same Interest Period is referred to herein as if
it were a separate “Revolving Credit Loan.”

          (e) The Borrower shall not select, renew, or convert any interest rate for a Revolving Credit
Loan such that, in addition to interest at the Prime Margin Rate, there are more than Three (3)
Libor Rates applicable to the Revolving Credit Loans at any one time.

          (f) The Borrower shall pay accrued and unpaid interest on each Revolving Credit Loan in
arrears as follows:

          (i) On the applicable Interest Payment Date for that Revolving Credit Loan.

          (ii) On the Termination Date and on the End Date.

          (iii) Following the occurrence and during the continuance of any Event of
Default, with such frequency as may be determined by the Lender.

          (g) (Following the occurrence and during the continuance of any Event of Default (and whether
or not the Lender exercises the Lender’s rights on account thereof), all Revolving Credit Loans
shall bear interest, at the option of the Lender, at rate which is the aggregate of the rate
applicable to Prime Margin Loans plus Two Percent (2%) per annum.

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     2.13. Closing Fee.

     In consideration of the commitment to make loans and advances to the Borrower under the
Revolving Credit, and to maintain sufficient funds available for such purpose, there has been
earned and the Borrower shall pay on or before the Closing Date the “Closing Fee” (so referred to
herein) in the amount set forth in the Fee Letter. The full amount of the Closing Fee has been
earned in full by the Lender as of the Closing Date.

     2.14. Unused Line Fee.

     In addition to any other fee to be paid by the Borrower on account of the Revolving Credit,
the Borrower shall pay the Lender the “Unused Line Fee” (so referred to herein) of 0.25% per annum
of the average difference, during the month just ended (or relevant period with respect to the
payment being made on the Termination Date) between the Revolving Credit Ceiling and the aggregate
of the unpaid principal balance of the Loan Account and the undrawn Stated Amount of L/C’s
outstanding during the relevant period. The Unused Line Fee shall be paid in arrears, on the first
day of each month after the execution of this Agreement and on the Termination Date.

     2.15. Service Fee.

     In addition to any other fee to be paid by the Borrower hereunder, the Borrower shall pay the
Lender a “Service Fee” (so referred to herein) in the amount set forth in the Fee Letter each month
on the first day of each calendar month. The full amount of the Service Fee has been earned in full
by the Lender as of the Closing Date.

     2.16. Early Termination Fee.

          (a) In the event that the Termination Date occurs prior to the Maturity Date, for any reason
other than by virtue of the Borrower’s refinancing of the Liabilities with financing provided by
the Lender or any of its Affiliates, the Borrower shall pay to the Lender, the “Revolving Credit
Early Termination Fee” (so referred to herein) in the amounts set forth in the Fee Letter. The
Borrower acknowledges and agrees that the Lender will have suffered damages on account of the early
termination of the Revolving Credit and that, in view of the difficulty in ascertaining the amount
of such damages, that the Early Termination Fee constitutes reasonable compensation and liquidated
damages to compensate Lender on account thereof.

     2.17. Lender’s Discretion.

          (a) Each reference in the Loan Documents to the exercise of discretion or the like by the
Lender shall be to such Person’s exercise of its judgment, in good faith (which shall be presumed),
based upon such information of which that Person then has actual knowledge.

          (b) In the exercise of such discretion, the following may be taken into account:

          (i) The reasonable anticipation of an adverse change to the value of the
Collateral; the enforceability of the Lender’s Collateral Interests therein; or the amount
which the Lender would likely realize therefrom (taking into account delays which may
possibly be encountered in the Lender’s realizing upon the Collateral and likely Costs of
Collection).

          (ii) The content, completeness, and accuracy of any report or financial
information delivered to the Lender by or on behalf of the Borrower and the manner by which
such report or financial information was prepared.

          (iii) The existence of circumstances which suggest an increase in the
likelihood that the Borrower may become the subject of an Insolvency Proceeding.

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          (iv) The existence of circumstances that suggest that the Borrower is In
Default.

          (c) In the exercise of such discretion, the Lender also may take into account any of the
following factors to the extent that they have a material bearing on credit risks associated with
the providing of loans and financial accommodations to the Borrower:

          (i) Those included in, or tested by, the definitions of “Eligible Credit
Card Receivables,” “Eligible Inventory” and “Cost.”

          (ii) The current financial and business climate of the industry in which the
Borrower competes (having regard for the Borrower’s position in that industry).

          (iii) General macroeconomic conditions which have a material effect on the
Borrower’s cost structure.

          (iv) Material changes in or to the mix of the Borrower’s Inventory.

          (v) Seasonality with respect to the Borrower’s Inventory and patterns of
retail sales.

          (vi) Such other factors as the Lender reasonably determines as having a
material bearing on credit risks associated with the providing of loans and financial
accommodations to the Borrower.

          (d) The burden of establishing the failure of the Lender to have acted in a reasonable manner
in such Person’s exercise of such discretion shall be the Borrower’s and may be made only by clear
and convincing evidence.

     2.18. Procedures For Issuance of L/C’s.

          (a) The Borrower may request that the Lender cause the issuance by the Issuer of L/C’s for the
account of the Borrower. Each such request shall be in such manner as may from time to time be
acceptable to the Lender.

          (b) The Lender will endeavor to cause the issuance of any L/C so requested by the Borrower,
provided that, at the time that the request is made, the Revolving Credit has not been suspended as
provided in Section 2.7 and if so issued:

          (i) The aggregate Stated Amount of all L/C’s then outstanding, does not
exceed $5,000,000.00.

          (ii) The expiry of the L/C is not later than the earlier of Thirty (30) days
prior to the Maturity Date or the following:

          (A) Standby’s: One (1) year from initial issuance.

          (B) Documentary’s: Sixty (60) days from issuance.

          (iii) If the expiry of an L/C is later than the Maturity Date, it is 105%
cash collateralized at its issuance.

          (iv) An OverLoan will not result from the issuance of the subject L/C.

          (c) The Borrower shall execute such documentation to apply for and support the issuance of an
L/C as may be required by the Issuer.

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          (d) There shall not be any recourse to, nor liability of, the Lender on account of:

          (i) Any delay or refusal by an Issuer to issue an L/C.

          (ii) Any action or inaction of an Issuer on account of, or in respect to,
any L/C.

          (e) The Borrower shall reimburse the Issuer for the amount of any honoring of a drawing under
an L/C on the same day on which such honoring takes place. The Lender, without the request of the
Borrower, may advance under the Revolving Credit (and charge to the Loan Account) the amount of any
honoring of any L/C and other amount for which the Borrower, the Issuer, or the Lender become
obligated on account of, or in respect to, any L/C. Such advance shall be made whether or not the
Borrower is In Default or such advance would result in an OverLoan. Such action shall not
constitute a waiver of the Lender’s rights under Section 2.11(b).

     2.19. Fees For L/C’s.

     The Borrower shall pay to the Lender a fee, on account of L/C’s, the issuance of which had
been procured by the Lender, monthly in arrears, and on the Termination Date and on the End Date,
equal to the weighted average Stated Amount of all L/C’s outstanding during the period in respect
of which such fee is being paid multiplied by (i) the Libor Margin with respect to stand-by L/C’s,
and (ii) the Libor Margin minus One-half percent (.50%) with respect to documentary L/C’s, except
that, following the occurrence and during the continuance of any Event of Default, such fee shall
be increased by two percent (2%) per annum.

          (a) In addition to the fee to be paid as provided in Subsection 2.18(a), above, the Borrower
shall pay to the Lender (or to the Issuer, if so requested by Lender), on demand, all issuance,
processing, negotiation, amendment, and administrative fees and other amounts charged by the Issuer
on account of, or in respect to, any L/C.

          (b) If any change in Applicable Law shall either:

          (i) impose, modify or deem applicable any reserve, special deposit or
similar requirements against letters of credit heretofore or hereafter issued by any Issuer
or with respect to which the Lender or any Issuer has an obligation to lend to fund
drawings under any L/C; or

          (ii) impose on any Issuer any other condition or requirements relating to
any such letters of credit;

     and the result of any event referred to in Section 2.19(b)(i) or 2.19(b)(ii),
shall be to increase the cost to the Lender or to any Issuer of issuing or maintaining any L/C
(which increase in cost shall be the result of such Issuer’s reasonable allocation among the
Lender’s or Issuer’s letter of credit customers of the aggregate of such cost increases resulting
from such events), then, upon demand by the Lender and delivery by the Lender to the Borrower of a
certificate of an officer of the Lender or the subject Issuer describing such change in law,
executive order, regulation, directive, or interpretation thereof, its effect on the Lender or such
Issuer, and the basis for determining such increased costs and their allocation, the Borrower shall
immediately pay to the Lender, from time to time as specified by the Lender, such amounts as shall
be sufficient to compensate the Lender or the subject Issuer for such increased cost. The Lender’s
or any Issuer’s determination of costs incurred under Section 2.19(b)(i) or
2.19(b)(ii), and the allocation, if any, of such costs among the Borrower and other letter of
credit customers of the Lender or such Issuer, if done in good faith and made on an equitable basis
and in accordance with such officer’s certificate, shall be conclusive and binding on the Borrower.

     2.20. Concerning L/C’s.

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          (a) None of the Issuer, the Issuer’s correspondents, the Lender, or any advising, negotiating,
or paying bank with respect to any L/C shall be responsible in any way for:

          (i) The performance by any beneficiary under any L/C of that beneficiary’s
obligations to the Borrower.

          (ii) The form, sufficiency, correctness, genuineness, authority of any
person signing, falsification, or the legal effect of, any documents called for under any
L/C if (with respect to the foregoing) such documents on their face appear to be in order.

          (b) The Issuer may honor, as complying with the terms of any L/C and of any drawing
thereunder, any drafts or other documents otherwise in order, but signed or issued by an
administrator, executor, conservator, trustee in bankruptcy, debtor in possession, assignee for the
benefit of creditors, liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.

          (c) Unless otherwise agreed to, in the particular instance, the Borrower hereby authorizes any
Issuer to:

          (i) Select an advising bank, if any.

          (ii) Select a paying bank, if any.

          (iii) Select a negotiating bank.

          (d) All directions, correspondence, and funds transfers relating to any L/C are at the risk of
the Borrower. The Issuer shall have discharged the Issuer’s obligations under any L/C which, or the
drawing under which, includes payment instructions, by the initiation of the method of payment
called for in, and in accordance with, such instructions (or by any other commercially reasonable
and comparable method). Neither the Lender nor the Issuer shall have any responsibility for any
inaccuracy, interruption, error, or delay in transmission or delivery by post, telegraph or cable,
or for any inaccuracy of translation.

          (e) The Lender’s and the Issuer’s rights, powers, privileges and immunities specified in or
arising under this Agreement are in addition to any heretofore or at any time hereafter otherwise
created or arising, whether by statute or rule of law or contract.

          (f) The obligations of the Borrower under this Agreement with respect to L/C’s are absolute,
unconditional, and irrevocable and shall be performed strictly in accordance with the terms hereof
under all circumstances, whatsoever including, without limitation, the following:

          (i) Any lack of validity or enforceability or restriction, restraint, or
stay in the enforcement of this Agreement, any L/C, or any other agreement or instrument
relating thereto.

          (ii) The Borrower’s consent to any amendment or waiver of, or consent to the
departure from, any L/C.

          (iii) The existence of any claim, set-off, defense, or other right which the
Borrower may have at any time against the beneficiary of any L/C.

          (iv) Any good faith honoring of a drawing under any L/C, which drawing
possibly could have been dishonored based upon a strict construction of the terms of the
L/C.

     2.21. Changed Circumstances.

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          (a) The Lender may advise the Borrower that the Lender has made the good faith determination
(which determination shall be final and conclusive) of any of the following:

          (i) Adequate and fair means do not exist for ascertaining the rate for Libor
Loans.

          (ii) The continuation of, or conversion of any Revolving Credit Loan to, a
Libor Loan has been made impracticable or unlawful by the occurrence of a contingency that
materially and adversely affects the applicable market or the compliance by the Lender in
good faith with any Applicable Law.

          (iii) The indices on which the interest rates for Libor Loans are based
shall no longer represent the effective cost to the Lender for U.S. dollar deposits in the
interbank market for deposits in which it regularly participates.

          (b) In the event that the Lender advises the Borrower of an occurrence described in Section
2.20(a), then, until the Lender notifies the Borrower that the circumstances giving rise to such
notice no longer apply:

          (i) The obligation of the Lender to make loans of the type affected by such
changed circumstances or to permit the Borrower to select the affected interest rate as
otherwise applicable to any Revolving Credit Loans shall be suspended.

          (ii) Any notice which the Borrower had given the Lender with respect to any
Libor Loan, the time for action with respect to which has not occurred prior to the
Lender’s having given notice pursuant to Section 2.12(a), shall be deemed at the
option of the Lender to not having been given.

Article 3 —  Conditions Precedent:

     As a condition to the effectiveness of this Agreement, the establishment of the Revolving
Credit, and the making of the first loan under the Revolving Credit, each of the documents
respectively described in Sections 3.1 through and including 3.4, (each in form and substance
satisfactory to the Lender) shall have been delivered to the Lender, and the conditions
respectively described in Sections 3.5 through and including 3.8, shall have been satisfied:

     3.1. Corporate Due Diligence.

          (a) Certificate of corporate good standing for the Borrower issued by the Secretary of State
for the State of Delaware.

          (b) Certificates of due qualification, in good standing, issued by the Secretary(ies) of State
of each State in which the nature the Borrower’s business conducted or assets owned could require
such qualification.

          (c) Certificate of the Borrower’s Secretary of the due adoption, continued effectiveness, and
setting forth the texts of, each corporate resolution adopted in connection with the establishment
of the loan arrangement contemplated by the Loan Documents and attesting to the true signatures of
each Person authorized as a signatory to any of the Loan Documents.

     3.2. Opinion.

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     An opinion of counsel to the Borrower in form and substance satisfactory to the Lender based
upon customary practice, in the Lender’s sole and exclusive discretion, including relevant opinions
with respect to enforceability and perfection, and similar matters.

     3.3. Additional Documents.

     Such additional instruments and documents as the Lender or its counsel reasonably may require
or request including, without limitation, the following:

          (a) Satisfactory background checks for key management.

          (b) All Loan Documents.

          (c) Lien search results with respect to the Borrower’s locations.

          (d) Confirmation of filing of all necessary and appropriate Financing Statements and such
other documents as may be required to perfect the Lender’s security interest in the Collateral.

          (e) Receipt of discharges, releases, and terminations required to afford the Lender a first,
perfected security interest in and to all Collateral, free and clear of all liens and Encumbrances,
other than Permitted Encumbrances.

          (f) Confirmation of insurance and appropriate endorsements in favor of the Lender.

          (g) Collateral access agreements, as may be necessary, including an agreement with Creekside
III LLC, all in form and substance reasonably acceptable to the Lender in its sole and exclusive
discretion.

          (h) Receipt of an appraisal of the NRLV of the Borrower’s Inventory in form and substance
acceptable to the Lender, in the Lender’s sole and exclusive discretion.

          (i) Receipt of a field audit and examination in form and substance acceptable to the Lender,
in the Lender’s sole and exclusive discretion.

          (j) Receipt of the Business Plan in form and substance acceptable to the Lender, in the
Lender’s sole and exclusive discretion, including a monthly balance sheet, profit and loss
statements, and cash flow analysis that presents expected Revolving Credit usage and Availability
consistent with the terms and conditions of this Agreement.

     3.4. Officers’ Certificates.

     Certificates executed by the President and the Chief Financial Officer of the Borrower which
state that:

          (a) Such officer, acting on behalf of the Borrower, has reviewed each of the Loan Documents
and has had the benefit of independent counsel (Attorneys Heller Erhman LLP) of the Borrower’s
selection in connection with the review and negotiation of the Loan Documents. In particular, and
without limiting the generality of such review, the following provisions of the Loan Documents have
been brought to the attention of the undersigned by such counsel:

          (i) The waiver of the right to a trial by jury in connection with
controversies arising out of the loan arrangement contemplated by the Loan Documents.

27

 

          (ii) The designation of, and submission to the exclusive jurisdiction and
venue of, certain courts.

          (iii) Various other waivers and indemnifications included therein.

          (iv) The circumstances under which the Liabilities could be accelerated and
the grace periods available with respect to certain Events of Default.

          (b) Such person has no knowledge that the representations and warranties made by the Borrower
to the Lender in the Loan Documents are not true and complete in all material respects as of the
date of such Certificate, and has no knowledge that an event has occurred which is or which, solely
with the giving of notice or passage of time (or both), would be an Event of Default.

     3.5. Representations and Warranties.

     Each of the representations made by or on behalf of the Borrower in this Agreement or in any
of the other Loan Documents or in any other report, statement, document, or paper provided by or on
behalf of the Borrower shall be true and complete as of the date as of which such representation or
warranty was made.

     3.6. All Fees and Expenses Paid.

     All fees due at or immediately after the first funding under the Revolving Credit and all
costs and expenses incurred by the Lender in connection with the establishment of the credit
facility contemplated hereby (including the fees and expenses of counsel to the Lender) shall have
been paid in full.

     3.7. Borrower Not In Default.

     The Borrower is not In Default.

     3.8. No Adverse Change.

     There has been no Material Adverse Change and no event shall have occurred or failed to occur,
which occurrence or failure is reasonably likely to have a materially adverse effect upon the
Borrower’s financial condition since the date of the most recent financial information delivered to
the Lender.

     3.9. Minimum Availability.

     On the Closing Date, after giving effect to the first funding under the Revolving Credit; any
charges to the Loan Account made in connection with the establishment of the credit facility
contemplated hereby; and L/C’s to be issued at, or immediately subsequent to, such establishment,
and the establishment of all required Reserves, Availability shall not be less than $5,000,000.00.

     3.10. Benefit of Conditions Precedent.

     The conditions set forth in this Article 3, are for the sole benefit of the Lender and may be
waived by the Lender in whole or in part without prejudice to the Lender.

     No document shall be deemed delivered to the Lender until received and accepted by the Lender
at its offices in Boston, Massachusetts. Under no circumstances shall this Agreement take effect
until executed and accepted by the Lender at said offices.

Article 4 —  General Representations, Covenants and Warranties:

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     To induce the Lender to establish the credit facility contemplated herein and to induce the
Lender to provide loans and advances under the Revolving Credit (each of which loans shall be
deemed to have been made in reliance thereupon) the Borrower, in addition to all other
representations, warranties, and covenants made by the Borrower in any other Loan Document, makes
those representations, warranties, and covenants included in this Agreement. For the avoidance of
doubt, it is understood and agreed that the covenants set forth below do not prohibit the Borrower
from taking any action with the prior written consent of Lender.

     4.1. Payment and Performance of Liabilities.

     The Borrower shall pay each payment Liability when due (or when demanded, if payable on
demand) and shall promptly, punctually, and faithfully perform each other Liability.

     4.2. Due Organization; Authorization; No Conflicts.

          (a) The Borrower presently is and hereafter shall remain in good standing as a corporation
under the laws of the State of Delaware and is and shall hereafter remain duly qualified and in
good standing in every other State in which, by reason of the nature or location of the Borrower’s
assets or operation of the Borrower’s business, such qualification may be necessary, except where
the failure to be so qualified would not result in a Material Adverse Change.

          (b) The Borrower’s organizational identification number assigned to it by the State of its
incorporation and its respective federal employer identification number is listed on EXHIBIT 4.2,
annexed hereto.

          (c) The Borrower shall not change its State of organization; any organizational identification
number assigned to the Borrower by that State; or the Borrower’s federal taxpayer identification
number.

          (d) Each Affiliate is listed on EXHIBIT 4.2. The Borrower shall provide the Lender with
written notice of any entity’s becoming or ceasing to be an Affiliate within fifteen (15) days of
the Borrower obtaining knowledge of such information.

          (e) The Borrower has all requisite power and authority to execute and deliver all Loan
Documents to which the Borrower is a party and has and will hereafter retain all requisite power to
perform all Liabilities.

          (f) The execution and delivery by the Borrower of each Loan Document to which it is a party;
the Borrower’s consummation of the transactions contemplated by such Loan Documents (including,
without limitation, the creation of Collateral Interests by the Borrower to secure the
Liabilities); the Borrower’s performance under those of the Loan Documents to which it is a party:

          (i) Have been duly authorized by all necessary action.

          (ii) Do not, and will not, contravene in any material respect any provision
of any Requirement of Law or obligation of the Borrower.

          (iii) Will not result in the creation or imposition of, or the obligation to
create or impose, any Encumbrance upon any assets of the Borrower pursuant to any
Requirement of Law or obligation, except pursuant to the Loan Documents.

          (g) The Loan Documents have been duly executed and delivered by the Borrower and are the
legal, valid and binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms.

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     4.3. Trade Names.

          (a) EXHIBIT 4.3, annexed hereto, is a listing of:

          (i) All names under which the Borrower has conducted its business since
January 1, 2001.

          (ii) All Persons with whom the Borrower has consolidated or merged since
January 1, 2001, or from whom the Borrower has acquired since such date in a single
transaction or in a series of related transactions substantially all of such Person’s
assets.

          (b) The Borrower will provide the Lender with not less than twenty-one (21) days prior written
notice (with reasonable particularity) of any change to the Borrower’s name from that under which
the Borrower is conducting its business at the execution of this Agreement and will not effect such
change if an Event of Default has occurred and is continuing.

     4.4. Infrastructure.

          (a) The Borrower has and will maintain a sufficient infrastructure, when combined with any
outsourcing to conduct its business as presently conducted and as contemplated to be conducted
following its execution of this Agreement.

          (b) To the Borrower’s knowledge, the Borrower owns and possesses, or has the right to use (and
will hereafter own, possess, or have such right to use) all material patents, industrial designs,
trademarks, trade names, trade styles, brand names, service marks, logos, copyrights, trade
secrets, know-how, confidential information, and other intellectual or proprietary property of any
third Person necessary for the Borrower’s conduct of the Borrower’s business.

          (c) The conduct by the Borrower of the Borrower’s business does not presently and materially
infringe (nor will the Borrower conduct its business in the future so as to materially infringe)
the patents, industrial designs, trademarks, trade names, trade styles, brand names, service marks,
logos, copyrights, trade secrets, know-how, confidential information, or other intellectual or
proprietary property of any third Person.

     4.5. Locations.

          (a) The Collateral, and the books, records, and papers of the Borrower’s pertaining thereto,
are kept and maintained solely at those locations which are listed on EXHIBIT 4.5, annexed hereto,
which EXHIBIT 4.5 includes, with respect to each such location, the name and address of the
landlord on the Lease which covers such location (or an indication that the Borrower owns the
subject location) and of all service bureaus with which any such records are maintained.

          (b) The Borrower shall not remove any of the Collateral from those locations listed on EXHIBIT
4.5 except for the following purposes:

          (i) To accomplish sales of Inventory in the ordinary course of business.

          (ii) To move Inventory from one such location to another such location.

          (iii) To utilize such of the Collateral as is removed from such locations in
the ordinary course of business (such as motor vehicles).

          (c) The Borrower shall not:

30

 

          (i) Execute or materially alter, modify, or amend any Lease, other than
renewals or extensions of any Lease upon substantially similar terms as exist on the
Closing Date .

          (ii) Commit to, or open or close any location at which the Borrower
maintains, offers for sale, or stores any of the Collateral, other than in the Borrower’s
ordinary course of business locations from which drop shipments are made by the Borrower.

          (d) Except as set forth on EXHIBIT 4.5, no material tangible personal property of the Borrower
is in the care or custody of any third party or stored or entrusted with a bailee or other third
party and none shall hereafter be placed under such care, custody, storage, or entrustment.

     4.6. Encumbrances.

          (a) The Borrower is, and shall hereafter remain, the owner of the Collateral free and clear of
all Encumbrances other than any Permitted Encumbrance.

          (b) Other than property held on consignment which is not included in the calculation of the
Borrowing Base and shall not in any event exceed $100,000.00 in value at any time, the Borrower
does not have, and shall not have, possession of any property on consignment to the Borrower.

          (c) The Borrower shall not acquire or obtain the right to use any Equipment, the acquisition
or right to use of which Equipment is otherwise permitted by this Agreement, in which Equipment any
third party has an interest, except for:

          (i) Equipment which is merely incidental to the conduct of the Borrower’s
business.

          (ii) Equipment set forth on EXHIBIT 4.6, the acquisition or right to use of
which has been consented to by the Lender, which consent may be conditioned upon the
Lender’s receipt of such agreement with the third party which has an interest in such
Equipment as is satisfactory to the Lender.

          (iii) Equipment subject to one or more Capital Leases with aggregate future
obligations outstanding to the lessor, at any one time, not to exceed $1,500,000.00.

     4.7. Indebtedness.

     The Borrower does not and shall not hereafter have any Indebtedness other than any Permitted
Indebtedness, except for:

          (a) Any Indebtedness on account of the Revolving Credit.

          (b) The Indebtedness (if any) listed on EXHIBIT 4.7, annexed hereto.

          (c) Indebtedness otherwise associated with the acquisition of Equipment otherwise in
compliance with the requirements of Section 4.6.

     4.8. Insurance.

          (a) EXHIBIT 4.8, annexed hereto, is a schedule of all insurance policies owned by the Borrower
or under which the Borrower is the named insured. Each of such policies is in full force and
effect. Neither the Borrower nor, to the best of Borrower’s knowledge, the issuer of any such
policy, is in default or violation of any such policy in any material respect.

31

 

          (b) The Borrower shall have and maintain at all times insurance covering such risks, in such
amounts, containing such terms, in such form, for such periods, and written by such companies as
may be satisfactory to the Lender.

          (c) All insurance carried by the Borrower shall provide for a minimum of Thirty (30) days’
prior written notice of cancellation to the Lender and all such insurance which covers the
Collateral shall:

          (i) Include an endorsement in favor of the Lender, which endorsement shall
provide that the insurance, to the extent of the Lender’s interest therein, shall not be
impaired or invalidated, in whole or in part, by reason of any act or neglect of the
Borrower or by the failure of the Borrower to comply with any warranty or condition of the
policy.

          (ii) Not include an endorsement in favor of any other Person.

          (d) The coverage reflected on EXHIBIT 4.8 presently satisfies the foregoing requirements, it
being recognized by the Borrower, however, that such requirements may change hereafter to reflect
changing circumstances.

          (e) The Borrower shall furnish the Lender from time to time with certificates or other
evidence reasonably satisfactory to the Lender regarding compliance by the Borrower with the
foregoing requirements.

          (f) In the event of the failure by the Borrower to maintain insurance as required herein, the
Lender, at its option and the Borrower’s expense, may obtain such insurance at the reasonable
expense of the Borrower; provided, however, the Lender’s obtaining of such insurance shall not
constitute a cure or waiver of any Event of Default occasioned by the Borrower’s failure to have
maintained such insurance.

     4.9. Licenses.

     Each license, distributorship, franchise, and similar agreement issued to, or to which the
Borrower is a party is in full force and effect, except those the termination of which would not
result in a Material Adverse Change. To the best of Borrower’s knowledge, no party to any such
license or agreement is in default or violation thereof, which default or violation would be
reasonably likely to result in a Material Adverse Change. The Borrower has not received any notice
or threat of cancellation of any license or agreement, except those the termination of which would
not result in a Material Adverse Change.

     4.10. Leases.

     EXHIBIT 4.10, annexed hereto, is a schedule of all presently effective Capital Leases and
Leases. To the best of Borrower’s knowledge, no party to any such Lease or Capital Lease is in
default or violation of any such Lease or Capital Lease, which default or violation would be
reasonably likely to result in a Material Adverse Change. The Borrower has not received any notice
or threat of cancellation of any such Lease or Capital Lease, except those the termination of which
would not result in a Material Adverse Change. Following the occurrence and during the continuance
of an Event of Default, the Borrower hereby authorizes the Lender at any time and from time to time
to contact any of the Borrower’s respective landlords in order to confirm the Borrower’s continued
compliance with the terms and conditions of the Lease(s) between the Borrower and that landlord and
to discuss such issues, concerning the Borrower’s occupancy under such Lease(s), as the Lender may
determine.

     4.11. Requirements of Law.

     The Borrower is in compliance with, and shall hereafter comply with and use its assets in
compliance in all material respects with, all Requirements of Law, except as could not be
reasonably likely to result in a Material Adverse Change. The Borrower has not received any notice
of any material violation of any

32

 

Requirement of Law, which violation has not been cured or
otherwise remedied or, if it occurs after the Closing Date, will not be cured within a commercially
reasonable period of time or does not result in a Material Adverse Change.

     4.12. Labor Relations.

          (a) The Borrower has not been, and shall not be, a party to any collective bargaining or other
multi-party labor contract.

          (b) There is not presently pending and, to the Borrower’s knowledge, there is not threatened
any of the following:

          (i) Any strike, slowdown, picketing, work stoppage, or material employee
grievance process which is reasonably likely to result in a Material Adverse Change.

          (ii) Any proceeding against or affecting the Borrower relating to the
alleged violation of any Applicable Law pertaining to labor relations or before National
Labor Relations Board, the Equal Employment Opportunity Commission, or any comparable
governmental body, organizational activity, or other labor or employment dispute against or
affecting the Borrower, which, if determined adversely to the Borrower, is reasonably
likely to result in a Material Adverse Change.

          (iii) Any material lockout of any employees by the Borrower (and no such
action is contemplated by the Borrower).

          (iv) Any application for the certification of a collective bargaining agent.

          (c) No event has occurred or circumstance exists which are reasonably likely to provide the
basis for any material work stoppage or other material labor dispute with a collective bargaining
unit.

          (d) The Borrower:

          (i) Has complied in all material respects with all Applicable Law relating
to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours,
benefits, collective bargaining, the payment of social security and similar taxes,
occupational safety and health, and plant closing.

          (ii) Is not liable for the payment of any material amount of compensation,
damages, taxes, fines, penalties, or other amounts, however designated, for the Borrower’s
failure to comply with any Applicable Law referenced in Section 4.12(d)(i).

     4.13. Maintain Properties.

     The Borrower shall:

          (a) Keep the Collateral in good order and repair (ordinary reasonable wear and tear and
insured casualty excepted).

          (b) Not suffer or cause the waste or destruction of any material part of the Collateral.

          (c) Not use any of the Collateral in violation of any policy of insurance thereon.

          (d) Not sell, lease, or otherwise dispose of any of the Collateral, other than the following:

33

 

          (i) The sale of Inventory in compliance with this Agreement, including the
sale of Inventory in the ordinary course of business.

          (ii) The disposal of Equipment which is obsolete, worn out, or damaged
beyond repair, so long as such Equipment is replaced to the extent necessary to preserve or
improve the operating efficiency of the Borrower.

          (iii) Permitted Dispositions.

          (iv) The turning over to the Lender of all Receipts as provided in Article 7.

     4.14. Taxes.

          (a) With respect to the Borrower’s federal, state, and local tax liability and obligations:

          (i) The Borrower, in material compliance with all Applicable Law, has
properly filed all returns due to be filed up to the Closing Date.

          (ii) Except as described on EXHIBIT 4.14, annexed hereto:

          (A) From January 1, 2001 until the Closing Date, the Borrower has not
received from any taxing authority any request to perform any examination of or with
respect to the Borrower nor any other written or verbal notice in any way relating
to any claimed failure by the Borrower to comply with all Applicable Law concerning
payment of any taxes or other amounts in the nature of taxes.

          (B) From January 1, 2001 until the Closing Date, no agreement was
entered into which waived or extended any statute of limitations applicable to the
right of any taxing authority to assert a deficiency or make any other claim for or
in respect to federal income taxes.

          (C) From January 1, 2001 until the Closing Date, no issue has been
raised in any tax examination of the Borrower which, by application of similar
principles, reasonably could be expected to result in the assertion of a deficiency
for any Fiscal year open for examination, assessment, or claim by any taxing
authority.

          (b) The Borrower has, and hereafter shall: pay, as they become due and payable, all taxes and
unemployment contributions and other charges of any kind or nature levied, assessed or claimed
against the Borrower or the Collateral by any person, entity or governmental authority whose claim
could result in an Encumbrance upon any asset of the Borrower, except for those immaterial and
inadvertently late payments which are promptly cured and have no more than a de minimis effect on
the Borrower’s business or assets and except for those payments which are being contested in good
faith and for which adequate reserves have been set aside; properly exercise any trust
responsibilities imposed upon the Borrower by reason of withholding from employees’ pay or by
reason of the Borrower’s receipt of sales tax or other funds for the account of any third party;
timely make all material contributions and other payments as may be required pursuant to any
Employee Benefit Plan now or hereafter established by the Borrower; and timely file all tax and
other returns and other reports with each governmental authority to whom the Borrower is obligated
to so file.

     4.15. No Margin Stock.

     The Borrower is not engaged in the business of extending credit for the purpose of purchasing
or carrying any margin stock (within the meaning of Regulations U, T, and X of the Board of
Governors of the

34

 

Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such margin stock or to
extend credit to others for the purpose of purchasing or carrying any such margin stock.

     4.16. ERISA.

          (a) Neither the Borrower nor any ERISA Affiliate has since January 1, 2001:

          (i) Violated or failed to be in compliance in all material respects with the
Borrower’s Employee Benefit Plan.

          (ii) Failed timely to file all reports and filings required by ERISA to be
filed by the Borrower, other than reports and filings which are inadvertently late, which
are promptly cured and have no more than a de minimis effect on the Borrower’s business or
assets.

          (iii) Engaged in any nonexempt “prohibited transactions” or “reportable
events” (respectively as described in ERISA).

          (iv) Engaged in, or committed, any act such that a tax or penalty that would
have more than a de minims effect could be imposed upon the Borrower on account thereof
pursuant to ERISA.

          (v) Accumulate any material cumulative funding deficiency within the meaning
of ERISA.

          (vi) Terminated any Employee Benefit Plan such that a lien could be asserted
against any assets of the Borrower on account thereof pursuant to ERISA.

          (vii) Been a member of, contributed to, or have any obligation under any
Employee Benefit Plan which is a multiemployer plan within the meaning of Section 4001(a)
of ERISA.

          (b) Neither the Borrower nor any ERISA Affiliate shall ever engage in any action of the type
described in Section 4.16(a).

     4.17. Hazardous Materials.

          (a) Since January 1, 2001 until the Closing Date, the Borrower has not: (i) been legally
responsible for any release or threat of release of any Hazardous Material or (ii) received
notification of the incurrence of any expense in connection with the assessment, containment, or
removal of any Hazardous Material for which the Borrower would be responsible.

          (b) Since January 1, 2001 until the Closing Date, the Borrower has not: (i) disposed of any
Hazardous Material, except in compliance with all Environmental Laws and (ii) had possession of any
Hazardous Material, except in the ordinary course of the Borrower’s business and in compliance with
all Environmental Laws.

     4.18. Litigation.

     Except as described in EXHIBIT 4.18, annexed hereto, there is not presently pending or
threatened by or against the Borrower any suit, action, proceeding, or investigation which would be
reasonably likely to cause a Material Adverse Change.

35

 

     4.19. Dividends; Investments; Corporate Action.

     The Borrower shall not:

          (a) Pay any cash dividend or make any other distribution in respect of any class of the
Borrower’s capital stock (other than dividends paid in the form of capital stock of the Borrower).

          (b) Make or agree to pay or make, directly or indirectly, any payment or other distribution
(whether in cash, securities or other property) of or in respect of principal of or interest on any
Indebtedness, or any payment or other distribution (whether in cash, securities or other property),
including any sinking fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any Indebtedness, except (i) the Liabilities, and (ii)
as long as no Event of Default has occurred and is continuing or would result therefrom, payment of
regularly scheduled interest and principal payments as and when due in respect of Permitted
Indebtedness.

          (c) Own, redeem, retire, purchase, or acquire any of the Borrower’s capital stock
provided, however, so long as Borrower is not In Default and no Event of Default
would arise therefrom Borrower shall be permitted to repurchase at cost any shares of capital stock
of the Borrower held by any former employees, consultants or service providers of Borrower in
connection with the termination of the services of such former employees, consultants or other
service providers under the terms of the applicable agreements, in the aggregate amount not to
exceed $250,000 during any Fiscal year.

          (d) Except as otherwise set forth herein, invest in or purchase any stock or securities or
rights to purchase any such stock or securities, of any Person other than a Permitted Investment.

          (e) Merge or consolidate or be merged or consolidated with or into any other corporation or
other entity.

          (f) Consolidate any of the Borrower’s operations with those of any other Person.

          (g) Organize or create any Affiliate, other than wholly owned subsidiaries.

          (h) Subordinate any debts or obligations owed to the Borrower by any third party to any other
debts owed by such third party to any other Person.

          (i) Acquire any assets other than in the ordinary course and conduct of the Borrower’s
business as conducted at the execution of this Agreement.

     4.20. Loans.

     The Borrower shall not make any loans or advances to, nor acquire the Indebtedness of, any
Person; provided, however, the foregoing does not prohibit any of the following:

          (a) Advance payments made to the Borrower’s suppliers and service providers in the ordinary
course of Borrower’s business.

          (b) Advances to the Borrower’s officers, employees, and salespersons with respect to
reasonable expenses to be incurred by such officers, employees, and salespersons for the benefit of
the Borrower, which expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.

     4.21. Protection of Assets.

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     The Lender, in the Lender’s discretion, and from time to time, may (i) upon prior written
notice to Borrower, discharge any tax or Encumbrance on any of the Collateral, or (ii) take any
other action which the Lender may deem necessary or desirable to repair, insure, maintain,
preserve, collect, or realize upon any of the Collateral. The Lender shall not have any obligation
to undertake any of the foregoing and shall have no liability on account of any action so
undertaken except where there is a specific finding in a judicial proceeding (in which the Lender
has had an opportunity to be heard), from which finding no further appeal is available, that the
Lender had acted in actual bad faith or in a grossly negligent manner. The Borrower shall pay to
the Lender, on demand, or the Lender, in its discretion, may add to the Loan Account, all amounts
paid or incurred by the Lender pursuant to this Section 4.21.

     4.22. Line of Business.

     The Borrower shall not engage in any business other than the business in which it is currently
engaged or a business reasonably related thereto.

     4.23. Affiliate Transactions.

     The Borrower shall not make any payment, nor give any value to any Affiliate or any holder of
more than 10% of the Borrower’s then outstanding capital stock except for goods and services
actually purchased by the Borrower from, or sold by the Borrower to, such Affiliate or any holder
of more than 10% of the Borrower’s then outstanding capital stock for a price and on terms which
shall:

          (a) be competitive and fully deductible as an “ordinary and necessary business expense” and/or
fully depreciable under the Internal Revenue Code of 1986 and the Treasury Regulations, each as
amended; and

          (b) be no less favorable to the Borrower than those which would have been charged and imposed
in an arm’s length transaction.

     4.24. Further Assurances.

          (a) The Borrower is not the owner of, nor has it any interest in, any property or asset, other
than Non-Assignable Contractual Interests, which will not be subject to a perfected Collateral
Interest in favor of the Lender (subject only to Permitted Encumbrances and Permitted Dispositions)
to secure the Liabilities.

          (b) The Borrower will not hereafter acquire any asset or any interest in property, other than
Non-Assignable Contractual Interests, which is not, immediately upon such acquisition, subject to
such a perfected Collateral Interest in favor of the Lender to secure the Liabilities (subject only
to Permitted Encumbrances).

          (c) The Borrower shall execute and deliver to the Lender such instruments, documents, and
papers, and shall do all such things from time to time hereafter as the Lender may request to carry
into effect the provisions and intent of this Agreement; to protect and perfect the Lender’s
Collateral Interests in the Collateral; and to comply with all applicable statutes and laws, and
facilitate the collection of the Receivables Collateral. The Borrower shall execute all such
instruments as may be required by the Lender with respect to the recordation and/or perfection of
the Collateral Interests created or contemplated herein.

          (d) The Borrower hereby designates the Lender as and for the Borrower’s true and lawful
attorney, with full power of substitution, to sign and file any financing statements in order to
perfect or protect the Lender’s Collateral Interests in the Collateral.

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          (e) This Agreement constitutes an authenticated record which authorizes the Lender to file
such financing statements as the Lender determines as appropriate to perfect or protect the
Collateral Interests created by this Agreement.

          (f) A carbon, photographic, or other reproduction of this Agreement or of any financing
statement or other instrument executed pursuant to this Section 4.24 shall be sufficient
for filing to perfect the security interests granted herein.

     4.25. Adequacy of Disclosure.

          (a) All financial statements furnished to the Lender by the Borrower have been prepared in
accordance with GAAP consistently applied and present fairly the condition of the Borrower at the
date(s) thereof and the results of operations and cash flows for the period(s) covered (provided,
however, that unaudited financial statements are subject to normal year end adjustments and to the
absence of footnotes). There has been no change in the financial condition, results of operations,
or cash flows of the Borrower since the date(s) of such financial statements, other than changes in
the ordinary course of business, which changes have not been materially adverse, either singularly
or in the aggregate.

          (b) Other than obligations under operating Leases which are (x) reflected in the footnotes to
the financial statements or (y) which are set forth on EXHIBIT 4.10, annexed hereto, the Borrower
has no contingent obligations or obligation under any Lease or Capital Lease which is not noted in
the Borrower’s financial statements furnished to the Lender prior to the execution of this
Agreement.

          (c) No document, instrument, agreement, or paper now or hereafter given to the Lender by or on
behalf of the Borrower in connection with the execution of this Agreement by the Lender contains or
will contain any untrue statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements therein not misleading. There is no fact known to the
Borrower which has, or which, in the foreseeable future could reasonably be expected to have, a
material adverse effect on the financial condition of the Borrower which has not been disclosed in
writing to the Lender.

     4.26. No Restrictions on Liabilities.

     Other than Non-Assignable Contractual Interests and the Subordination Agreement, the Borrower
shall not enter into or directly or indirectly become subject to any agreement, which prohibits or
restricts, in any manner, the Borrower’s:

          (a) Creation of, and granting of Collateral Interests in favor of the Lender.

          (b) Incurrence of the Liabilities hereunder.

     4.27. Other Covenants.

     The Borrower shall not indirectly do or cause to be done any act which, if done directly by
the Borrower, would breach any covenant contained in this Agreement.

Article 5 — Financial Reporting and Performance Covenants:

     5.1. Maintain Records.

     The Borrower shall:

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          (a) At all times, keep proper books of account, in which full, true, and accurate entries
shall be made of all of the Borrower’s financial transactions, consistent with prior periods to
fairly reflect the financial condition of the Borrower at the close of, and its results of
operations for, the periods in question.

          (b) Timely provide the Lender with those financial reports, statements, and schedules required
by this Article 5 or otherwise in this Agreement, each of which reports, statements and schedules
shall be prepared, to the extent applicable, in accordance with GAAP applied consistently with
prior periods to fairly reflect the financial condition of the Borrower at the close of, and the
results of operations for, the period(s) covered therein.

          (c) At all times, keep accurate current records of the Collateral including, without
limitation, accurate current stock, cost, and sales records of its Inventory, accurately and
sufficiently itemizing and describing the kinds, types, and quantities of Inventory and the cost
and selling prices thereof.

          (d) At all times, retain independent certified public accountants who are reasonably
satisfactory to the Lender and instruct such accountants to fully cooperate with, and be available
to, the Lender to discuss the Borrower’s financial performance, financial condition, operating
results, controls, and such other matters, within the scope of the retention of such accountants,
as may be reasonably requested by the Lender.

          (e) Not change the Borrower’s Fiscal year.

     5.2. Access to Records.

          (a) The Borrower shall accord the Lender with access from time to time, which, except
following the occurrence and during the continuance of an Event of Default, shall be on not less
than One (1) business day prior notice and during reasonable business hours as the Lender may
require to all properties owned by or over which the Borrower has control. The Lender shall have
the right, and the Borrower will permit the Lender from time to time as Lender may reasonably
request, to examine, inspect, copy, and make extracts from any and all of the Borrower’s books,
records, electronically stored data, papers, and files. The Borrower shall make all of the
Borrower’s copying facilities available to the Lender.

          (b) The Borrower hereby authorizes the Lender to:

          (i) Inspect, copy, duplicate, review, cause to be reduced to hard copy, run
off, draw off, and otherwise use any and all computer or electronically stored information
or data which relates to the Borrower, or any service bureau, contractor, accountant, or
other person, and directs any such service bureau, contractor, accountant, or other person
fully to cooperate with the Lender with respect thereto.

          (ii) Verify at any time the Collateral or any portion thereof, including
verification with Account Debtors, and/or with the Borrower’s computer billing companies,
collection agencies, and accountants and to sign the name of the Borrower on any notice to
the Borrower’s Account Debtors or verification of the Collateral.

          (c) The Lender from time to time may designate one or more representatives to exercise the
Lender’s rights under this Section 5.2 as fully as if the Lender were doing so.

     5.3. Immediate Notice to Lender.

          (a) The Borrower shall provide the Lender with written notice promptly upon the occurrence of
any of the following events, which written notice shall be with reasonable particularity as to the
then known facts and circumstances in respect of which such notice is being given:

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          (i) Any change in the Borrower’s President, Chief Executive Officer, Chief
Operating Officer, and Chief Financial Officer (without regard to the title(s) actually
given to the Persons discharging the duties customarily discharged by officers with those
titles).

          (ii) Any ceasing of the Borrower’s making of payment, in the ordinary
course, to any of its creditors (other than its ceasing of making of such payments on
account of a good faith dispute that is not reasonably likely to result in a Material
Adverse Change.

          (iii) Any failure by the Borrower to pay rent at any of the Borrower’s
locations, which failure continues for more than Seven (7) days following the last day on
which such rent was payable and which is reasonably likely to result in a Material Adverse
Change.

          (iv) Any event which is reasonably likely to result in a Material Adverse
Change .

          (v) The Borrower’s becoming In Default.

          (vi) Any intention on the part of the Borrower to discharge the Borrower’s
present independent accountants or any withdrawal or resignation by such independent
accountants from their acting in such capacity (as to which, see Subsection 5.1(d)).

          (vii) Any litigation which, if determined adversely to the Borrower, is
reasonably likely to have a material adverse effect on the financial condition of the
Borrower.

          (b) The Borrower shall:

          (i) Other than with respect to routine, day-to-day communications, provide
the Lender, when so distributed, with copies of any materials distributed to the
stockholders of the Borrower.

          (ii) Add the Lender as an addressee on all mailing lists maintained by or
for the Borrower.

          (iii) At the request of the Lender, from time to time, provide the Lender
with copies of all advertising (including copies of all print advertising and duplicate
tapes of all video and radio advertising).

          (iv) Provide the Lender, promptly after received by the Borrower, with a
copy of any management letter or similar communications from any accountant of the
Borrower.

     5.4. Borrowing Base Certificate.

     The Borrower shall provide the Lender with a Borrowing Base Certificate (in the form of
EXHIBIT 5.4, annexed hereto, as such form may be revised from time to time by the Lender) at the
times, and in the manner set forth on EXHIBIT 5.4, annexed hereto.

     5.5. Monthly Reports.

     Monthly, the Borrower shall provide the Lender with those financial statements and reports
described in EXHIBIT 5.5, annexed hereto, at the times set forth therein.

     5.6. Annual Reports.

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          (a) Annually, in addition to the timely submission of the monthly reporting required at the
end of every month, within Ninety (90) days following the end of the Borrower’s Fiscal year, the
Borrower shall furnish the Lender with a signed counterpart of the Borrower’s annual financial
statement, which statement shall have been prepared by, and bear the unqualified opinion of, the
Borrower’s independent certified public accountants (i.e. said statement shall be “certified” by
such accountants) and shall include, at a minimum (with comparative information for the then prior
Fiscal year) a balance sheet, income statement, statement of changes in shareholders’ equity, and
cash flows.

          (b) No later than the earlier of Fifteen (15) days prior to the end of each of the Borrower’s
Fiscal years or the date on which such accountants commence their work on the preparation of the
Borrower’s annual financial statement, the Borrower shall give written notice to such accountants
(with a copy of such notice, when sent, to the Lender) that:

          (i) Such annual financial statement will be delivered by the Borrower to the
Lender (for subsequent distribution to the Lender).

          (ii) It is the intention of the Borrower, in its engagement of such
accountants, to satisfy the financial reporting requirements set forth in this Article 5.

          (iii) The Borrower has been advised that the Lender will rely thereon with
respect to the administration of, and transactions under, the credit facility contemplated
by this Agreement.

          (c) Upon Lender’s request therefore, each annual statement shall be accompanied by such
accountant’s Certificate indicating that, in conducting the audit for such annual statement,
nothing came to the attention of such accountants to believe that the Borrower is not In Default
(or that if the Borrower is in Default, the facts and circumstances thereof).

     5.7. Officers’ Certificates

     The Borrower shall cause either the Borrower’s President or its Chief Financial Officer, in
each instance, to provide such Person’s Certificate with those financial statements to be provided
within Thirty (30) days of the end of each month, unless such month is the last month of Borrower’s
Fiscal quarter then with in Forty Five (45) days, and Ninety (90) days with those annual statements
to be furnished pursuant to this Agreement, which Certificate shall:

          (a) Indicate that the subject statement was prepared in accordance with GAAP consistently
applied and presents fairly the financial condition of the Borrower at the close of, and the
results of the Borrower’s operations and cash flows for, the period(s) covered, subject, however to
the following:

          (b) Indicate either that (i) the Borrower is not In Default, or (ii) if such an event has
occurred, its nature (in reasonable detail) and the steps (if any) being taken or contemplated by
the Borrower to be taken on account thereof.

          (c) Include confirmation that all of the Borrower’s taxes, insurance premiums, and rental
payments are current in all material respects.

     5.8. Inventories, Appraisals, and Audits.

          (a) The Lender, at the reasonable expense of the Borrower, may participate in and/or observe
each physical count and/or inventory of so much of the Collateral as consists of Inventory which is
undertaken on behalf of the Borrower.

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          (b) The Borrower, at its own expense, shall cause at least one (1) physical inventory to be
undertaken during each year in which this Agreement is in effect (the scheduling of which shall be
subject to the Lender’s reasonable discretion) following such methodology as may be reasonably
satisfactory to the Lender. If the Borrower is not In Default it may conduct such physical
inventory using its own personnel; provided, however, the Lender in its reasonable
discretion may require the Borrower to have such physical inventory be conducted by such
independent inventory takers as reasonably acceptable to the Lender. Notwithstanding the
foregoing, from and after and during the continuance of an Event of Default, the Lender may require
such additional physical inventories as it shall deem necessary, each at the Borrower’s expense.

          (i) The Borrower shall provide the Lender with a copy of the preliminary
results of each such inventory (as well as of any other physical inventory undertaken by
the Borrower) within Ten (10) days following the completion of such inventory.

          (ii) The Borrower, within Thirty (30) days following the completion of such
inventory, shall provide the Lender with a reconciliation of the results of each such
inventory (as well
as of any other physical inventory undertaken by the Borrower) and shall post such
results to the Borrower’s stock ledger and, as applicable to the Borrower’s other financial
books and records.

          (iii) The Lender, in its reasonable discretion, may cause such additional
inventories to be taken as the Lender determines (each at the Lender’s expense).

          (c) So long as the outstanding balance of the Revolving Credit is maintained at $0.00 for at
least Ninety (90) consecutive days (a “Clean Down Event”) during each calendar year, then the
Lender contemplates conducting only One (1) appraisal of the Collateral during any Twelve (12)
month period during which this Agreement is in effect, conducted by such appraisers as are
satisfactory to the Lender, each at the expense of the Borrower. The Lender, in its discretion,
may conduct such additional appraisals as the Lender determines (each at the Lender’s expense);
provided, however, that (i) during any calendar year that the Borrower does not
achieve a Clean Down Event, and (ii) from and after and during the continuance of an Event of
Default, the Lender may require such additional appraisals as it shall deem necessary, each at the
Borrower’s expense.

          (d) So long as the Borrower achieves a Clean Down Event in each calendar year, the Lender
contemplates conducting One (1) commercial finance field examinations and audits of the Borrower’s
books and records during any Twelve (12) month period during which this Agreement is in effect,
each at the expense of the Borrower. The Lender, in its discretion, may conduct such additional
commercial finance field examinations and audits as the Lender determines (each at the Lender’s
expense) provided, however, that (i) during any calendar year that the Borrower
does not achieve a Clean Down Event, and (ii) from and after and during the continuance of an Event
of Default, the Lender may require such additional commercial finance field examinations as it
shall deem necessary, each at the Borrower’s expense.

     5.9. Additional Financial Information.

          (a) In addition to all other information required to be provided pursuant to this Article 5,
the Borrower promptly shall provide the Lender, with such other additional information concerning
the Borrower, the Collateral, the operation of the Borrower’s business, and the Borrower’s
financial condition, including original counterparts of financial reports and statements, as the
Lender may from time to time reasonably request from the Borrower.

          (b) The Borrower may provide the Lender, from time to time hereafter, with updated forecasts
of the Borrower’s anticipated performance and operating results.

          (c) In all events, the Borrower, no sooner than Ninety (90) nor later than Thirty (30) days
prior to the end of each of the Borrower’s Fiscal years, shall provide the Lender with an updated
and extended forecast which shall go out at least through the end of the then next Fiscal year and
shall include an income

42

 

statement, balance sheet, and statement of cash flow, by month, and each
prepared in conformity with GAAP and in a manner consistent with the Borrower’s then current
practices.

          (d) The Lender, following the receipt of any of such forecast, may, but shall not be under any
obligation to, provide its written acceptance of such forecast (in which event, such forecast shall
become the Business Plan).

          (e) The Borrower recognizes that all appraisals, inventories, analysis, financial information,
and other materials which the Lender may obtain, develop, or receive with respect to the Borrower
is confidential to the Lender and that, except for the physical inventories and collateral
appraisals and as otherwise provided herein, the Borrower is not entitled to receipt of any of such
appraisals, inventories, analysis, financial information, and other materials, nor copies or
extracts thereof or therefrom.

          (f) The Lender agrees to keep all appraisals, inventories, analysis, financial information,
and other materials which Lender may obtain, develop, or receive with respect to the Borrower in a
confidential manner pursuant to the terms of Section 14.2.

     5.10. Financial Performance Covenant

     The Borrower shall at all times maintain Availability, calculated without regard to the
Revolving Credit Loan Ceiling, in an amount not less than Twelve and one-half percent (12.5%) of
the then extant Revolving Credit Loan Ceiling.

Article 6 — Use of Collateral:

     6.1. Use of Inventory Collateral.

          (a) The Borrower shall not engage in any of the following with respect to its Inventory:

          (i) Any sale other than for fair consideration in the conduct of the
Borrower’s business in the ordinary course, or a Permitted Disposition.

          (ii) Sales or other dispositions to creditors.

          (iii) Sales or other dispositions in bulk (other than as part of a Permitted
Disposition).

          (iv) Sales of any Collateral in breach of any provision of this Agreement.

          (b) No sale of Inventory shall be on consignment, approval, or under any other circumstances
such that such Inventory may be returned to the Borrower without the consent of the Lender, other
than Inventory returnable by customers in the ordinary course of Borrower’s business.

     6.2. Inventory Quality.

     All Inventory included in the calculation of the Borrowing Base now owned or hereafter
acquired by the Borrower is and will be of good and merchantable quality and free from defects
(other than defects within customary trade tolerances).

     6.3. Adjustments and Allowances.

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     The Borrower may grant such allowances or other adjustments to the Borrower’s Account Debtors
(exclusive of extending the time for payment of any Account or Account Receivable, which shall not
be done without first obtaining the Lender’s prior written consent in each instance) as the
Borrower may reasonably deem to accord with sound business practice; provided, however, the
authority granted the Borrower pursuant to this Section 6.3 may be limited or terminated by
the Lender at any time following the occurrence and during the continuance of an Event of Default
in the Lender’s discretion.

     6.4. Validity of Accounts.

          (a) The amount of each Account shown on the books, records, and invoices of the Borrower
represented as owing by each Account Debtor is and will be the correct amount actually owing by
such Account Debtor and shall have been fully earned by performance by the Borrower.

          (b) The Lender from time to time may verify the Receivables Collateral directly with the
Borrower’s Account Debtors, such verification to be undertaken in keeping with commercially
reasonable commercial lending standards.

          (c) The Borrower has no knowledge of any impairment of the validity or collectability of any
of the Accounts except with respect to doubtful Accounts as indicated on the current Borrowing Base
Certificate. The Borrower shall notify the Lender of any such impairment immediately after the
Borrower becomes aware of any such impairment.

     6.5. Notification to Account Debtors.

     The Lender shall have the right if the Borrower is In Default to notify any of the Borrower’s
Account Debtors to make payment directly to the Lender and to collect all amounts due on account of
the Collateral.

Article 7 —  Cash Management. Payment of Liabilities:

     7.1. The Concentration, Blocked, and Operating Accounts.

          (a) The following checking accounts have been or will be established (and are so referred to
herein):

          (i) The “Concentration Account” (so referred to herein): Established by the
Lender with Wells Fargo Bank, N. A.

          (ii) The “Blocked Account” (so referred to herein): Established by the
Borrower with Silicon Valley Bank or such other financial institution reasonable acceptable
to the Lender.

          (iii) The “Operating Account” (so referred to herein): Established by the
Borrower with Silicon Valley Bank or such other financial institution reasonable acceptable
to the Lender.

          (b) The contents of the Blocked Account constitutes Collateral and Proceeds of Collateral.
The contents of the Concentration Account constitutes the Lender’s property.

          (c) The Borrower shall pay all fees and charges of, and maintain such impressed balances as
may be required by the depository in which any account is opened as required hereby (even if such
account is opened by and/or is the property of the Lender).

     7.2. Credit Card and Other Credit Financing Receipts.

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          (a) Annexed hereto as EXHIBIT 7.2, is a Schedule which describes all arrangements to which the
Borrower is a party with respect to the payment to the Borrower of the proceeds of credit card
charges and other credit finance arrangements for sales by the Borrower.

          (b) The Borrower shall deliver to the Lender, as a condition to the effectiveness of this
Agreement, notification, executed on behalf of the Borrower, to each of the Borrower’s credit card
clearinghouses and processors and other providers of credit financing of notice (in form
satisfactory to the Lender), which notice provides that payment of all credit card charges and
credit financings submitted by the Borrower to that clearinghouse or other processor or provider
and any other amount payable to the Borrower by such clearinghouse or other processor or provider
shall be directed to the Blocked Account or as otherwise designated by the Lender upon the
occurrence and during the continuance of a Cash Dominion Event. The Borrower shall not change such
direction or designation except upon and with the prior written consent of the Lender.

     7.3. Proceeds and Collections.

          (a) All Receipts and all cash proceeds of any sale or other disposition of any of the
Borrower’s assets:

          (i) Constitute Collateral and proceeds of Collateral.

          (ii) Shall be held in trust by the Borrower for the Lender.

          (iii) Shall not be commingled with any of the Borrower’s other funds.

          (iv) Shall be deposited and/or transferred only to the Operating Account,
Blocked Account or the Concentration Account in accordance with this Article 7.

          (b) The Borrower shall cause the ACH or wire transfer to the Blocked Account or, upon the
occurrence and during the continuance of a Cash Dominion Event, the Concentration Account, not less
frequently than daily (and whether or not there is then an outstanding balance in the Loan Account)
of the proceeds of all credit card charges not otherwise provided for pursuant hereto. Telephone
advice (confirmed by written notice) shall be provided to the Lender on each Business Day on which
any such transfer is made.

          (c) Whether or not any Liabilities are then outstanding, from and after the occurrence and
during the continuance of any Cash Dominion Event, the Borrower shall cause the ACH or wire
transfer to the Concentration Account, no less frequently than daily, of then entire ledger balance
of the Blocked Account, net of such minimum balance, not to exceed $1,000.00 as may be required to
be maintained in the Blocked Account by the depository which the Blocked Account is maintained.

          (d) In the event that, notwithstanding the provisions of this Section 7.3, the
Borrower receives or otherwise has dominion and control of any Receipts, or any proceeds or
collections of any Collateral, such Receipts, proceeds, and collections shall be held in trust by
the Borrower for the Lender and shall not be commingled with any of the Borrower’s other funds or
deposited in any account of the Borrower other than as instructed by the Lender.

     7.4. Payment of Liabilities.

          (a) On each Business Day after the occurrence and during the continuance of a Cash Dominion
Event, the Lender shall apply the then collected balance of the Concentration Account (net of fees
charged, and of such impressed balances as may be required by the bank at which the Concentration
Account is maintained) towards the unpaid balance of the Loan Account and all other Liabilities,
provided, however, for purposes of the calculation of interest on the unpaid principal balance of
the Loan Account, such payment shall be deemed to have been made One (1) Business Day after such
transfer.

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          (b) The following rules shall apply to deposits and payments under and pursuant to this
Section 7.3:

          (i) Funds shall be deemed to have been deposited to the Concentration
Account on the Business Day on which deposited, provided that notice of such deposit is
available to the Lender by 2:00PM on that Business Day.

          (ii) Funds paid to the Lender, other than by deposit to the Concentration
Account, shall be deemed to have been received on the Business Day when they are good and
collected funds, provided that notice of such payment is available to the Lender by 2:00PM
on that Business Day.

          (iii) If notice of a deposit to the Concentration Account (Section
7.4(b)(i) or payment (Section 7.4(b)(ii)) is not available to the Lender until
after 2:00PM on a Business Day, such deposit or payment shall be deemed to have been made
at 9:00AM on the then next Business Day.

          (iv) All deposits to the Concentration Account and other payments to the
Lender are subject to clearance and collection.

          (c) The Lender shall transfer to the Operating Account any surplus in the Concentration
Account remaining after the application towards the Liabilities referred to in Section
7.4(a) (less those amount which are to be netted out, as provided therein) provided, however,
in the event that

          (i) the Borrower is In Default; and

          (ii) one or more L/C’s are then outstanding,

     then the Lender may establish a funded reserve of up to 105% of the aggregate Stated Amounts
of such L/C’s. Such funded reserve shall either be (i) returned to the Borrower provided that no
Borrower is In Default or (ii) applied towards the Liabilities following the occurrence of any
Event of Default described in Section 10.12 or acceleration following the occurrence of any
other Event of Default.

     7.5. The Operating Account.

     Except as otherwise specifically provided in, or permitted by, this Agreement, all checks
shall be drawn by the Borrower upon, and other disbursements shall be made by the Borrower solely
from, the Operating Account.

Article 8 — Grant of Security Interest:

     8.1. Grant of Security Interest.

     To secure the Borrower’s prompt, punctual, and faithful performance of all and each of the
Liabilities, the Borrower hereby grants to the Lender, a continuing security interest in and to,
and assigns to the Lender, the following, and each item thereof, whether now owned or now due, or
in which the Borrower has an interest, or hereafter acquired, arising, or to become due, or in
which the Borrower obtains an interest, and all products, Proceeds, substitutions, and accessions
of or to any of the following (all of which, together with any other property in which the Lender
may in the future be granted a security interest, is referred to herein as the “Collateral”):

          (a) All Accounts and accounts receivable.

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          (b) All Inventory.

          (c) All General Intangibles (other than a Non-Assignable Contractual Interest).

          (d) All Goods.

          (e) All Chattel Paper.

          (f) All Letter-of-Credit Rights.

          (g) All Payment Intangibles.

          (h) All Supporting Obligations.

          (i) All books, records, and information relating to the Collateral and/or to the operation of
the Borrower’s business, and all rights of access to such books, records, and information, and all
property in which such books, records, and information are stored, recorded, and maintained.

          (j) All Leasehold Interests (other than a Non-Assignable Contractual Interest).

          (k) All Investment Property, Instruments, Documents, Deposit Accounts, money, policies and
certificates of insurance, deposits, impressed accounts, compensating balances, cash, or other
property.

          (l) All insurance proceeds, refunds, and premium rebates, including, without limitation,
proceeds of fire and credit insurance, whether any of such proceeds, refunds, and premium rebates
arise out of any of the foregoing (Section 8.1(a) through 8.1(k)) or otherwise.

          (m) All liens, guaranties, rights, remedies, and privileges pertaining to any of the foregoing
(Section 8.1(a) through 8.1(l)), including the right of stoppage in transit.

     8.2. Extent and Duration of Security Interest.

          (a) The security interest created and granted herein is in addition to, and supplemental of,
any security interest previously granted by the Borrower to the Lender and shall continue in full
force and effect applicable to all Liabilities until both:

          (i) all Liabilities have been paid and/or satisfied in full, including those
arrangements set forth in Section 13.2(d); and

          (ii) the security interest created herein is specifically terminated in
writing by a duly authorized officer of the Lender.

          (b) It is intended that the Collateral Interests created herein extend to and cover all assets
of the Borrower.

Article 9 — Lender As Borrower’s Attorney-In-Fact:

     9.1. Appointment as Attorney-In-Fact.

     The Borrower hereby irrevocably constitutes and appoints the Lender (acting through any
officer of the Lender) as the Borrower’s true and lawful attorney, with full power of substitution,
following the occurrence and during the continuance of an Event of Default, to convert the
Collateral into cash in a commercially reasonable

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manner at the sole risk, cost, and expense of
the Borrower, but for the sole benefit of the Lender. The rights and powers granted to the Lender
by this appointment include but are not limited to the right and power to:

          (a) Prosecute, defend, compromise, or release any action relating to the Collateral.

          (b) Sign change of address forms to change the address to which the Borrower’s mail is to be
sent to such address as the Lender shall designate; receive and open the Borrower’s mail; remove
any Receivables Collateral and Proceeds of Collateral therefrom and turn over the balance of such
mail either to the Borrower or to any trustee in bankruptcy or receiver of the Borrower, or other
legal representative of the Borrower whom the Lender determines to be the appropriate person to
whom to so turn over such mail.

          (c) Endorse the name of the Borrower in favor of the Lender upon any and all checks, drafts,
notes, acceptances, or other items or instruments; sign and endorse the name of the Borrower on,
and receive as secured party, any of the Collateral, any invoices, schedules of Collateral, freight
or express receipts,
or bills of lading, storage receipts, warehouse receipts, or other documents of title
respectively relating to the Collateral.

          (d) Sign the name of the Borrower on any notice to the Borrower’s Account Debtors or
verification of the Receivables Collateral; sign the Borrower’s name on any proof of claim in
bankruptcy against Account Debtors, and on notices of lien, claims of mechanic’s liens, or
assignments or releases of mechanic’s liens securing the Accounts.

          (e) Take all such action as may be necessary to obtain the payment of any letter of credit
and/or banker’s acceptance of which the Borrower is a beneficiary.

          (f) Repair, manufacture, assemble, complete, package, deliver, alter or supply goods, if any,
necessary to fulfill in whole or in part the purchase order of any customer of the Borrower.

          (g) Use, license or transfer any or all General Intangibles of the Borrower.

     9.2. No Obligation to Act.

     The Lender shall not be obligated to do any of the acts or to exercise any of the powers
authorized by Section 9.1, but if the Lender elects to do any such act or to exercise any
of such powers, it shall not be accountable for more than it actually receives as a result of such
exercise of power, and shall not be responsible to the Borrower for any act or omission to act
except for any act or omission to act as to which there is a final determination made in a judicial
proceeding (in which proceeding the Lender has had an opportunity to be heard) which determination
includes a specific finding that the subject act or omission to act had been grossly negligent or
in actual bad faith.

Article 10 — Events of Default:

     The occurrence of any event described in this Article 10 respectively shall constitute an
“Event of Default” herein. The occurrence of any Event of Default shall also constitute, without
notice or demand, a default under all other agreements between the Lender and the Borrower and
instruments and papers heretofore, now, or hereafter given to the Lender by the Borrower.

     10.1. Failure to Pay the Revolving Credit.

     The failure by the Borrower to pay when due any principal of, interest on, or fees in respect
of, the Revolving Credit.

     10.2. Failure To Make Other Payments.

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     The failure by the Borrower to pay when due (or upon demand, if payable on demand) any payment
Liability other than any payment liability on account of the principal of, or interest on, or fees
in respect of, the Revolving Credit, and such failure continues without cure for a period of Five
(5) days.

     10.3. Failure to Perform Covenant or Liability (No Grace Period).

     The failure by the Borrower to promptly, punctually, faithfully and timely perform, discharge,
or comply with any covenant or Liability included in any of the following provisions hereof:

	 	 	 	 	 
	Section Relates to
	4.7	 	Indebtedness
	4.19	 	Dividends. Investments. Other Corporate Actions
	4.23	 	Affiliate Transactions
	Article 7	 	Cash Management

     10.4. Failure to Perform Covenant or Liability (Grace Period).

     The failure by the Borrower to comply with (i) any covenant or Liability in Section
4.14 or Article 5 which failure continues without cure for a period of Five (5) days following
the earlier of the Borrower’s knowledge of such breach or of its receipt of written notice from the
Lender of such breach) or (ii) any covenant or Liability not described in Sections
10.1, 10.2 or 10.3, or 10.4(i) which failure continues without cure
for a period of Ten (10) days following the earlier of the Borrower’s knowledge of such breach or
of its receipt of written notice from the Lender of such breach).

     10.5. Misrepresentation.

     The determination by the Lender that any representation or warranty at any time made by the
Borrower to the Lender was not true or complete in all material respects when given.

     10.6. Extension of Lease for Distribution Facility.

     The failure of the Borrower to have entered into a renewal and extension of the lease for the
Borrower’s distribution center with Creeekside III LLC on terms and conditions acceptable to the
Lender, on or before January 1, 2008.

     10.7. Acceleration of Other Debt; Breach of Lease.

     The occurrence of any event such that any Indebtedness in excess of $100,000.00 of the
Borrower to any creditor other than the Lender could be accelerated, or, without the consent of the
Borrower, any material Lease could be terminated (whether or not the subject creditor or lessor
takes any action on account of such occurrence).

     10.8. Default Under Other Agreements.

     The occurrence of any breach in any material respect of any covenant or Liability imposed by,
or of any default under, any agreement (including any Loan Document) between the Lender and the
Borrower or instrument given by the Borrower to the Lender and the expiry, without cure, of any
applicable grace period (notwithstanding that the Lender may not have exercised all or any of its
rights on account of such breach or default).

     10.9. Uninsured Casualty Loss.

     The occurrence of any uninsured loss, theft, damage, or destruction of or to any material
portion of the Collateral.

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     10.10. Attachment; Judgment; Restraint of Business.

          (a) Other than claims which the Lender determines in its commercially reasonable judgment are
frivolous or which are for less than $250,000.00 in the aggregate, the service of process upon the
Lender seeking to attach, by trustee, mesne, or other process, any funds of the Borrower on deposit
with, or assets of the Borrower in the possession of, the Lender.

          (b) The entry of any judgment in excess of $250,000.00 against the Borrower, which judgment is
not satisfied (if a money judgment) or appealed from (with execution or similar process stayed)
within Thirty (30) days of its entry.

          (c) The entry of any order or the imposition of any other process having the force of law, the
effect of which is to restrain in any material way the conduct by the Borrower of its business in
the ordinary course.

     10.11. Business Failure.

     Any act by, against, or relating to the Borrower, or its property or assets, which act
constitutes the determination, by the Borrower, to initiate a program of partial or total
self-liquidation; application for, consent to, or sufferance of the appointment of a receiver,
trustee, or other person, pursuant to court action or otherwise, over all, or a material part of
the Borrower’s property; the granting of any trust mortgage or execution of an assignment for the
benefit of the creditors of the Borrower, or the occurrence of any other voluntary or involuntary
liquidation; the offering by or entering into by the Borrower of any composition, extension, or any
other arrangement seeking relief from or extension of the debts of the Borrower; or the initiation
of any judicial or non-judicial proceeding or agreement by, against, or including the Borrower
which seeks or intends to accomplish a reorganization or arrangement with creditors; and/or the
initiation by or on behalf of the Borrower of the liquidation or winding up of all or any material
part of the Borrower’s business or operations.

     10.12. Bankruptcy.

     The failure by the Borrower to generally pay the debts of the Borrower as they mature;
adjudication of bankruptcy or insolvency relative to the Borrower; the entry of an order for relief
or similar order with respect to the Borrower in any proceeding pursuant to the Bankruptcy Code or
any other federal bankruptcy law; the filing of any complaint, application, or petition by the
Borrower initiating any matter in which the Borrower is or may be granted any relief from the debts
of the Borrower pursuant to the Bankruptcy Code or any other insolvency statute or procedure; the
filing of any complaint, application, or petition against the Borrower initiating any matter in
which the Borrower is or may be granted any relief from the debts of the Borrower pursuant to the
Bankruptcy Code or any other insolvency statute or procedure, which complaint, application, or
petition is not timely contested in good faith by the Borrower by appropriate proceedings or, if so
contested, is not dismissed within Sixty (60) days of when filed.

     10.13. Indictment — Forfeiture.

     The indictment of, or institution of any legal process or proceeding against, the Borrower,
under any Applicable Law where the relief, penalties, or remedies sought or available include the
forfeiture of a material portion of the Borrower’s property and/or the imposition of any stay or
other order, the effect of which is reasonably likely to result in a Material Adverse Change.

     10.14. Challenge to Loan Documents.

          (a) Any challenge by or on behalf of the Borrower to the validity of any Loan Document or the
applicability or enforceability of any Loan Document strictly in accordance with the subject Loan

50

 

Document’s terms or which seeks to void, avoid, limit, or otherwise adversely affect any security
interest created by or in any Loan Document or any payment made pursuant thereto.

          (b) Any determination by any court or any other judicial or government authority that any Loan
Document is not enforceable strictly in accordance with the subject Loan Document’s terms or which
voids, avoids, limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.

     10.15. Change in Control.

     Any Change in Control.

Article 11 — Rights and Remedies Upon Default:

     11.1. Acceleration.

     Upon the occurrence and during the continuance of any Event of Default as described in
Section 10.12, all Indebtedness of the Borrower to the Lender shall be immediately due and
payable. Upon the occurrence and during the continuance of any Event of Default other than as
described in Section 10.12, the Lender may declare all Indebtedness of the Borrower to the
Lender to be immediately due and payable and may exercise all of the Lender’s Rights and Remedies
as the Lender from time to time thereafter determines as appropriate.

     11.2. Rights of Enforcement.

     The Lender shall have all of the rights and remedies of a secured party upon default under the
UCC, in addition to which the Lender shall have all and each of the following rights and remedies:

          (a) To give notice to any bank at which any DDA or Blocked Account is maintained and in which
Proceeds of Collateral are deposited, to turn over such Proceeds directly to the Lender.

          (b) To give notice to any customs broker of the Borrower to follow the instructions of the
Lender as provided in any written agreement or undertaking of such broker in favor of the Lender.

          (c) To collect the Receivables Collateral with or without the taking of possession of any of
the Collateral.

          (d) To take possession of all or any portion of the Collateral.

          (e) To sell, lease, or otherwise dispose of any or all of the Collateral, in its then
condition or following such preparation or processing as the Lender deems advisable and with or
without the taking of possession of any of the Collateral.

          (f) To apply the Receivables Collateral or the Proceeds of the Collateral towards (but not
necessarily in complete satisfaction of) the Liabilities.

          (g) To exercise all or any of the rights, remedies, powers, privileges, and discretions under
all or any of the Loan Documents.

     11.3. Sale of Collateral.

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          (a) Any sale or other disposition of the Collateral may be at public or private sale upon such
terms and in such manner as the Lender deems advisable, having due regard to compliance with any
statute or regulation which might affect, limit, or apply to the Lender’s disposition of the
Collateral.

          (b) Unless the Collateral is perishable or threatens to decline speedily in value, or is of a
type customarily sold on a recognized market (in which event the Lender shall provide the Borrower
such notice as may be practicable under the circumstances), the Lender shall give the Borrower at
least Ten (10) days prior notice, by authenticated record, of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other disposition of the
Collateral may be made. The Borrower agrees that such written notice shall satisfy all
requirements for notice to the Borrower which are imposed under the UCC or other applicable law
with respect to the exercise of the Lender’s rights and remedies upon default.

          (c) The Lender may purchase the Collateral, or any portion of it at any public sale held under
this Article.

          (d) If any of the Collateral is sold, leased, or otherwise disposed of by the Lender on
credit, the Liabilities shall not be deemed to have been reduced as a result thereof unless and
until payment is finally received thereon by the Lender.

     The Lender shall apply the proceeds of the Lender’s exercise of its rights and remedies upon
default pursuant to this Article 11.

     11.4. Occupation of Business Location.

     In connection with the Lender’s exercise of the Lender’s rights under this Article 11 upon the
occurrence and during the continuance of an Event of Default, the Lender may enter upon, occupy,
and use any premises owned or occupied by the Borrower, and may exclude the Borrower from such
premises or portion thereof as may have been so entered upon, occupied, or used by the Lender. The
Lender shall not be required to remove any of the Collateral from any such premises upon the
Lender’s taking possession thereof, and may render any Collateral unusable to the Borrower. In no
event shall the Lender be liable to the Borrower for use or occupancy by the Lender of any premises
pursuant to this Article 11, nor for any charge (such as wages for the Borrower’s employees and
utilities) incurred in connection with the Lender’s exercise of the Lender’s Rights and Remedies.

     11.5. Grant of Nonexclusive License.

     The Borrower hereby grants to the Lender a royalty-free nonexclusive irrevocable license to,
upon the occurrence and during the continuance of an Event of Default, use, apply, and affix any
trademark, trade name, logo, or the like in which the Borrower now or hereafter has rights, such
license being with respect to the Lender’s exercise of the rights hereunder including, without
limitation, in connection with any completion of the manufacture of Inventory or sale or other
disposition of Inventory.

     11.6. Assembly of Collateral.

     In connection with the Lender’s exercise of the Lender’s rights under this Article 11 upon the
occurrence and during the continuance of an Event of Default, the Lender may require the Borrower
to assemble the Collateral and make it available to the Lender at the Borrower’s sole risk and
expense at a place or places which are reasonably convenient to both the Lender and the Borrower.

     11.7. Rights and Remedies.

     The rights, remedies, powers, privileges, and discretions of the Lender hereunder (herein, the
“Lender’s Rights and Remedies”) shall be cumulative and not exclusive of any rights or remedies
which it would otherwise have. No delay or omission by the Lender in exercising or enforcing any
of the Lender’s

52

 

Rights and Remedies shall operate as, or constitute, a waiver thereof. No waiver
by the Lender of any Event of Default or of any default under any other agreement shall operate as
a waiver of any other default hereunder or under any other agreement. No single or partial
exercise of any of the Lender’s Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Lender and any person, at any time, shall
preclude the other or further exercise of the Lender’s Rights and Remedies. No waiver by the
Lender of any of the Lender’s Rights and Remedies on any one occasion shall be deemed a waiver on
any subsequent occasion, nor shall it be deemed a continuing waiver. The Lender’s Rights and
Remedies may be exercised at such time or times and in such order of preference as the Lender may
determine. The Lender’s Rights and Remedies may be exercised without resort or regard to any other
source of satisfaction of the Liabilities.

Article 12 — Notices:

     12.1. Notice Addresses.

     All notices, demands, and other communications made in respect of any Loan Document (other
than a request for a loan or advance or other financial accommodation under the Revolving Credit)
shall be made to the following addresses, each of which may be changed upon Seven (7) days written
notice to all others given by certified mail, return receipt requested:

	 	 	 	 	 	 	 
	 	 	If to the Lender:
	 
	 	 	 	 	 	 
	 	 	Wells Fargo Retail Finance, LLC

One Boston Place — 18th Floor

Boston, Massachusetts 02108
	 

	 	Attention
	 	:
	 	David Molinario
	 

	 	 	 	 	 	Vice President
	 

	 	Fax
	 	:
	 	617-523-4032
	 
	 	 	 	 	 	 
	 	 	With a copy to:
	 
	 	 	 	 	 	 
	 	 	Riemer & Braunstein LLP

Three Center Plaza

Boston, Massachusetts 02108
	 

	 	Attention
	 	:
	 	Kevin J. Simard, Esquire
	 

	 	Fax
	 	:
	 	617-880-3456
	 
	 	 	 	 	 	 
	 	 	If to the Borrower:
	 
	 	 	 	 	 	 
	 	 	RedEnvelope, Inc.

149 Montgomery Street

San Francisco, California 94105
	 

	 	Attention
	 	 	 	Polly E. Boe
	 

	 	 	 	 	 	Chief Financial Officer
	 

	 	Fax
	 	:
	 	415 371 1134
	 
	 	 	 	 	 	 
	 	 	With a copy to:
	 
	 	 	 	 	 	 
	 	 	Heller Erhman LLP

333 South Hope Street

39th Floor

Los Angeles, CA 90071
	 

	 	Attention
	 	:
	 	Steven O. Weise, Esquire
	 

	 	Fax
	 	:
	 	213-614-1868

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     12.2. Notice Given.

          (a) Except as otherwise specifically provided herein, notices shall be deemed made and
correspondence received, as follows (all times being local to the place of delivery or receipt):

          (i) By mail: the sooner of when actually received or Three (3) days
following deposit in the United States mail, postage prepaid.

          (ii) By recognized overnight express delivery: the Business Day following
the day when sent.

          (iii) By Hand: If delivered on a Business Day after 9:00 AM and no later
than Three (3) hours prior to the close of customary business hours of the recipient, when
delivered. Otherwise, at the opening of the then next Business Day.

          (iv) By Facsimile transmission (which must include a header on which the
party sending such transmission is indicated): If sent on a Business Day after 9:00 AM and
no later than Three (3) hours prior to the close of customary business hours of the
recipient, one (1) hour after being sent. Otherwise, at the opening of the then next
Business Day.

          (b) Rejection or refusal to accept delivery and inability to deliver because of a changed
address or Facsimile Number for which no due notice was given shall each be deemed receipt of the
notice sent.

     12.3. Wire Instructions. Notice Given.

     Subject to change in the same manner that a notice address may be changed (as to which, see
Section 12.1), wire transfers to the Lender shall be made in accordance with the following
wire instructions:

Wells Fargo Bank

San Francisco, CA

ABA # 121-000-248

Wells Fargo Retail Finance, LLC

Account Number 4945088607

Ref: RedEnvelope, Inc.

Article 13 —  Term:

     13.1. Termination of Revolving Credit.

     The Revolving Credit shall remain in effect (subject to suspension as provided in Section
2.7) until the Termination Date.

     13.2. Actions On Termination.

          (a) On the Termination Date, the Borrower shall pay the Lender (whether or not then due), in
immediately available funds, all then Liabilities including, without limitation: the following:

          (i) The entire balance of the Loan Account (including the unpaid principal
balance of the Revolving Credit Loans).

          (ii) Any payments due on account of the indemnification obligations included
in Section 2.11(e).

54

 

          (iii) Any accrued and unpaid Unused Line Fee.

          (iv) Any applicable Revolving Credit Early Termination Fee.

          (v) All unreimbursed costs and expenses of the Lender for which the Borrower
is responsible.

          (vi) (vi) All other Liabilities, other than Bank Products, Bank Product
Obligations and L/C’s, to the extent the Borrower complies with Sections 13.2 (b) and (c).

          (b) On the Termination Date, the Borrower shall also shall make such arrangements concerning
any L/C’s and any Bank Products and Bank Product Obligations then outstanding as are reasonably
satisfactory to the Lender.

          (c) Until such payment (Section 13.2(a)) and arrangements concerning L/C’s, Bank
Products, and Bank Product Obligations (Section 13.2(b)), all provisions of this Agreement,
other than those included in Article 2 which place any obligation on the Lender to make any loans
or advances or to provide any financial accommodations to the Borrower shall remain in full force
and effect until all Liabilities shall have been paid in full.

          (d) On the Termination Date, the Borrower shall make such arrangements with respect to any
other continuing Liabilities (such as the Borrower’s continuing Liability to reimburse the Lender
as set forth in Section 14.10 and continuing indemnification Liability set forth in
Section 14.14) as are reasonably satisfactory to the Lender, such as by the establishment
and funding of cash collateral reserve accounts in such amounts as the Lender, in its sole and
exclusive discretion, may determine. The release by the Lender of the Collateral Interests granted
to the Lender by the Borrower hereunder may be upon such other terms, conditions, and
indemnifications as the Lender may require.

Article 14 —  General:

     14.1. Protection of Collateral.

     The Lender has no duty as to the collection or protection of the Collateral beyond the safe
custody of such of the Collateral as may come into the possession of the Lender.

     14.2. Confidentiality.

     The Lender agrees to use commercially reasonable efforts to treat in a confidential manner any
non-public information regarding Borrower, its operations, assets, and existing and contemplated
business plans which is provided by Borrower to Lender pursuant to this Agreement, and not to
disclose such non-public information to Persons who are not parties to this Agreement except with
the prior consent of the Borrower (which consent shall not be unreasonably withheld or delayed),
and except that such restrictions shall not apply to information:

          (a) provided by Lender to attorneys and other advisors, accountants, auditors, and consultants
who need such information in connection with their work,

          (b) provided by Lender to subsidiaries and Affiliates of the Lender, provided that any such
subsidiary or Affiliate shall have agreed to receive such information hereunder subject to the
terms of this Section 14.2,

          (c) as may be required by statute, decision, or judicial or administrative order, rule, or
regulation,

55

 

          (d) as may be requested or required by any Governmental Authority pursuant to any subpoena or
other legal process (in which case the Lender shall, if permitted by law) provide notice to the
Borrower and an opportunity to seek a protective order, in each case to the extent commercially
reasonable to do so),

          (e) that is or becomes generally available to the public (other than as a result of prohibited
disclosure by the Lender),

          (f) as was available to Lender on a non-confidential basis prior to its disclosure by Lender,
has becomes available to Lender on a non-confidential basis from a Person who, to the best
knowledge of Lender, is not otherwise bound by a confidentiality agreement with Borrower or is not
otherwise prohibited from transmitting the information to Lender;

          (g) in connection with any assignment, prospective assignment, sale, prospective sale,
participation or prospective participations, or pledge or prospective pledge of any of the Lender’s
interest under this Agreement, provided that any such assignee, prospective assignee, purchaser,
prospective purchaser, participant, prospective participant, pledgee, or prospective pledgee shall
have agreed in writing to receive such information hereunder subject to the terms of this
Section 14.2,

          (h) in connection with requests from Borrower’s vendors for credit reference with respect to
Borrower; and

          (i) in connection with any litigation or other adversary proceeding involving parties hereto
which such litigation or adversary proceeding involves claims related to the rights or duties of
such parties under this Agreement or the other Loan Documents.

     Unless sooner terminated by agreement of the parties, the agreements contained in this
Section 14.2 shall terminate, but Three (3) years after the termination of this Agreement,
and an indefinite period of time with respect to customer lists, unless and to the extent that
disclosure is required by law, rule, or regulation, or pursuant to any administrative or court
order), provided that any such termination shall not relieve the parties of their obligations under
this Section 14.2 with respect to confidential information disclosed prior to the
termination hereof.

     14.3. Publicity.

     The Lender may issue a “tombstone” notice of the establishment of the credit facility
contemplated by this Agreement and may make reference to the Borrower (and may utilize any logo or
other distinctive symbol associated with the Borrower) in connection with any advertising,
promotion, or marketing (including reference in any “case study” of the creditor facility
contemplated hereby) undertaken by the Lender. Lender acknowledges that Borrower will be required
to disclose the existence and terms of this Agreement, and make other disclosures required,
pursuant to the requirements of the Securities Exchange Act of 1934.

     14.4. Successors and Assigns.

     This Agreement shall be binding upon the Borrower and its representatives, successors, and
assigns and shall inure to the benefit of the Lender and their respective successors and assigns,
provided, however, no trustee or other fiduciary appointed with respect to the Borrower shall have
any rights hereunder. In the event that the Lender assigns or transfers its rights under this
Agreement, the assignee shall thereupon succeed to and become vested with all rights, powers,
privileges, and duties of such assignor hereunder and such assignor shall thereupon be discharged
and relieved from its duties and obligations hereunder.

     14.5. Severability.

56

 

     Any determination that any provision of this Agreement or any application thereof is invalid,
illegal, or unenforceable in any respect in any instance shall not affect the validity, legality,
or enforceability of such provision in any other instance, or the validity, legality, or
enforceability of any other provision of this Agreement.

     14.6. Amendments. Course of Dealing.

          (a) This Agreement and the other Loan Documents incorporate all discussions and negotiations
between the Borrower and the Lender, either express or implied, concerning the matters included
herein and in such other instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of dealings shall
limit, modify, or otherwise affect the provisions thereof. No failure by the Lender to give notice
to the Borrower of the Borrower’s having failed to observe and comply with any warranty or covenant
included in any Loan Document shall constitute a waiver of such warranty or covenant or the
amendment of the subject Loan Document. No change made by the Lender
to the manner by which the Borrowing Base is determined shall obligate the Lender to continue
to determine the Borrowing Base in that manner.

          (b) The Borrower may undertake any action otherwise prohibited hereby, and may omit to take
any action otherwise required hereby, upon and with the express prior written consent of the
Lender. No consent, modification, amendment, or waiver of any provision of any Loan Document shall
be effective unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender then by a duly authorized
officer thereof). Any modification, amendment, or waiver provided by the Lender shall be in
reliance upon all representations and warranties theretofore made to the Lender by or on behalf of
the Borrower (and any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not true and complete in
all material respects when given.

     14.7. Power of Attorney.

     In connection with all powers of attorney included in this Agreement, the Borrower hereby
grants unto the Lender (acting through any of its officers) full power to do any and all things
necessary or appropriate in connection with the exercise of such powers as fully and effectually as
the Borrower might or could do, hereby ratifying all that said attorney shall do or cause to be
done by virtue of this Agreement. No power of attorney set forth in this Agreement shall be
affected by any disability or incapacity suffered by the Borrower and each shall survive the same.
All powers conferred upon the Lender by this Agreement, being coupled with an interest, shall be
irrevocable until this Agreement is terminated by a written instrument executed by a duly
authorized officer of the Lender.

     14.8. Application of Proceeds.

     The proceeds of any collection, sale, or disposition of the Collateral, or of any other
payments received hereunder, shall be applied towards the Liabilities in such order and manner as
the Lender determines in its sole discretion. The Borrower shall remain liable for any deficiency
remaining following such application.

     14.9. Increased Costs.

     If, as a result of any Requirement of Law, or of the interpretation or application thereof by
any court or by any governmental or other authority or entity charged with the administration
thereof, whether or not having the force of law, which:

          (a) subjects the Lender to any taxes or changes the basis of taxation, or increases any
existing taxes, on payments of principal, interest or other amounts payable by the Borrower to the
Lender

57

 

under this Agreement (except for taxes on the Lender based on net income or capital imposed
by the jurisdiction in which the principal or lending offices of the Lender is located);

          (b) imposes, modifies or deems applicable any reserve, cash margin, special deposit or similar
requirements against assets held by, or deposits in or for the account of or loans by or any other
acquisition of funds by the relevant funding office of the Lender;

          (c) imposes on the Lender any other condition with respect to any Loan Document; or

          (d) imposes on the Lender a requirement to maintain or allocate capital in relation to the
Liabilities;

     and the result of any of the foregoing, in the Lender’s reasonable opinion, is to increase the
cost to the Lender of making or maintaining any loan, advance or financial accommodation or to
reduce the income receivable by the Lender in respect of any loan, advance or financial
accommodation by an amount which the Lender deems to be material, then upon written notice from the
Lender, from time to time, to the Borrower
(such notice to set out in reasonable detail the facts giving rise to and a summary
calculation of such increased cost or reduced income), the Borrower shall forthwith pay to the
Lender, upon receipt of such notice, that amount which shall compensate the Lender for such
additional cost or reduction in income.

     14.10. Costs and Expenses of the Lender.

          (a) The Borrower shall pay from time to time on demand all Costs of Collection and all
reasonable costs, expenses, and disbursements (including attorneys’ reasonable fees and expenses)
which are incurred by the Lender in connection with the preparation, negotiation, execution, and
delivery of this Agreement and of any other Loan Documents, and all other reasonable costs,
expenses, and disbursements which may be incurred in connection with or in respect to the credit
facility contemplated hereby or which otherwise are incurred with respect to the Liabilities,
subject to any limits stated in this Agreement.

          (b) The Borrower shall pay from time to time on demand all reasonable costs and expenses
(including attorneys’ reasonable fees and expenses) incurred, following the occurrence of any Event
of Default, by the Lender.

          (c) The Borrower authorizes the Lender to pay all such fees and expenses and in the Lender’s
discretion, to add such fees and expenses to the Loan Account.

          (d) The undertaking on the part of the Borrower in this Section 14.10 shall survive payment of
the Liabilities and/or any termination, release, or discharge executed by the Lender in favor of
the Borrower, other than a termination, release, or discharge which makes specific reference to
this Section 14.10.

     14.11. Copies and Facsimiles.

     Each Loan Document and all documents and papers which relates thereto which have been or may
be hereinafter furnished to the Lender may be reproduced by the Lender by any photographic,
microfilm, xerographic, digital imaging, or other process, and such Person making such
reproduction may destroy any document so reproduced. Any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made in the regular course of
business). Any facsimile which bears proof of transmission shall be binding on the party which or
on whose behalf such transmission was initiated and likewise shall be so admissible in evidence as
if the original of such facsimile had been delivered to the party which or on whose behalf such
transmission was received.

     14.12. Massachusetts Law.

58

 

     This Agreement and all rights and obligations hereunder, including matters of construction,
validity, and performance, shall be governed by the law of The Commonwealth of Massachusetts.

     14.13. Consent to Jurisdiction.

          (a) The Borrower agrees that any legal action, proceeding, case, or controversy against the
Borrower with respect to any Loan Document may be brought in the Superior Court of Suffolk County
Massachusetts or in the United States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender’s sole discretion. By execution and delivery
of this Agreement, the Borrower, for itself and in respect of its property, accepts, submits, and
consents generally and unconditionally, to the jurisdiction of the aforesaid courts.

          (b) The Borrower WAIVES personal service of any and all process upon it, and irrevocably
consents to the service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by certified mail, postage prepaid, to the Borrower at
the Borrower’s address for notices as specified herein, such service to become effective five (5)
Business Days after such mailing.

          (c) The Borrower WAIVES any objection based on forum non conveniens and any objection to venue
of any action or proceeding instituted under any of the Loan Documents and consents to the granting
of such legal or equitable remedy as is deemed appropriate by the Court.

          (d) Nothing herein shall affect the right of the Lender to bring legal actions or proceedings
in any other competent jurisdiction.

          (e) The Borrower agrees that any action commenced by the Borrower asserting any claim arising
under or in connection with this Agreement or any other Loan Document shall be brought solely in
the Superior Court of Suffolk County Massachusetts or in the United States District Court, District
of Massachusetts, sitting in Boston, Massachusetts, and that such Courts shall have exclusive
jurisdiction with respect to any such action.

     14.14. Indemnification.

     The Borrower shall indemnify, defend, and hold the Lender and any of its respective employees,
officers, or agents (each, an “Indemnified Person”) harmless of and from any claim brought or
threatened against any Indemnified Person by the Borrower, any guarantor or endorser of the
Liabilities, or any other Person (as well as from attorneys’ reasonable fees, expenses, and
disbursements in connection therewith) on account of the relationship of the Borrower or of any
other guarantor or endorser of the Liabilities, including all costs, expenses, liabilities, and
damages as may be suffered by any Indemnified Person in connection with (x) the Collateral; (y) the
occurrence of any Event of Default; or (z) the exercise of any rights or remedies under any of the
Loan Documents (each of claims which may be defended, compromised, settled, or pursued by the
Indemnified Person with counsel of the Lender’s selection, but at the expense of the Borrower)
other than any claim as to which a final determination is made in a judicial proceeding (in which
the Lender and any other Indemnified Person has had an opportunity to be heard), which
determination includes a specific finding that the Indemnified Person seeking indemnification had
acted in a grossly negligent manner or in actual bad faith. This indemnification shall survive
payment of the Liabilities and/or any termination, release, or discharge executed by the Lender in
favor of the Borrower, other than a termination, release, or discharge duly executed on behalf of
the Lender which makes specific reference to this Section 14.14.

     14.15. Rules of Construction.

     The following rules of construction shall be applied in the interpretation, construction, and
enforcement of this Agreement and of the other Loan Documents:

59

 

          (a) Unless otherwise specifically provided for herein (and then only to the extent so
provided), interest and any fee or charge which is stated as a per annum percentage shall be
calculated based on a 360 day year and actual days elapsed.

          (b) Words in the singular include the plural and words in the plural include the singular.

          (c) Unless otherwise specifically provided for herein or in a specific Loan Document (and then
only to the extent so provided), as between the parties hereto or to any Loan Document, the
definitions of the following terms, as included in the UCC, are deemed to be as follows for
purposes of the performance of obligations arising under or in respect of any Loan Document:

          (i) “Authenticate” means “signed”.

          (ii) “Record” means written information in a tangible form.

          (d) Cross references to Sections in this Agreement begin with the Article in which that
Section appears, and then the Section to which reference is made.

          (e) Titles, headings (indicated by being underlined or shown in Small Capitals) and any Table
of Contents are solely for convenience of reference; do not constitute a part of the instrument in
which included; and do not affect such instrument’s meaning, construction, or effect.

          (f) The words “includes” and “including” are not limiting.

          (g) Text which follows the words “including, without limitation” (or similar words) is
illustrative and not limitational.

          (h) Text which is shown in italics (except for parenthesized italicized text), shown in bold,
shown IN ALL CAPITAL LETTERS, or in any combination of the foregoing, shall be deemed to be
conspicuous.

          (i) The words “may not” are prohibitive and not permissive.

          (j) Any reference to a Person’s “knowledge” (or words of similar import) are to such Person’s
actual knowledge assuming that such Person has undertaken reasonable investigation with respect to
the subject of such “knowledge” (whether or not such investigation has actually been undertaken).

          (k) Terms which are defined in one section of any Loan Document are used with such definition
throughout the instrument in which so defined.

          (l) The term “Dollars” and the symbol “$” each refers to United States Dollars.

          (m) Unless limited by reference to a particular Section or provision, any reference to
“herein”, “hereof”, or “within” is to the entire Loan Document in which such reference is made.

          (n) References to “this Agreement” or to any other Loan Document is to the subject instrument
as amended to the date on which application of such reference is being made.

          (o) Except as otherwise specifically provided, all references to time are to Boston time.

          (p) In the determination of any notice, grace, or other period of time prescribed or allowed
hereunder:

60

 

          (i) Unless otherwise provided (I) the day of the act, event, or default from
which the designated period of time begins to run shall not be included and the last day of
the period so computed shall be included unless such last day is not a Business Day, in
which event the last day of the relevant period shall be the then next Business Day and
(II) the period so computed shall end at 5:00 PM on the relevant Business Day.

          (ii) The word “from” means “from and including”.

          (iii) The words “to” and “until” each mean “to, but excluding”.

          (iv) The word “through” means “to and including”.

          (q) The Loan Documents shall be construed and interpreted in a harmonious manner and in
keeping with the intentions set forth in Section 14.16, provided, however, in the event of any
inconsistency between the provisions of this Agreement and any other Loan Document, the provisions
of this Agreement shall govern and control.

     14.16. Intent.

     It is intended that:

          (a) This Agreement take effect as a sealed instrument.

          (b) The scope of all Collateral Interests created by the Borrower to secure the Liabilities be
broadly construed in favor of the Lender and that they cover all assets of the Borrower.

          (c) All Collateral Interests created in favor of the Lender at any time and from time to time
secure all Liabilities, whether now existing or contemplated or hereafter arising.

          (d) All reasonable costs, expenses, and disbursements incurred by the Lender and, to the
extent provided in Section 14.10 the Lender, in connection with such Person’s relationship(s) with
the Borrower shall be borne by the Borrower, except as otherwise provided in this Agreement.

          (e) Unless otherwise explicitly provided herein, the Lender’s consent to any action of the
Borrower which is prohibited unless such consent is given may be given or refused by the Lender in
its sole discretion and without reference to Section 2.16(a).

          (f) The statement in any section hereof that (i) an Event of Default has occurred unless and
until cured, or (ii) a provision of this Agreement shall apply only “during the continuance of an
Event of Default,” (or words of similar import) shall not imply any right or ability of the
Borrower to cure any such Event of Default, or any obligation of the Lender to waive any Event of
Default or permit the cure of any Event of Default, with any such waiver granted, or cure permitted
in the Lender’s sole discretion, and without regard to Section 2.16(a). No such waiver or cure, if
granted or permitted, shall take effect, unless and until provided for in writing executed by duly
authorized officers of the Borrower and the Lender.

     14.17. Right of Set-Off.

     Any and all deposits or other sums at any time credited by or due to the Borrower from the
Lender or from any Affiliate of any of the Lender, and any cash, securities, instruments or other
property of the Borrower in the possession of any of the foregoing, whether for safekeeping or
otherwise (regardless of the reason such Person had received the same) shall at all times
constitute security for all Liabilities and for any and all obligations of the Borrower to the
Lender or such Affiliate and may be applied or set off against the Liabilities

61

 

and against such
obligations at any time, whether or not such are then due and whether or not other collateral is
then available to the Lender.

     14.18. Pledges To Federal Reserve Banks.

     Nothing included in this Agreement shall prevent or limit the Lender, to the extent that the
Lender is subject to any of the twelve Federal Reserve Banks organized under §4 of the Federal
Reserve Act (12 U.S.C. §341) from pledging all or any portion of that Lender’s interest and rights
under this Agreement, provided, however, neither such pledge nor the enforcement thereof shall
release the Lender from any of its obligations hereunder or under any of the Loan Documents.

     14.19. Patriot Act Compliance.

     The Lender hereby notifies the Borrower that, pursuant to the requirements of the “USA Patriot
Act” (Title III of Pub. Law 107-56, signed into law effective October 26, 2001), the Lender is
required to obtain, verify, and record information that identifies the Borrower, which includes the
name and address of the Borrower and other information that will allow the Lender to identify the
Borrower in accordance with the USA Patriot Act.

     14.20. Maximum Interest Rate.

     Regardless of any provision of any Loan Document, the Lender shall not be entitled to contract
for, charge, receive, collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by Applicable Law. Any payment which is made which, if treated as interest on
a Liability would result
in such interest’s exceeding such maximum rate shall be held, to the extent of such excess, as
additional collateral for the Liabilities as if such excess were “Collateral.

     14.21. Waivers.

          (a) The Borrower makes each of the waivers included in Section 14.21(b), knowingly,
voluntarily, and intentionally, and understands that Lender, in establishing the facilities
contemplated hereby and in providing loans and other financial accommodations to or for the account
of the Borrower as provided herein, whether now or in the future, is relying on such waivers.

          (b) THE BORROWER WAIVES THE FOLLOWING:

          (i) Except as otherwise specifically required hereby, notice of non-payment,
demand, presentment, protest and all forms of demand and notice, both with respect to the
Liabilities and the Collateral.

          (ii) Except as otherwise specifically required hereby or where such right
may not be waived by law, the right to notice and/or hearing prior to the Lender’s
exercising of the Lender’s rights upon default.

          (iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH
THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR
AGAINST THE LENDER OR IN WHICH THE LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR
CONTROVERSY ARISES OUT OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONG OR BETWEEN THE
BORROWER OR ANY OTHER PERSON AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY
TRIAL OF ANY SUCH CASE OR CONTROVERSY).

62

 

          (iv) The benefits or availability of any stay, limitation, hindrance, delay,
or restriction (including, without limitation, any automatic stay which otherwise might be
imposed pursuant to Section 362 of the Bankruptcy Code) with respect to any action which
the Lender may or may become entitled to take hereunder.

          (v) Any defense, counterclaim, set-off, recoupment, or other basis on which
the amount of any Liability, as stated on the books and records of the Lender, could be
reduced or claimed to be paid otherwise than in accordance with the tenor of and written
terms of such Liability.

          (vi) Any claim to consequential, special, or punitive damages.

[SIGNATURE PAGE FOLLOWS]

63

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as a sealed instrument as of the day and year first above written.

	 	 	 
	 

	 	(The “Borrower”)
	 
	 	 
	 

	 	REDENVELOPE, INC.
	 
	 	 
	 

	 	By: /s/ Polly Boe
	 
	 	 
	 

	 	Print Name: Polly Boe
	 
	 	 
	 

	 	Title: Chief Financial Officer
	 
	 	 
	 

	 	(The “Lender”)
	 
	 	 
	 

	 	WELLS FARGO RETAIL FINANCE, LLC
	 
	 	 
	 

	 	By: /s/ David Molinario
	 
	 	 
	 

	 	Print Name: David Molinario
	 
	 	 
	 

	 	Title: Vice Presidentexv10w60

 

Exhibit
10.60

COLLATERAL ASSIGNMENT OF LICENSE AGREEMENT

     THIS COLLATERAL ASSIGNMENT OF LICENSE AGREEMENT (this “Assignment”), dated as of June
26, 2006, is by and between RedEnvelope, Inc., a Delaware corporation (the “Assignor”), and
Wells Fargo Retail Finance, LLC, as Lender (as defined in the Loan Agreement defined below)
(hereinafter referred to as “Assignee”).

RECITALS

     WHEREAS, Assignor has entered into that certain License Agreement dated as of May 31, 2005 (as
heretofore or hereafter amended, supplemented, modified and/or restated from time to time, the
“Agreement”), with Rincon 365 Borrower, LLC (as successor in interest to Harrison 160, LLC)
(the “Licensor”);

     WHEREAS, by the execution of this Assignment, Assignor desires to induce Assignee to extend
certain financial accommodations to Assignor (the “Loan”) pursuant to that certain Loan and
Security Agreement dated of even date herewith, by and between Assignee, as Borrower, and Assignor,
as Lender (as hereafter amended, supplemented, modified and/or restated from time to time, the
“Loan Agreement”); and

     WHEREAS, Assignee is unwilling to execute, deliver or perform under the Loan Agreement or
other Loan Documents (as defined in the Loan Agreement) unless the Assignor collaterally assigns
its rights under the Agreement to Assignee to secure the Loan and all Liabilities (as such term is
defined in the Loan Agreement).

     NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:

AGREEMENT

     1. As collateral security for all debts, liabilities, or obligations of Assignor now existing
or hereafter arising under the Loan Documents, including, without limitation, the Liabilities,
Assignor hereby assigns, transfers and sets over to Assignee all of its rights, but not its
obligations, under the Agreement. Assignor hereby grants to Assignee a continuing security
interest in and to all of its rights in, under, and pursuant to the Agreement.

     2. Assignee shall have no obligation or duty to perform any of the obligations of the Assignor
under the Agreement, all of which shall remain the sole and exclusive duty and obligation of the
Assignor; provided that if Assignee shall at any time pursuant to Section 3 or 4 hereto
exercise any right of Assignor under the Agreement to receive services provided by the Licensor
pursuant to the Basic License Terms attached to the Agreement, then Assignee shall be obligated to
pay Licensor the amounts set forth in the Basic License Terms (or such other amounts as may be
agreed by and between Assignee and Licensor) from and after the date of, and during the continuance
of, such exercise by Assignee.

 

 

     3. The rights assigned hereunder include, and are not limited to, any and all rights of
enforcement regarding warranties, representations, covenants and indemnities made by Licensor under
the Agreement, and all rights, claims or causes of action against Licensor for any breach or
violation by Licensor of the provisions of the Agreement; provided, however, that
so long as there exists no Event of Default (as defined in the Loan Agreement), Assignor may
enforce all of the rights, claims or causes of action which Assignor may have under the Agreement,
but only to the extent such enforcement is not inconsistent with Assignee’s interest under this
Assignment or the Loan Agreement, and provided that any proceeds received by Assignor from such
enforcement are applied to the Liabilities.

     4. Upon the occurrence and during the continuance of an Event of Default (as defined in the
Loan Agreement), Assignee may enforce, at the cost and expense of Assignor, either in its own name
or in the name of Assignor, all rights of Assignor under the Agreement, including, without
limitation, to (i) bring suit to enforce any rights under the Agreement, (ii) compromise or settle
any disputed claims as to rights under the Agreement, (iii) give releases or acquittances of rights
under the Agreement, and/or (iv) do any and all things necessary, convenient, desirable or proper
to fully and completely effectuate the collateral assignment of the rights under the Agreement
pursuant hereto.

     5. Assignor hereby constitutes and appoints the Assignee or the Assignee’s designee as
Assignor’s attorney-in-fact with full power in Assignor’s name, place and stead to, upon the
occurrence and during the continuance of an Event of Default, do or accomplish any of the
aforementioned undertakings and to execute such documents or instruments in the name or stead of
Assignor as may be necessary, convenient, desirable or proper in the Assignee’s sole and exclusive
discretion. The aforementioned power of attorney shall be a power of attorney coupled with an
interest and irrevocable. In the event any action is brought by the Assignee to enforce any rights
under the Agreement, Assignor agrees to fully cooperate with and assist the Assignee in the
prosecution thereof.

     6. Licensor is hereby authorized to recognize Assignee’s claims and rights hereunder without
investigating any reason for any action taken by Assignee or the validity or the amount of the
obligations under the Loan Agreement and Loan Documents or existence of any default thereunder.

     7. This Agreement and all rights and obligations hereunder, including matters of construction,
validity, and performance, shall be governed by the law of The Commonwealth of Massachusetts.

     8. This Assignment may be executed by facsimile in one or more counterparts, each of which
shall be deemed to be an original, but all of which taken together shall constitute one and the
same instrument.

     9. This Assignment shall be binding upon Assignor and Assignor’s successors and assigns and
shall benefit the Assignee and the Assignee’s successors and assigns, provided that (a) Assignor
may not assign or transfer its rights or obligations under this Assignment or any interest herein
or delegate its duties hereunder, and (b) Assignee shall have the right to assign its

2

 

rights hereunder and under the Agreement under the conditions provided in the Loan Agreement
with respect to Loan Documents.

     10. This Assignment may only be amended by a writing executed by Assignor and Assignee.

     11. This Assignment constitutes the final and entire agreement with respect to the collateral
assignment of rights under the Agreement from the Assignor to the Assignee and any term, covenant
or provision not set forth herein shall not be considered a part of this Assignment.

[signatures appear on following page]

3

 

     IN WITNESS WHEREOF, each of the parties has duly executed this Assignment as of the date first
written above.

	 	 	 	 	 	 	 
	 	 	Assignor:	 	 
	 
	 	 	 	 	 	 
	 	 	RedEnvelope, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Polly Boe	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:   Polly Boe	 	 
	 

	 	 	 	Title:     Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 	 	Assignee:	 	 
	 
	 	 	 	 	 	 
	 	 	Wells Fargo Retail Finance, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David Molinario	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:   David Molinario	 	 
	 

	 	 	 	Title:     Vice President

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