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  TABLE OF CONTENTS

EXHIBIT 10.12  

 

LOAN AND SECURITY AGREEMENT    
    
    WELLS FARGO RETAIL FINANCE, LLC    
    
    The Lender    
    
    GOLF GALAXY, INC.    
    
    The Borrower    
    

October 20,
2004 

 

 

TABLE OF CONTENTS    

   

	
Article 1 Definitions:
	
Article 2 The Revolving Credit:
	 	
 2.1.	
 	

Establishment of Revolving Credit.
	 	
 2.2.	
 	

Increase in Revolving Credit Ceiling.
	 	
 2.3.	
 	

Advances in Excess of Borrowing Base (OverLoans)
	 	
 2.4.	
 	

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

Revolving Credit Loan Requests.
	 	
 2.6.	
 	

Suspension of Revolving Credit.
	 	
 2.7.	
 	

Making of Revolving Credit Loans.
	 	
 2.8.	
 	

The Loan Account.
	 	
 2.9.	
 	

The Revolving Credit Note.
	 	
 2.10.	
 	

Payment of The Loan Account.
	 	
 2.11.	
 	

Interest on Revolving Credit Loans.
	 	
 2.12.	
 	

Administrative Fee.
	 	
 2.13.	
 	

Unused Line Fee.
	 	
 2.14.	
 	

Early Termination Fee.
	 	
 2.15.	
 	

Procedures For Issuance of L/C's.
	 	
 2.16.	
 	

Fees For L/C's.
	 	
 2.17.	
 	

Concerning L/C's.
	 	
 2.18.	
 	

Changed Circumstances.
	
Article 3 Conditions Precedent:
	 	
 3.1.	
 	

Corporate Due Diligence.
	 	
 3.2.	
 	

Opinion.
	 	
 3.3.	
 	

Additional Documents.
	 	
 3.4.	
 	

Officers' Certificate.
	 	
 3.5.	
 	

Representations and Warranties.
	 	
 3.6.	
 	

All Fees and Expenses Paid.
	 	
 3.7.	
 	

Borrower Not In Default.
	 	
 3.8.	
 	

No Adverse Change.
	 	
 3.9.	
 	

Benefit of Conditions Precedent.
	
Article 4 General Representations, Covenants and Warranties:
	 	
 4.1.	
 	

Payment and Performance of Liabilities.
	 	
 4.2.	
 	

Due Organization. Authorization. No Conflicts.
	 	 	 

i

 

	 	
  4.3.	
 	

Trade Names.
	 	
 4.4.	
 	

Infrastructure.
	 	
 4.5.	
 	

Locations.
	 	
 4.6.	
 	

Encumbrances.
	 	
 4.7.	
 	

Indebtedness.
	 	
 4.8.	
 	

Insurance.
	 	
 4.9.	
 	

Licenses.
	 	
 4.10.	
 	

Leases.
	 	
 4.11.	
 	

Requirements of Law.
	 	
 4.12.	
 	

Labor Relations.
	 	
 4.13.	
 	

Maintain Properties.
	 	
 4.14.	
 	

Taxes.
	 	
 4.15.	
 	

No Margin Stock.
	 	
 4.16.	
 	

Erisa.
	 	
 4.17.	
 	

Hazardous Materials.
	 	
 4.18.	
 	

Litigation.
	 	
 4.19.	
 	

Dividends. Investments. Corporate Action.
	 	
 4.20.	
 	

Loans.
	 	
 4.21.	
 	

Protection of Assets.
	 	
 4.22.	
 	

Line of Business.
	 	
 4.23.	
 	

Affiliate Transactions.
	 	
 4.24.	
 	

Further Assurances.
	 	
 4.25.	
 	

Adequacy of Disclosure.
	 	
 4.26.	
 	

No Restrictions on Liabilities.
	 	
 4.27.	
 	

Other Covenants.
	
Article 5 Financial Reporting and Performance Covenants:
	 	
 5.1.	
 	

Maintain Records.
	 	
 5.2.	
 	

Access to Records.
	 	
 5.3.	
 	

Immediate Notice to Lender.
	 	
 5.4.	
 	

Borrowing Base Certificate.
	 	
 5.5.	
 	

Monthly Reports.
	 	
 5.6.	
 	

Annual Reports.
	 	
 5.7.	
 	

Officers' Certificate.
	 	
 5.8.	
 	

Inventories, Appraisals, and Audits.
	 	
 5.9.	
 	

Additional Financial Information.
	 	
 5.10.	
 	

Financial Performance Covenants
	 	 	 

ii

 

	
Article 6 Use of Collateral:
	 	
 6.1.	
 	

Use of Inventory Collateral.
	 	
 6.2.	
 	

Inventory Quality.
	 	
 6.3.	
 	

Adjustments and Allowances.
	 	
 6.4.	
 	

Validity of Accounts.
	 	
 6.5.	
 	

Notification to Account Debtors.
	
Article 7 Cash Management. Payment of Liabilities:
	 	
 7.1.	
 	

The Blocked and Operating Accounts.
	 	
 7.2.	
 	

Proceeds and Collections.
	 	
 7.3.	
 	

Payment of Liabilities.
	 	
 7.4.	
 	

The Operating Account.
	
Article 8 Grant of Security Interest:
	 	
 8.1.	
 	

Grant of Security Interest.
	 	
 8.2.	
 	

Extent and Duration of Security Interest.
	
Article 9 Lender As Borrower's Attorney-In-Fact:
	 	
 9.1.	
 	

Appointment as Attorney-In-Fact.
	 	
 9.2.	
 	

No Obligation to Act.
	
Article 10 Events of Default:
	 	
 10.1.	
 	

Failure to Pay the Revolving Credit.
	 	
 10.2.	
 	

Failure To Make Other Payments.
	 	
 10.3.	
 	

Failure to Perform Covenant or Liability (No Grace Period).
	 	
 10.4.	
 	

Failure to Perform Covenant or Liability (Grace Period).
	 	
 10.5.	
 	

Misrepresentation.
	 	
 10.6.	
 	

Acceleration of Other Debt. Breach of Lease.
	 	
 10.7.	
 	

Default Under Other Agreements.
	 	
 10.8.	
 	

Uninsured Casualty Loss.
	 	
 10.9.	
 	

Attachment. Judgment. Restraint of Business.
	 	
 10.10.	
 	

Business Failure.
	 	
 10.11.	
 	

Bankruptcy.
	 	
 10.12.	
 	

Indictment—Forfeiture.
	 	
 10.13.	
 	

Challenge to Loan Documents.
	 	
 10.14.	
 	

Change in Control.
	
Article 11 Rights and Remedies Upon Default:
	 	
 11.1.	
 	

Acceleration.
	 	 	 

iii

 

	 	
  11.2.	
 	

Rights of Enforcement.
	 	
 11.3.	
 	

Sale of Collateral.
	 	
 11.4.	
 	

Occupation of Business Location.
	 	
 11.5.	
 	

Grant of Nonexclusive License.
	 	
 11.6.	
 	

Assembly of Collateral.
	 	
 11.7.	
 	

Rights and Remedies.
	
Article 12 Notices:
	 	
 12.1.	
 	

Notice Addresses.
	 	
 12.2.	
 	

Notice Given.
	 	
 12.3.	
 	

Wire Instructions. Notice Given.
	
Article 13 Term:
	 	
 13.1.	
 	

Termination of Revolving Credit.
	 	
 13.2.	
 	

Actions On Termination.
	
Article 14 General:
	 	
 14.1.	
 	

Protection of Collateral.
	 	
 14.2.	
 	

Publicity.
	 	
 14.3.	
 	

Successors and Assigns.
	 	
 14.4.	
 	

Severability.
	 	
 14.5.	
 	

Amendments. Course of Dealing.
	 	
 14.6.	
 	

Power of Attorney.
	 	
 14.7.	
 	

Application of Proceeds.
	 	
 14.8.	
 	

Increased Costs.
	 	
 14.9.	
 	

Costs and Expenses of the Lender.
	 	
 14.10.	
 	

Copies and Facsimiles.
	 	
 14.11.	
 	

Massachusetts Law.
	 	
 14.12.	
 	

Consent to Jurisdiction.
	 	
 14.13.	
 	

Indemnification.
	 	
 14.14.	
 	

Rules of Construction.
	 	
 14.15.	
 	

Right of Set-Off.
	 	
 14.16.	
 	

Pledges To Federal Reserve Banks:
	 	
 14.17.	
 	

Maximum Interest Rate.
	 	
 14.18.	
 	

Waivers.

iv

 

	
EXHIBITS
	

2.9	
 	

:	
 	

Revolving Credit Note	
 	

 
	

4.2	
 	

:	
 	

Affiliates	
 	

 
	

4.3	
 	

:	
 	

Trade Names	
 	

 
	

4.6	
 	

:	
 	

Permitted Encumbrances	
 	

 
	

4.7	
 	

:	
 	

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	
 	

 
	

5.12(b)	
 	

:	
 	

Business Plan	
 	

 

v

  

	LOAN AND SECURITY AGREEMENT	 	Wells Fargo Retail Finance, LLC,
	Lender	 	 

        October 20,
2004 

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—18th Floor, Boston, Massachusetts 02109; 

        and

        Golf
Galaxy, Inc. (the "Borrower"), a Minnesota corporation with its principal executive offices at 7275 Flying Cloud Drive, Eden
Prairie, Minnesota 55344 

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: 

        "Acceleration":    The making of demand or declaration that any indebtedness, not otherwise due and payable, is due and payable.
Derivations of the word "Acceleration" (such as "Accelerate") are used with like meaning in this Agreement. 

        "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
health-care-insurance receivables; 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. 

        "Administrative Fee":    Is defined in Section 2.12. 

        "Affiliate":    The following: 

        (a)   With
respect to any two Persons, a relationship in which (i) one holds, directly or indirectly, not less than Twenty Five Percent (25%) of the capital stock,
beneficial interests, partnership interests, or other equity interests of the other; or (ii) one has, directly or indirectly, the right, under ordinary circumstances, to vote for the election
of a majority of the directors (or other body or Person who has those powers customarily vested in a board of directors of a corporation); or (iii) not less than Twenty Five Percent (25%) of
their respective ownership is directly or indirectly 

1

 

held
by the same third Person. 

        (b)   Any
Person which: is a parent, brother-sister, subsidiary, or affiliate, of the Borrower; 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. 

        "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. 

        "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 discretion as being
appropriate to reflect the impediments to the Lender's ability to realize upon the Collateral. As of the Closing Date, the initial Availability Reserves implemented by the Lender shall be those set
forth on the Borrowing Base Certificate. Subsequent to the Closing Date, the Lender may, in its reasonable discretion, implement Availability Reserves to address those material matters as the Lender
reasonably may determine, in its discretion. 

        "Bank Product Agreements" means 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" means all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by the
Borrower to the Lender, Wells Fargo Bank, N. A., or any of 

2

 

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

        "Bank Product Reserves" means, 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 Products then provided or outstanding. Bank Product Reserves
shall not be established in connection with any credit card processing services provided by Wells Fargo Bank, N. A. 

        "Blocked Account":    Is defined in Section 7.1. 

        "Blocked Account Agreement":    An Agreement, in form satisfactory to the Lender, which Agreement recognizes the Lender's
Collateral Interest in the contents of the DDA which is the subject of such Agreement and agrees that such contents shall be transferred only as 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 85%, but in no event greater than $5,000,000.00. 

        Plus

        The
Cost of Eligible Inventory (net of Inventory Reserves) multiplied by the Inventory Advance Rate, not to exceed 85% 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 Minneapolis, Minnesota, 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 annexed hereto as EXHIBIT 5.12(b) and any revision, amendment, or update of
such business plan. 

        "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":    Means either (i) the occurrence and continuance of any Event of Default, or (ii) the
failure of the Borrower to maintain excess Availability of at least (x) $5,000,000.00 for Three (3) consecutive Business Days, or (y) $1,500,000.00 at any time. 

3

 

        "Change in Control":    The occurrence of any of the following: 

        (a)   The
acquisition, by any group of persons (within the meaning of the Securities Exchange Act of 1934, as amended) or by any Person, of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission) of 30% 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. 

        (b)   More
than half of the persons who were directors of the Borrower on the first day of any period consisting of Twelve (12) consecutive calendar months (the first
of which Twelve (12) month periods commencing with the first day of the month during which this Agreement was executed), cease, for any reason other than death or disability, to be directors of
the Borrower. 

        "Closing Date":    October 20, 2004. 

        "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. 

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

        (a)   is
the calculated cost of purchases, based upon the Borrower's accounting practices 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 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 average cost 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). 

        "Customer Credit Liability":    Gift certificates, 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. 

        "Eligible Credit Card Receivables":    Under Four (4) business day accounts due 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). 

        "Eligible Inventory":    All of the Borrower's saleable Inventory located at the Borrower's distribution center or held for sale
at any of the Borrower's retail stores, as shown on the Borrower's 

4

 

stock
ledger, 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).
Eligible Inventory shall not include damaged or defective goods, in-transit Inventory not backed by a letter of credit acceptable to the Lender, goods identified as return to vendor, and
other goods reasonably determined by the Lender, in the Lender's reasonable discretion, as to be ineligible for borrowing 

        "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
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, and Bank Product Obligations which are described in Section 13.2(b) have been made. 

        "Environmental Laws":    All of the following: 

        (a)   Applicable
Law which regulates or relates to, 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 therefor. 

        "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 

5

 

the
Lender. 

        "Exempt DDA":    A depository account maintained by the Borrower, the only contents of which may be transfers from the Operating
Account, in an amount up to $5,000.00 for each store location and for the Borrower's head office, and actually used solely (i) for petty cash purposes; or (ii) for payroll. 

        "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 2004" is to the fiscal month of the Borrower's fiscal year ending in 2004). 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 January 2004 reference to that year would be to the Borrower's "Fiscal 2004"). 

        "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 therefor), computer records, computer software, rights of access to computer record service bureaus, service bureau computer contracts, and computer
data; tapes, disks, semi-conductors chips and printouts; trade secrets rights, copyrights, mask work rights and interests, and derivative works and interests; user, technical reference,
and 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. 

        "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 the Borrower 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 the Borrower but which is secured by an Encumbrance on any
asset of the Borrower) whether or not evidenced by a promissory note, bond, debenture or other written obligation to pay money. 

6

 

        (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 the Borrower or reimbursement on account of which the Borrower would be obligated). 

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

        (d)   On
account of deposits or advances. 

        "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. 

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

        "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 cured within any applicable grace period. 

        "Indemnified Person":    Is defined in Section 14.13. 

        "Interest Payment Date":    With reference to: 

        Each
Libor Loan: The last day of the Interest Period relating thereto (and on the last day of month three for any such loan which has a six month Interest Period); 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, three, or six months thereafter, as the Borrower may elect by notice (pursuant to Section 2.5) 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 2.5) 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: 

7

 

          (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 2.11(e) hereof. 

        "Inventory":    Includes, without limitation, "inventory" as defined in the UCC and also all: (a) Goods which are leased
by a Person as lessor; are held by a Person for sale or lease or to be furnished under a contract of service; are furnished by a Person 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) 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":    80%. 

        "Inventory Reserves":    Such Reserves as may be established from time to time by the Lender in the Lender's 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 of the Eligible Inventory. 

        "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 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 or any Equipment. 

        "Leasehold Interest":    Any interest of a Borrower as lessee under any Lease. 

8

 

        "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 a letter of credit, 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. 

         (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 "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. 

9

 

        "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 For The Preceding Fiscal Quarter

	I	 	1.50	%	Greater than $5,000,000.00
	II	 	1.75	%	Greater than $2,500,000.00 but less than $5,000,000.00
	III	 	2.00	%	Less than or equal to $2,500,000.00

The
Margin on the Closing Date shall be established at Level I for the initial 6 months after the Closing Date 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 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 2.8. 

        "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, 

10

 

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 Accounting Change":    Any change in GAAP applicable to accounting periods subsequent to the Borrower's fiscal year
most recently completed prior to the execution of this Agreement, which change has a material effect on the Borrower's financial condition or operating results, as reflected on financial statements
and reports prepared by or for the Borrower, when compared with such condition or results as if such change had not taken place or where preparation of the Borrower's statements and reports in
compliance with such change results in the breach of a financial performance covenant imposed pursuant to Section 5.12 where such a breach would not have occurred if such change had not taken
place or visa versa. 

        "Maturity Date":    October 20, 2008. 

        "NRLV":    Means 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 Change in Control":    The occurrence of any Change in Control resulting from the consummation of an initial public
offering of equity securities by the Borrower, so long as subsequent to such initial public offering, no Person becomes the beneficial owner, directly or indirectly, in the aggregate of more than
Thirty percent (30%) of the total voting stock of Borrower. 

        "Permitted Disposition":    The sale of inventory in a bulk or liquidation method to an outside party, as necessary in the
ordinary course of business to provide the best net realizable value in the business judgment of the Borrower. Such dispositions not to exceed Two percent (2%) of average Inventory value at cost in
any Six (6)-month period. A Permitted Disposition may be used for the bulk disposition
of Inventory considered to be clearance, broken assortment, aged or seasonal merchandise and does not restrict the ability of the Borrower to conduct "sales", "special buys" or markdowns which
otherwise take place within a store location in the ordinary course of business.

        "Permitted Encumbrances":    the following: 

        Encumbrances
in favor of the Lender. 

        Those
Encumbrances (if any) listed on EXHIBIT 4.6, annexed hereto. 

        "Permitted Indebtedness":    The following: 

        Any
Indebtedness on account of the Revolving Credit. 

11

  

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

        Trade
Indebtedness incurred in the ordinary course of business. 

        "Permitted Investments":    The following, in each instance only if subject to a prior perfected security interest in favor of
the Lender to secure the Liabilities (to the extent that any Liabilities exist): 

        Indebtedness
entitled to the full faith and credit of the United States. 

        Indebtedness
which has at least the second highest rating of nationally recognized rating agency. 

        Investments
disclosed to Lender in writing existing on the date of this Agreement. 

        Certificates
of deposit or banker's acceptances issued by any commercial bank organized under the law of the United States or any State thereof which has (i) combined capital and
surplus of at least $100,000,000, and (ii) a credit rating with respect to its unsecured indebtedness from a nationally recognized rating service that is satisfactory to the Lender. 

        Other
readily marketable Investments in debt securities, certificates of deposit, commercial paper or repurchase agreements (including any such Investments issued or guaranteed by
non-United States governments or stated in non-United States currencies) which are reasonably acceptable to Lender. 

        "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 $5,000,000.00
	II	 	0.00	%	Greater than $2,500,000.00 but less than $5,000,000.00
	III	 	0.00	%	Less than or equal to $2,500,000.00

The
Margin on the Closing Date shall be established at Level I for the initial 6 months after the Closing Date and adjusted at the end of each fiscal quarter thereafter based upon the amount of
Average Excess Availability. 

12

 

        "Proceeds":    Includes, without limitation, "Proceeds" as defined in the UCC and each type of property described in
Section 8.1 hereof. 

        "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, 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 a 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":    $15,000,000.00 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 2.14. 

        "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 2.11(d)). 

        "Revolving Credit Note":    Is defined in Section 2.9. 

        "Seasonal Increase":    Means an increase of the figure "85%" contained in the
definition of Borrowing Base to 90% during the Seasonal Period, upon the written request by the Borrower to the Lender not less than Thirty (30) days prior to the commencement of the Seasonal
Period, if approved by the Lender, in the Lender's sole and exclusive discretion. 

        "Seasonal Period":    Means that period from October 1 to November 30 each year. 

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

13

 

        "Sufficient Availability":    Means the maintenance by the Borrower, at the relevant date and time, of not less than
$5,000,000.00 of Availability (calculated after giving effect to all then held checks (if any), accounts payable which are beyond customary credit terms accorded the Borrower, overdrafts, and fees,
service charges, and accrued interest). 

        "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 10.11, below; 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 10.11, below; or (d) that date, ninety (90) days irrevocable written notice of which is provided by the Borrower to the Lender. 

        "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 making such Transfer and the subject 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 2.13. 

 
 

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 2.6 or Section 5.4, below, and shall be
subject to the following: 

          (i)  Such
determination shall take into account such Reserves as the Lender may determine as being applicable thereto. 

         (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. 

        (iii)  Upon
written request from the Borrower, the Lender may, in its reasonable discretion, implement the Seasonal Increase during the Seasonal Period, so long as
(i) the Borrower is not In Default and no Event of Default has occurred, (ii) the Borrower has provided the Lender with satisfactory projections with respect to the Borrower's business
operations for the Seasonal Period, including cash flow, Revolving Credit usage, and Availability projections, and (iii) the Borrower has satisfied such other requirements as the Lender
reasonably may require in connection therewith. 

        (c)   The
proceeds of borrowings under the Revolving Credit shall be used (i) to repay, 

14

 

to
the extent necessary, the Borrower's existing credit facility with General Electric Capital Corporation, and (ii) for the Borrower's working capital and Capital Expenditures, and for general
corporate purposes. 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.    

        (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 right at any time from and after the
Closing Date through October 20, 2007, to request an increase to the Revolving Credit Ceiling to an amount not to exceed $20,000,000. 

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

          (i)  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; 

         (ii)  A
new Note will be issued at the Borrower's expense, to be in conformity with requirements of Section 2.10 hereof (with appropriate modification) to the extent
necessary to reflect the new Revolving Credit Ceiling; and 

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

        (iv)  The
Borrower shall have paid to the Lender a fee in the amount of (i) $10,000.00, if the increase to the Revolving Credit is implemented on or before
October 20, 2006, or (ii) $7,500.00 if implemented at any time thereafter. 

 
 

           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.    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 use commercially reasonably efforts 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)   No
Borrower is then In Default and none will thereby become In Default. 

 
 

           2.5.    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: 

15

 

          (i)  If
such Revolving Credit Loan is to be or is to be converted to a Prime Margin Loan: By 11:30AM 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 1:00PM Two (2) 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 $1,000,000.00 and in increments of $500,000.00 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 therefor, 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 2.15. 

        (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 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 Lender pursuant to this Agreement. 

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

        (iii)  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). 

 
 

           2.6.    Suspension of Revolving Credit.     If, at any time or from time to time, the Borrower is In
Default: 

        (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. 

16

 

 
 

          2.7.    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, absent the Lender's gross negligence or willful misconduct. 

         (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. 

 
 

           2.8.    The Loan Account.     

        (a)   An
account ("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. 

        (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 2.10(b). Any amount which is added to the principal balance of the Loan Account as provided in this
Section 2.8(e) shall bear interest at the interest rate then and thereafter 

17

 

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 Ninety (90) days from the mailing of such statement, 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. 

 
 

           2.9.    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 2.9, 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. 

 
 

           2.10.    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 2.11(a)and 2.11(b) against Libor Loans then outstanding in such manner as
results in the least cost to the Borrower, but shall not have any affirmative obligation to do so nor 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 2.10(e). 

        (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 or the Lender on account of "breakage fees" (so-called)) which the Lender or 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. 

 
 

           2.11.    Interest on Revolving Credit Loans.     

        (a)   Each
Revolving Credit Loan shall bear interest at the Prime Margin Rate applicable 

18

 

to
Revolving Credit Loans, unless timely notice is given (as provided in Section 2.5) 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 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 of any Event of Default, with such frequency as may be determined by the Lender. 

 
 

           2.12.    Administrative Fee.     In consideration of the establishment and administration of the Revolving
Credit, and to maintain sufficient funds available for such purpose, there has been
earned and the Borrower shall pay the "Administrative Fee" (so referred to herein) in the amount of $1,000.00, to be paid initially on the Closing Date
and on the first Business Day of each calendar month thereafter. 

 
 

           2.13.    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, but only with respect to any month (or relevant period) where the average utilization of the Revolving Credit during the subject month (or relevant period) has not been in excess of
$5,000,000.00. The Unused Line Fee, if applicable, shall be paid in arrears, on the first day of each relevant month after the execution of this Agreement and on the Termination Date. 

 
 

           2.14.    Early Termination Fee.     

        (a)   In
the event that the Termination Date occurs prior to the Maturity Date, for any reason other than if the Borrower refinances the Revolving Credit as an unsecured
facility with Wells Fargo Bank, N. A., the Borrower shall pay to the Lender, the "Revolving Credit Early Termination Fee" (so referred to herein) in an
amount equal to the product of (x) the Revolving Credit Ceiling, multiplied by the following percentage during the corresponding specified period: 

	Calendar Period
 
	 	Percent
	 
	From and after the Closing Date through October 20, 2006	 	1.0	%

19

 

	From and after October 21, 2006 through October 20, 2007	 	0.50	%
	 	From and after October 21, 2007	 	0.25	%

        (b)   All
parties to this Agreement agree and acknowledge 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. 

 
 

           2.15.    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 2.6 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 103% 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. 

        (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) hereof. 

 
 

           2.16.    Fees For L/C's.     

        (a)   The
Borrower shall pay to the Lender a fee, on account of L/C's, the issuance of 

20

 

which
had been procured by the Lender, monthly in arrears, and on the Termination Date and on the End Date, equal to the following percentage per annum of the weighted average Stated Amount of all
L/C's outstanding during the period in respect of which such fee is being paid based upon the corresponding amount of average excess Availability. 

	Level
	 	Standby Fee
	 	Documentary Fee
	 	Average Excess Availability

	I	 	1.50	%	1.00	%	Greater than $5,000,000.00
	II	 	1.75	%	1.25	%	Greater than $2,500,000.00 but less than $5,000,000.00
	III	 	2.00	%	1.50	%	Less than or equal to $2,500,000.00

The
Standby Fee and the Documentary Fee on the Closing Date shall be established at Level I for the initial 6 months after the Closing Date and adjusted at the end of each fiscal quarter
thereafter based upon the average amount of excess Availability. 

        (b)   In
addition to the fee to be paid as provided in Subsection 2.16(a), above, the Borrower shall pay to the Lender (or to the Issuer, if so requested by Lender), on
demand, all reasonable issuance, processing, negotiation, amendment, and administrative fees and other amounts customarily charged by the Issuer on account of, or in respect to, any L/C. 

        (c)   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 2.16(c)(i) or 2.16(c)(ii), above, 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 subject 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 subject the Lender or the subject Issuer for such increased cost. Any
the Lender's or any Issuer's determination of costs incurred under Section 2.16(c)(i) or 2.16(c)(ii)., above, 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. 

 
 

           2.17.    Concerning L/C's.     

        (a)   None
of the Issuer, the Issuer's correspondents, the Lender, 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 

21

 

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. 

 
 

          2.18.    Changed Circumstances.     

        (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 

22

 

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 or 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 2.11(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 in which the Borrower is incorporated. 

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

        (c)   Certificate
of an authorized officer of the Borrower 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,
including Randall K. Zanatta, Gregory B. Maanum, Richard C. Nordvold and Scott H. Kurtz. 

 
 

           3.2.    Opinion.     An opinion of counsel to the Borrower in form and substance satisfactory to the Lender,
in the Lender's reasonable discretion. 

 
 

          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. 

23

 

        (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 a landlord's waiver with respect to the Borrower's distribution center in Eden Prairie, Minnesota, all in
form and substance acceptable to the Lender in its sole and exclusive discretion. 

        (h)   Receipt
of necessary and appropriate intercreditor agreements and subordination agreements, each in form and substance acceptable to the in form and substance acceptable
to the Lender, in the Lender's sole and exclusive discretion, and confirming the terms and conditions of any subordinated indebtedness in a manner acceptable to the Lender, in the Lender's sole and
exclusive discretion. 

 
 

           3.4.    Officers' Certificate.     Certificate executed by the President or 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 Robins, Kaplan,
Miller & Ciresi L.L.P.) 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. 

         (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)   The
representations and warranties made by the Borrower to the Lender in the Loan Documents are true and complete as of the date of such Certificate, and that no 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. 

24

  

 
 

           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 each 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 or could have a materially adverse
effect upon the Borrower's financial condition when compared with such financial condition at September 30, 2004. 

 
 

           3.9.    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:    
    

        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. 

 
 

           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 in which it is organized, as set forth in the Preamble
to this Agreement 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 so qualify would have no more than a de minimis adverse effect on the business or a assets of the Borrower. 

        (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, without providing at least Thirty (30) days prior written notice to the Lender, 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 prior written notice of any
entity's becoming or ceasing to be an Affiliate. 

25

 

        (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. 

 
 

          4.3.    Trade Names.     

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

        (i)    All
names under which the Borrower ever conducted its business. 

        (ii)   All
Persons with whom the Borrower ever consolidated or merged, or from whom the Borrower ever acquired 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. 

 
 

          4.4.    Infrastructure.     

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

        (b)   The
Borrower owns and possesses, or has the right to use (and will hereafter own, possess, or have such right to use) all 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 infringe (nor will the Borrower conduct its business in the future so as to 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. 

26

 

 
 

           4.5.    Locations.     

        (a)   The
Collateral, and the books, records, and papers of Borrower's pertaining thereto, are kept and maintained solely at those locations which are listed on  EXHIBIT 4.5, annexed hereto, which EXHIBIT
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). 

        (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)   At
any time that the Borrower is In Default or after the occurrence and during the continuance of any Event of Default, the Borrower shall not (other than in the
ordinary course of business): 

        (i)    Execute,
alter, modify, or amend any Lease. 

        (ii)   Commit
to, or open or close any location at which the Borrower maintains, offers for sales, or stores any of the Collateral. 

        (d)   Except
as otherwise disclosed pursuant to, or permitted by, this Section 4.5, no 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)   The
Borrower does not have, and shall not have possession of any property on consignment to the Borrower and, in the event the Borrower has possession of any such
property, such property shall be (i) specifically excluded from the Borrowing Base and, (ii) segregated and readily identifiable. 

 
 

           4.7.    Indebtedness.     The Borrower does not and shall not hereafter have any Indebtedness other than any
Permitted Indebtedness. 

 
 

           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 issuer of any such policy nor the Borrower is in default or violation of any such policy. 

        (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 customary for companies similar to the Borrower and reasonably satisfactory to the Lender. 

        (c)   All
insurance carried by the Borrower shall provide for a minimum of Sixty (60) days' prior written notice of cancellation to the Lender and all such insurance
which covers the Collateral shall 

27

 

        (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. 

        (e)   The
Borrower shall furnish the Lender from time to time with certificates or other evidence 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 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. 

        (g)   The
Borrower shall maintain at all times those policies of insurance obtained by the Borrower, unless those policies are simultaneously replaced with similar policies
affording similar coverage. 

 
 

          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. No party to any such
license or agreement is in default or violation thereof. The Borrower has not received any notice or threat of cancellation of any such license or agreement. 

 
 

          4.10.    Leases.     EXHIBIT 4.10, annexed hereto, is a
schedule of all presently effective Capital Leases. (Exhibit 4.10
includes a list of all other presently effective Leases). Each of such Leases and Capital Leases is in full force and effect. No party to any such Lease or Capital Lease is in default or violation of
any such Lease or Capital Lease. The Borrower has not received any notice or threat of cancellation of any such Lease or Capital Lease. The Borrower hereby authorizes the Lender at any time and from
time to time, after providing prior written notice thereof to the Borrower, 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, to its knowledge, is in compliance with, and shall hereafter
comply with and use its assets in compliance with, all Requirements of Law except where
the failure of such compliance will not have more than a de minimis adverse effect on the Borrower's business or assets. The Borrower has not received any notice of any violation of any Requirement of
Law (other than of a violation which has no more than a de minimis adverse effect on the Borrower's business or assets), which violation has not been cured or otherwise remedied. 

 
 

           4.12.    Labor Relations.     

        (a)   The
Borrower has not been, and none is presently a party to any collective bargaining or other 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 employee grievance process. 

        (ii)   Any
proceeding against or affecting the Borrower relating to the alleged 

28

 

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 could have more than a de minimis adverse effect on the Borrower. 

        (iii)  Any
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 could provide the basis for any work stoppage or other labor dispute. 

        (d)   The
Borrower: 

        (i)    Has,
to its knowledge, 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 more than a de minimius 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: 

        (i)    The
sale of Inventory in compliance with this Agreement. 

        (ii)   Permitted
Dispositions. 

        (iii)  The
turning over to the Lender of all Receipts as provided herein. 

 
 

           4.14.    Taxes.     

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

        (i)    The
Borrower, in compliance with all Applicable Law, has properly filed all returns due to be filed up to the date of this Agreement. 

        (ii)   Except
as described on EXHIBIT 4.14: 

        (A)  Borrower
has not received from any taxing authority any pending 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. 

29

 

        (B)  No
agreement is extant which waives or extends 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)  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, to its knowledge, 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 or entity whose claim could result in an Encumbrance upon any asset of the Borrower or by any governmental
authority; 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 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 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 ever: 

        (i)    Violated
or failed to be in full compliance 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. 

        (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 reasonably 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). 

30

 

 
 

           4.17.    Hazardous Materials.     

        (a)   The
Borrower has not ever: (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)   The
Borrower shall: (i) dispose of any Hazardous Material only in compliance with all Environmental Laws and (ii) have possession of any Hazardous Material
only 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, if determined adversely to the Borrower, would have more than a de minimis adverse effect upon the Borrower's financial
condition or ability to conduct its business as such business is presently conducted or is contemplated to be conducted in the foreseeable future. 

 
 

          4.19.    Dividends. Investments. Corporate Action.     The Borrower shall not, without the Lender's prior
written consent,: 

        (i)    Pay
any cash dividend or make any other distribution in respect of any class of the Borrower's capital stock, except that: the Borrower may make distributions and pay
dividends so long as (i) the Borrower is not In Default, and (ii) the Borrower does then maintain not less than $5,000,000.00 of excess Availability, and will maintain for a period of
One hundred eighty (180) days thereafter (based upon projections satisfactory to the Lender in the Lender's reasonable discretion) not less than $5,000,000.00 of excess Availability after
effecting the proposed distribution or dividend. 

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

        (iii)  Consolidate
any of the Borrower's operations with those of any other Person other than of another Borrower 

        (iv)  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. 

        (b)   The
Borrower shall not, at any time that the Borrower is In Default or an Event of Default has occurred: 

        (i)    Make
any payment on account of any Indebtedness other than payment of the Liabilities and Permitted Indebtedness. 

        (ii)   Own,
redeem, retire, purchase, or acquire any of the Borrower's capital stock. 

        (iii)  Invest
in or purchase any stock or securities or rights to purchase any such stock or securities, of any Person other than Permitted Investments. 

        (iv)  Organize
or create any Affiliate. 

        (v)   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.     Except when the Borrower maintains Sufficient Availability, the Borrower shall not make
any loans or advances to, nor acquire the Indebtedness of, any Person,
provided, however, the 

31

 

foregoing
does not prohibit any of the following: 

        (a)   Advance
payments made to the Borrower's suppliers in the ordinary course. 

        (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.     The Lender, in the Lender's discretion, and from time to time, may
discharge any tax or Encumbrance on any of the Collateral, or 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, if, as a result
thereof, the general nature of the Borrower's business, taken as a whole, would be substantially changed from that conducted on the date hereof. 

 
 

           4.23.    Affiliate Transactions.     Except when the Borrower maintains Sufficient Availability, the
Borrower shall not make any payment, nor give any value to any Affiliate except for goods and
services actually purchased by the Borrower from, or sold by the Borrower to, such Affiliate 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 arms length transaction. 

 
 

           4.24.    Further Assurances.     

        (a)   The
Borrower is not the owner of, nor has it any interest in, any property or asset which 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 other than Borrower's Equipment, Fixtures or Borrower's interest in any lease of real or personal property
or agreements in respect of Permitted Indebtedness or Permitted Encumbrances. 

        (b)   The
Borrower will not hereafter acquire any asset or any interest in property 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), other than Borrower's Equipment, Fixtures or Borrower's interest in any lease of real or personal
property or agreements in respect of Permitted Indebtedness or 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 

32

 

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. 

        (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 and 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)   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 and 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 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.     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 Liabilities. 

Provided,
however, the foregoing restrictions shall not apply to any agreements relating to Borrower's Equipment, Fixtures, or Borrower's interest in any Leases of real or personal property or
agreements in respect of Permitted Indebtedness or Permitted Encumbrances. 

 
 

           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: 

        (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, all in accordance
with GAAP applied 

33

 

consistently
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, 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, after written notice from the Lender, 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 raised by the Lender. 

        (e)   Not
change the Borrower's fiscal year without providing the Lender with at least Sixty (60) days prior written notice. 

 
 

          5.2.    Access to Records.     

        (a)   The
Borrower shall accord the Lender with access from time to time as the Lender reasonably 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 reasonably may 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 afford the Lender with reasonable access to the Borrower's copying facilities available to the Lender,
and the Lender agrees not to unreasonably interfere with the Borrower's business operations in using such facilities. 

        (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; provided, however, Lender shall only contact Borrower's landlords or product vendors and customers in connection with regularly scheduled audits of Lender's
Collateral. 

        (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, when Borrower is In Default, 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 facts and circumstances in respect of which such notice is being given: 

34

 

        (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 de
minimis dispute). 

        (iii)  Any
failure by the Borrower to pay rent at any of the Borrower's locations, which failure continues for more than Thirty (30) days following the last day on
which such rent was payable. 

        (iv)  Any
material adverse change in the business, operations, or financial affairs of the Borrower. 

        (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, might 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 shareholders of the Borrower (qua such shareholders). 

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

        (iii)  Provide
the Lender, when 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.     Unless both (i) the aggregate of the outstanding balance of the
Loan Account and the Stated Amount of all L/C's is less than $3,000,000.00, and
(ii) the Cost of the Borrower's Eligible Inventory is greater than $12,000,000.00, the Borrower shall provide the Lender on or before Tuesday each week 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, and including all supporting documentation and
back-up for the financial information contained therein). Such Certificate may be sent to the Lender by facsimile transmission. 

 
 

           5.5.    Monthly Reports.     Monthly, the Borrower shall provide the Lender with those financial statements
and reports described in  EXHIBIT 5.5, annexed hereto. 

 
 

          5.6.    Annual Reports.     

        (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 an original 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 

35

 

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 Thirty (30) days after 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)   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)   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).. 

        (d)   In
all events, the Borrower, on the earlier of Thirty (30) days after the end of the Borrower's fiscal year, or March 31 each year, 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 statement, balance sheet, and statement of cash flow,
by month, and each prepared in conformity with GAAP and consistent with the Borrower's then current practices. 

 
 

           5.7.    Officers' Certificate.     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 monthly
financial statements to be provided within thirty-five (35) days of the end of each month and with those to be provided quarterly and 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: 

        (i)    Usual
year end adjustments (this exception shall not be included in the Certificate which accompanies such annual statement). 

        (ii)   Material
Accounting Changes (in which event, such Certificate shall include a schedule (in reasonable detail) of the effect of each such Material Accounting Change) not
previously specifically taken into account in the determination of the financial performance covenant imposed pursuant to Section 5.10. 

        (iii)  In
the event that certain monthly reports are presented on a basis consistent with the reports as provided to Borrower's executive management and thus differ from the
audited financial statements prepared on an external reporting basis, such differences will be discussed in a footnote to such monthly financial statements. 

        (b)   Indicate
either that (i) Borrower is not In Default, or (ii) if such an Event of Default 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
calculations concerning the Borrower's compliance (or failure to comply) at the date of the subject statement with the financial performance covenant included in
Section 5.10 hereof. 

36

 

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

 
 

           5.8.    Inventories, Appraisals, and Audits.     

        (a)   On
or before December 31, 2004, the Lender shall have received 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. 

        (b)   The
Lender does not currently contemplate doing so, but the Lender reserves the right to 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. The Borrower will provide a schedule of physical inventories no later than Sixty (60) days prior to such
inventories. At its own cost prior to the occurrence of an Event of Default, and at the Borrower's cost after the occurrence of an Event of Default, the Lender may attend the physical inventory
process for a specified location such that its attendance will not obstruct, interfere with, or add cost to the Borrower's normal business practices. Notification of the intent to attend a specific
physical inventory process must be provided to the Borrower by the Lender no less than Fifteen (15) business days prior to the scheduled physical inventory process. 

        (c)   The
Borrower, at its own expense, shall cause not less than One (1) physical inventory to be undertaken with respect to each of the Borrower's store locations
each year during which this Agreement is in effect conducted by such inventory takers as are reasonably satisfactory to the Lender and following such methodology as may be reasonably satisfactory to
the Lender. 

        (i)    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. 

        (ii)   The
Lender, in its discretion, if the Borrower is In Default, may cause such additional inventories to be taken as the Lender reasonably determines (each at the expense
of the Borrower). 

        (d)   The
Lender contemplates conducting One (1) appraisal of the Collateral during any Twelve (12) month period during which this Agreement is in effect, but,
if excess Availability under the Revolving Credit ever falls below (i) $5,000,000.00 for Three (3) consecutive days, or (ii) $1,500,000.00 at any time, then the Lender may obtain,
at the Borrower's expense, One (1) additional appraisal of the Collateral, conducted by such appraisers as are satisfactory to the Lender. So long as the Borrower is not In Default, the Lender
may obtain such additional and further appraisals as the Lender determines to be necessary; however, the Borrower shall only be responsible for reimbursing the Lender for the cost of the foregoing Two
(2) appraisals. The Lender, in its discretion, if the Borrower is In Default, may conduct such additional appraisals as the Lender determines (each at the expense of the Borrower). 

        (e)   The
Lender contemplates conducting One (1) commercial finance field examinations of the Borrower's books and records during any Twelve (12) month period
during which this Agreement is in effect, but, if excess Availability under the Revolving Credit ever falls below (i) $5,000,000.00 for Three
(3) consecutive days, or (ii) $1,500,000.00 at any time, then the Lender may undertake, at the Borrower's expense, One (1) additional such audit during such period. So long as the
Borrower is not In Default, the Lender may conduct such additional and further examinations as the Lender determines to be necessary; however, the Borrower shall only be responsible for reimbursing
the Lender for the cost of the foregoing Two (2) commercial finance field examinations. The Lender, in its discretion, if the Borrower is In Default, may conduct such additional audits as the
Lender determines (each at the expense of the Borrower). 

37

 

 
 

           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 and
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 reasonably may from time to time request from the Borrower. 

        (b)   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 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. Notwithstanding the foregoing, the Lender shall deliver a copy of the then most recent appraisal to the Borrower upon
request, and upon execution and delivery by the Borrower of any disclaimer and release form that the appraiser or the Lender may reasonably require in connection therewith. 

 
 

           5.10.    Financial Performance Covenants    The
Borrower shall at all times maintain excess Availability in an amount not less than Ten percent (10%) of the Revolving Credit 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 

        (A)  for
fair consideration in the conduct of the Borrower's business in the ordinary course or, 

        (B)  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 (other than with respect to ordinary retail customer returns) under any other circumstances such that, such
Inventory may be returned to the Borrower without the consent of the Lender. 

38

  

 
 

           6.2.    Inventory Quality.     All Inventory 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.     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 if the Borrower is In Default. 

 
 

          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. 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 (from and after the occurrence
of an Event of 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 Blocked and Operating Accounts.     

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

        (i)    The
"Blocked Account" (so referred to herein): Established by the Borrower with Wells Fargo Bank, N.A. 

        (ii)   The
"Operating Account" (so referred to herein): Established by the Borrower with Wells Fargo Bank, N.A. 

        (b)   The
contents of each DDA (other than the Operating Account) and of the Blocked Account constitutes Collateral and Proceeds of Collateral. 

        (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 of Borrower's account is opened as
required hereby (even if such account is opened by and/or is the property of the Lender). 

 
 

           7.2.    Proceeds and Collections.     

        (a)   All
Receipts and all cash proceeds of any sale or other disposition of any of the Borrower's assets, other than Equipment, Fixtures, and/or Leasehold Interests: 

        (i)    Constitute
Collateral and proceeds of Collateral. 

39

 

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

        (iii)  Shall
be deposited and/or transferred only to the Blocked Account. 

        (b)   The
Borrower shall cause the ACH or wire transfer to the Blocked Account, not less frequently than twice each week, and on any day that the aggregate balance in all
DDA's is greater than or equal to $30,000.00 (and whether or not there is then an outstanding balance in the Loan Account) of the following: 

        (i)    The
then contents of each DDA (other than any Exempt DDA), each such transfer to be net of any minimum balance, not to exceed $3,000.00, as may be required to be
maintained in the subject DDA by the bank at which such DDA is maintained. 

        (ii)   The
proceeds of all credit card charges not otherwise provided for pursuant hereto. 

        (c)   In
the event that, notwithstanding the provisions of this Section 7.2, 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. 

 
 

           7.3.    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 Blocked Account
(net of fees charged, and of such impressed balances as may be required by the bank at which the Blocked Account is maintained) towards the unpaid balance of the Loan Account and all other
Liabilities. 

        (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 Blocked 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 Blocked 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 Blocked Account (Section 7.3(b)(i) or payment (Section 7.3(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 Blocked 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 Blocked Account remaining after the application towards the Liabilities referred to in
Section 7.3(a), above (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, 

40

 

then
the Lender may establish a funded reserve of up to 110% 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 10.11 or acceleration following the occurrence of any
other Event of Default. 

 
 

           7.4.    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. 

        (b)   All
Inventory. 

        (c)   All
General Intangibles. 

        (d)   All
Letter-of-Credit Rights. 

        (e)   All
Payment Intangibles. 

        (f)    All
Supporting Obligations. 

        (g)   All
books, records, and information relating to the Collateral, and all rights of access to such books, records, and information and to all books, records, and
information relating to the operation of the Borrower's business. 

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

        (i)    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. (8.1(a)) through 8.1(h)) or otherwise. 

        (j)    All
liens, guaranties, rights, remedies, and privileges pertaining to any of the foregoing (8.1(a)) through 8.1(i)), 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; and 

        (ii)   the
security interest created herein is specifically terminated in writing by a 

41

 

duly
authorized officer of the Lender. 

        (b)   The
Borrower hereby covenants and agrees that the Borrower (i) owns its Equipment and Fixtures free and clear of any security interest, lien, or Encumbrance,
other than a Permitted Encumbrance,
(ii) will not grant any security interest, lien, or Encumbrance in and to its Equipment and Fixtures to any other Person except in connection with the incurrence of Permitted Indebtedness. 

 
 

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 of an Event of Default, to convert the Collateral into cash at the sole risk, cost, and expense of the Borrower, but for the sole benefit of the
Lender. The rights and powers granted 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 herein, 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 

42

 

default
under all other agreements between the Lender and the Borrower and instruments and papers heretofore, now, or hereafter given 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.     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. 

 
 

           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
	

 	
 	

4.14	
 	

Pay taxes
	

 	
 	

4.19	
 	

Dividends. Investments. Other Corporate Actions
	

 	
 	

4.23	
 	

Affiliate Transactions
	

 	
 	

Article 5	
 	

Reporting Requirements and Financial Performance Covenants
	

 	
 	

Article 7	
 	

Cash Management

43

 

 
 

           10.4.    Failure to Perform Covenant or Liability (Grace Period).     The failure by the Borrower, within
ten (10) days following the earlier of the Borrower's knowledge of a breach of any covenant or Liability not described
in any of Sections 10.2, or 10.3 or of its receipt of written notice from the Lender of the breach of any of any of such covenants or Liabilities. 

 
 

           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.    Acceleration of Other Debt. Breach of Lease.     The occurrence of any event such that Indebtedness
of the Borrower in excess of $500,000.00 in the aggregate to any creditor or creditors other than the Lender
could be accelerated or, without the consent of the Borrower, any lessor of Borrower exercises, or gives formal written notice of its intent to exercise, any remedy it may have against the Borrower or
any leased property that involves (i) payment by the Borrower of an amount in excess of $100,000 or (ii) any material interference with the Borrower's operations at any leased property. 

 
 

           10.7.    Default Under Other Agreements.     The occurrence of any breach 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 subject Lender or the Lender may not have
exercised all or any of its rights on account of such breach or default). 

 
 

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

 
 

          10.9.    Attachment. Judgment. Restraint of Business.     

        (a)   The
service of process upon the Lender or any Participant 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 or that Revolving Credit or such Participant. 

        (b)   The
entry of any judgment against the Borrower in excess of $1,500,000.00, 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. 

 
 

           10.10.    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 any 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 or extension of debt agreement for the Borrower; 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 part of the Borrower's business or
operations. 

 
 

           10.11.    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, Title 11 U.S.C., 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 

44

 

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 thirty (30) days of when filed. 

 
 

           10.12.    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 any property of the Borrower and/or the imposition of any stay or other order, the effect of which could be to restrain in any material way the conduct by
the Borrower of its business in the ordinary course. 

 
 

          10.13.    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 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. 

 
 

           10.14.    Change in Control.     Any Change in Control, other than a Permitted Change in Control.

 
 

Article 11 Rights and Remedies Upon Default:    
    

 
 

           11.1.    Acceleration.     Upon the occurrence of any Event of Default as described in Section 10.11,
all Indebtedness of the Borrower to the Lender shall be immediately due and
payable. Upon the occurrence of any Event of Default other than as described in Section 10.11, the Lender may (and on the issuance of Acceleration Notice(s) requisite to the causing of
Acceleration, the Lender shall) 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 

45

 

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.     

        (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 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. 

        (e)   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, 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 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.     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 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 

46

 

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: 617-523-4029 

With
a copy to: 

Riemer &
Braunstein LLP

Three Center Plaza

Boston, Massachusetts 02108

Attention: Donald E. Rothman, Esquire

Fax: 617-880-3456 

If
to the Borrower: 

Golf
Galaxy, Inc.

7275 Flying Cloud Drive

Eden Prairie, MN 55344

Attention: Chief Financial Officer

Fax: 952-941-8846 

With
a copy to: 

Robins,
Kaplan, Miller & Ciresi L.L.P.

2800 LaSalle Plaza

800 LaSalle Avenue

Minneapolis, MN 55402-2015

Attention: David L. Mitchell, Esquire

Fax: 612-339-4181 

 
 

           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. 

47

 

        (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: Golf Galaxy, Inc. 

 
 

Article 13 Term:    

 
 

           13.1.    Termination of Revolving Credit.     The Revolving Credit shall remain in effect (subject to
suspension as provided in Section 2.6 hereof) 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 2.10(e). 

        (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)  All
other Liabilities. 

        (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. 

48

 

        (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)   The
release by the Lender of the Collateral Interests granted the Lender by the Borrower hereunder may be upon such conditions and indemnifications as the Lender may
require or as otherwise required by law. 

 
 

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.    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. 

 
 

           14.3.    Successors and Assigns.     This Agreement shall be binding upon the Borrower and its
representatives, successors, and assigns and shall enure 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. 

 
 

           14.4.    Severability.     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. 

 
 

           14.5.    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
Borrowing Base is determined shall obligate the Lender to continue to determine 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. Subject to Article 15, 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. 

49

 

 
 

          14.6.    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. 

 
 

           14.7.    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. 

 
 

          14.8.    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 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 or the
Lender are 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. 

 
 

           14.9.    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 (up to a maximum of $35,000.00
in connection with the initial closing hereunder), 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. The Borrower shall further pay 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. 

        (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 

50

 

Event
of Default, by the Lender, including costs and expenses incurred in connection with the Lender's 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). 

        (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 14.9 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 14.9. 

 
 

           14.10.    Copies and Facsimiles.     Each Loan Document and all documents and papers which relates thereto
which have been or may be hereinafter furnished the Lender may be reproduced by the Lender
or 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. 

 
 

           14.11.    Massachusetts Law.     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. 

 
 

           14.12.    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. 

51

 

 
 

          14.13.    Indemnification.     The Borrower shall indemnify, defend, and hold the Lender and any Participant
and any of their 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, 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, 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 14.13. 

 
 

          14.14.    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: 

        (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 knowledge assuming that such Person has undertaken reasonable and diligent
investigation with respect to the subject of such "knowledge" (whether or not such investigation has actually been undertaken). 

52

 

        (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: 

        (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 herein, 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. 

 
 

           14.15.    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 any Participant or from any Affiliate of any of the
foregoing, 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 any Participant or such Affiliate and may be applied
or set off against the Liabilities 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 or the Lender. 

 
 

           14.16.    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 pledging the Lender from any of its obligations hereunder or under any of the Loan Documents. 

 
 

           14.17.    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." 

 
 

           14.18.    Waivers.     

53

 

        (a)   The
Borrower makes each of the waivers included in Section 14.18(b), below, 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 not 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, 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). 

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

	 	 	(The "Borrower")
	

 	
 	
GOLF GALAXY, INC.
	

 	
 	

By:	

 
	 	 	 	/s/  RICHARD C. NORDVOLD      

	

 	
 	

Print Name:	

 
	 	 	 	Richard C. Nordvold

	

 	
 	

Title:	

 
	 	 	 	Chief Financial Officer

	

 	
 	
(The "Lender")
	

 	
 	
WELLS FARGO RETAIL FINANCE, LLC

	

 	
 	

By:	

 
	 	 	 	/s/  DAVID MOLINARIO      

	

 	
 	

Print Name:	

 
	 	 	 	David Molinario

	

 	
 	

Title:	

 
	 	 	 	V.P.

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Exhibit 10.1  

 
 

REGAL CINEMAS, INC.
  SEVERANCE PLAN
  FOR EQUITY COMPENSATION
  (Effective as of May 25, 2005)    
    

   TABLE OF CONTENTS  

	 
	 	Page

	ARTICLE 1 PURPOSE	 	1
	ARTICLE 2 ELIGIBILITY AND PARTICIPATION	 	1
	 	2.1. Eligibility	 	1
	 	2.2. Participation	 	1
	 	2.3. Company Contributions	 	1
	ARTICLE 3 VESTING	 	1
	 	3.1. Company Contributions	 	1
	 	3.2. Termination Due to Death, Permanent Disability or Retirement	 	1
	 	3.3. Termination Other Than Due to Death, Permanent Disability or Retirement	 	2
	ARTICLE 4 PAYMENT OF DEFERRED COMPENSATION	 	2
	 	4.1. Distribution Dates	 	2
	 	4.2. Form of Distribution	 	2
	 	4.3. Payment of Dividends on Restricted Stock	 	2
	ARTICLE 5 PLAN ACCOUNTS	 	2
	 	5.1. Accounts	 	2
	 	5.2. Valuation Date	 	2
	ARTICLE 6 SURVIVOR AND DEATH BENEFITS	 	3
	 	6.1. Death Benefit	 	3
	 	6.2. Beneficiary Designation	 	3
	 	6.3. Changing a Beneficiary	 	3
	 	6.4. Change in Marital Status	 	3
	 	6.5. No Beneficiary Designation	 	3
	ARTICLE 7 CLAIMS PROCEDURE	 	4
	 	7.1. Initial Claim	 	4
	 	7.2. Claims Appeal	 	4
	ARTICLE 8 MANAGEMENT AND ADMINISTRATION	 	4
	 	8.1. Administration	 	4
	 	8.2. Amendment and Termination of the Plan	 	5
	 	8.3. Plan Expenses	 	5
	ARTICLE 9 GENERAL PROVISIONS	 	5
	 	9.1. Alienation of Benefits; Transfer Restrictions	 	5
	 	9.2. Overpayments	 	5
	 	9.3. Withholding Taxes	 	5
	 	9.4. Distributions to Minors and Incompetents	 	5
	 	9.5. No Right to Employment; No Rights as a Stockholder	 	6
	 	9.6. Unfunded Plan	 	6
	 	9.7. Trust Fund	 	6
	 	9.8. Business Transaction or Change in Control	 	6
	 	9.9. Miscellaneous	 	6
	 	9.10. Governing Law	 	7
	ARTICLE 10 DEFINITIONS	 	7

ARTICLE 1

PURPOSE  

        Regal Cinemas, Inc. (the "Company"), a wholly owned subsidiary of Regal Entertainment Group ("Regal"), establishes this Severance Plan for Equity
Compensation (the "Plan") with the intention of remunerating employees of Regal CineMedia Corporation ("RCM") for unvested options to purchase shares of Regal's Class A common stock (the
"Common Stock") and shares of Regal's restricted Class A common stock (the "Restricted Stock") which expire as a result of their transfer of employment from RCM to National CineMedia, LLC
("NCM"). The Plan is effective May 25, 2005, and the plan year is the calendar year. The Plan is a "nonqualified deferred compensation plan" within the meaning of Code Section 409A. The
Plan is a "welfare plan" within the meaning of ERISA Section 3(1). 

ARTICLE 2

ELIGIBILITY AND PARTICIPATION  

        2.1.    Eligibility    

        Each
Employee who held an unvested option to purchase shares of Common Stock or who held shares of Restricted Stock, in each case pursuant to the terms of the Regal Entertainment Group
2002 Stock Incentive Plan (the "Incentive Plan"), immediately prior to his or her termination of employment with RCM in connection with the Employee's commencement of employment with NCM (the
"Termination") is eligible to participate in the Plan and shall become a Participant upon Termination. 

        2.2.    Participation    

        Upon
becoming a Participant, the Plan Administrator will establish an Account into which all contributions made or deemed to be made on the behalf of the Participant will be credited. 

        2.3.    Company Contributions    

        The
Company will be deemed to have made a contribution to the Plan on the Termination date on behalf of each Eligible Employee in an amount equal to: (1) the difference between
the exercise price of each unvested option held by the Eligible Employee on the day prior to his or her Termination and the fair market value of Common Stock and (2) the difference between the
purchase price of each share of Restricted Stock (as set forth pursuant to the Incentive Plan or related Award Agreement) held by the Eligible Employee immediately prior to his or her Termination and
the fair market value of Common Stock. For the purpose of this Section 2.3, the fair market value of Common Stock will be the average closing price per share of Common Stock on the national or
regional securities exchange on which such stock is principally traded for the twenty (20) consecutive trading days ending on the last trading day prior to the Termination date. 

ARTICLE 3

VESTING  

        3.1.    Company Contributions    

        Each
Participant vests in Company Contributions according to the year and date on which the expired unvested options and Restricted Stock would have vested pursuant to the terms of the
Incentive Plan and the related Award Agreement. 

        3.2.    Termination Due to Death, Permanent Disability or Retirement    

        A
Participant shall immediately become 100% vested in Company Contributions upon the occurrence of the Participant's death, Permanent Disability or Retirement while the Participant is in
the employ or service of NCM.

 

        3.3.    Termination Other Than Due to Death, Permanent Disability or Retirement    

        A
Participant whose Service with NCM terminates for any reason other than due to death, Permanent Disability or Retirement will immediately forfeit all of his or her unvested Company
Contributions; provided, however, if NCM terminates a Participant's Service without Cause prior to the date on which such Participant's Restricted
Stock, if any, would have vested, then such Participant vests as to one-fourth (1/4th) of the Company Contributions with respect to such Restricted Stock for each anniversary of the date
of grant that such Participant remained in Service with NCM prior to such termination without Cause. 

ARTICLE 4

PAYMENT OF DEFERRED COMPENSATION  

        4.1.    Distribution Dates    

        The
Plan Administrator shall distribute the vested balance of a Participant's Account as soon as practicable after the applicable date of vesting each year or such other vesting date
pursuant to the Plan. 

        4.2.    Form of Distribution    

        The
distribution from a Participant's Account pursuant to Section 4.1 shall be made in cash in a single lump sum. 

        4.3.    Payment of Dividends on Restricted Stock    

        The
Plan Administrator shall distribute to each Participant an amount equal to the value of the dividend declared or paid on a share of Common Stock times the number of shares of
Restricted Stock held by the Participant immediately prior to his or her Termination, until the date that such Participant vests in Company Contributions with respect to such Restricted Stock in
accordance with Article 3, as soon as practicable after the declaration or payment of such Common Stock dividend. In the event of any stock dividend, stock split or other change in the
corporate structure affecting the Common Stock (a "Recapitalization Event"), then for the purposes of calculation of a distribution under this Section 4.3, there shall be, as of the
Recapitalization Event, an equitable proportionate adjustment (as contemplated by Section 5(d) of the Incentive Plan) to the number of shares of Restricted Stock held by each Participant
immediately prior to Termination, just as if such Restricted Stock were then still held pursuant to the Incentive Plan. 

ARTICLE 5

PLAN ACCOUNTS  

        5.1.    Accounts    

        The
Plan Administrator must establish and maintain a bookkeeping Account on the behalf of each Participant in which will be recorded all amounts contributed or deemed contributed on the
behalf of the Participant in accordance with Section 2.3. The Plan Administrator may establish any sub-accounts it deems necessary for the administration of the Plan. 

        5.2.    Valuation Date    

        A
Participant's Account is valued as of the applicable date of vesting each year.

 

ARTICLE 6

SURVIVOR AND DEATH BENEFITS  

        6.1.    Death Benefit    

        Upon
the death of a Participant, the Plan Administrator will pay the Participant's Account to the Participant's Beneficiary in a single lump-sum within 30 days of the
Participant's death or, if not reasonably practicable in such 30 day period, as soon as practicable thereafter. Notwithstanding the preceding, the Plan Administrator may elect, at its sole
discretion, to alter the timing or form of any distribution following a Participant's death in order to coordinate the payment of any employee benefit payments to the Participant's Beneficiary. 

        6.2.    Beneficiary Designation    

        Except
as provided in this Section 6.2, each Participant has the right to designate one or more natural persons as a Beneficiary (both primary as well as secondary) to whom the
Participant's Account will be paid in the event of the Participant's death prior to the complete distribution of the Participant's Account. Each Beneficiary designation must be made pursuant to a
written form prescribed by the Plan Administrator and will be effective only when it is filed with the Plan Administrator during the Participant's lifetime. A married Participant may only designate
someone other than his or her spouse as a Beneficiary if the spouse executes a written consent that acknowledges the effect of the designation or if it is established that the spouse's consent cannot
be obtained because the spouse cannot be located. Unless the designation of a non-spouse Beneficiary satisfies the requirement of the preceding sentence, a married Participant's
Beneficiary is his or her Surviving Spouse. An individual will only be treated as a Beneficiary under this Plan if he or she satisfies the definition of Beneficiary under Section 10.2. 

        6.3.    Changing a Beneficiary    

        Any
Beneficiary designation may be changed by an unmarried Participant without the consent of the previously named Beneficiary by the filing of a new Beneficiary designation with the
Plan Administrator. A married Participant's Beneficiary designation may only be changed by the Participant with the consent of the Participant's spouse as provided for in Section 6.2. 

        6.4.    Change in Marital Status    

        If
a Participant's marital status changes after he or she has designated a Beneficiary, the following applies: 

        (a)   If
the Participant is married at death but was unmarried when the designation was made, the designation is void unless the spouse has consented to it in the manner
prescribed in Section 6.2; and 

        (b)   If
the Participant was married when the designation was made and he or she is married to a different spouse at death, the designation is void unless the new spouse has
consented to it in the manner prescribed in Section 6.2. 

        6.5.    No Beneficiary Designation    

        If
a Participant fails to properly designate a Beneficiary, if a designation is void, or if the Beneficiary designated by a deceased Participant dies before the Participant or before
complete distribution of the Participant's Account, the Participant's Beneficiary is the Participant's Surviving Spouse and, if there is no Surviving Spouse or if the Surviving Spouse dies before all
remaining payments are made, payment will be made in a single lump sum to the Beneficiary's estate.

 

ARTICLE 7

CLAIMS PROCEDURE  

        7.1.    Initial Claim    

        If
a Participant believes he or she is entitled to payments under the Plan which have not been paid or have been paid in a lesser amount, the Participant may submit a written claim to
the Plan Administrator. If the Plan Administrator determines that the claim should be denied, written notice of the decision will be furnished to the Participant within a reasonable period of time.
This notice will set forth in clear and precise terms (a) the specific reasons for the denial, (b) specific references to pertinent Plan provisions on which the denial is based,
(c) a description of any additional material or information necessary for the Participant to perfect the claim, together with an explanation of why such material or information is necessary,
and (d) an explanation of the Plan's review procedures and the time limits applicable to such procedures, including a statement of the Participant's right to bring civil action under ERISA
Section 502(a) following a denial on review. The written notice must be given to the Participant within 90 days after receipt of the claim, unless special circumstances require an
extension of time for processing the claim, in which case, a decision will be rendered and written notice furnished within 180 days after receipt of the claim. A written notice of such
extension of time indicating the special circumstances and expected date of decision will be furnished to the Participant within the initial 90 day period. 

        7.2.    Claims Appeal    

        The
Participant may, within 60 days after receiving notice denying the claim, request a review of the decision by written application to the Plan Administrator. In connection with
the Participant's appeal, (a) he or she may submit written comments, documents, records, and other information relating to the claim, (b) he or she must be provided, upon request and
free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim, and (c) the Plan Administrator must provide for a review that takes
into account all comments, documents, records, and other
information submitted by the Participant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. 

        If
the Plan Administrator determines that the claim on review should be denied, written notice of the decision must be furnished to the Participant within a reasonable period of time.
This notice will set forth in clear and precise terms (w) the specific reasons for the denial, (x) specific references to pertinent Plan provisions on which the denial is based,
(y) a statement that the Participant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the
claim for benefits, and (z) a statement of the Participant's right to bring a civil action under ERISA Section 502(a) following a denial on review. The written notice must be
given to the Participant within 60 days after receipt of the Participant's request for review, unless special circumstances require an extension of time for processing the review, in which
case, a decision will be rendered and written notice furnished within 120 days after receipt of the request for review. A written notice of such extension of time, indicating the special
circumstances and expected date of decision will be furnished to the Participant within the initial 60 day period. The decision will be final. The Participant's Surviving Spouse or Beneficiary
also may use the claim procedures set forth in this Article 7. 

ARTICLE 8

MANAGEMENT AND ADMINISTRATION  

        8.1.    Administration    

        The
Plan Administrator has the full power and authority to control and manage the operation and administration of the Plan, including the authority, in its sole discretion: (a) to
promulgate and enforce

 
any rules and regulations it deems necessary or appropriate for the administration of the Plan; (b) to interpret the Plan consistent with its terms and intent; and (c) to resolve any
possible ambiguities, inconsistencies and omissions in the Plan. All such actions must be in accordance with the Plan's terms and intent. 

        8.2.    Amendment and Termination of the Plan    

        The
Plan Administrator may, in its sole discretion, amend, alter or discontinue the Plan at any time or from time to time, in whole or in part, and for any reason, by written action.
However, no amendment, alteration or discontinuance shall (i) reduce the amount accrued in any Account as of the date of such amendment, alteration or discontinuance or (ii) otherwise
impair the rights of a Participant under the Plan (including any rights incorporated from the Incentive Plan hereunder) without such Participant's consent. 

        In
the event of such termination, the Participants' Accounts shall be paid at such times and in such forms as determined pursuant to Article 4, unless the Plan Administrator
prescribes an earlier time or times for payment of such Accounts, and such payments would not result in the imposition of an excise tax under Code Section 409A. 

        8.3.    Plan Expenses    

        All
expenses of administering the Plan are to be paid by the Company. 

ARTICLE 9

GENERAL PROVISIONS  

        9.1.    Alienation of Benefits; Transfer Restrictions    

        No
Account may be subject to alienation, sale, transfer, assignment, pledge, attachment, garnishment, lien, levy or like encumbrance. Neither the Company nor the Plan is liable in any
manner for, or subject to, the debts or liabilities of any person entitled to payment under the Plan. 

        9.2.    Overpayments    

        If
any overpayment of an Account is made under the Plan, the Plan Administrator may require that either (a) the amount of the overpayment may be set off against further amounts
payable to or on account of the person who received the overpayment until the overpayment has been recovered in full, or (b) the recipient may be required to return the amount of the
overpayment to the Plan Administrator. The foregoing remedies are not intended to be exclusive. 

        9.3.    Withholding Taxes    

        The
Company and the Plan Administrator may withhold such taxes and make such reports to governmental authorities as they reasonably believe to be required by law. 

        9.4.    Distributions to Minors and Incompetents    

        If
the Plan Administrator determines that any Participant or Beneficiary receiving or entitled to receive payment of an Account under the Plan is incompetent to care for his or her
affairs, and in the absence of the appointment of a legal guardian of the property of the incompetent, payments due under the Plan (unless prior claim thereto has been made by a duly qualified
guardian, committee or other legal representative) may be made to the spouse, parent, brother or sister or other person, including a hospital or other institution, deemed by the Plan Administrator to
have incurred or to be liable for expenses on behalf of such incompetent. 

        In
the absence of the appointment of a legal guardian of the property of a minor, any minor's share of an Account under the Plan may be paid to such adult or adults as in the opinion of
the Plan Administrator have assumed the custody and principal support of such minor.

 

        The
Plan Administrator, in its sole discretion, may require that a legal guardian for the property of any incompetent or minor be appointed before authorizing the payment of an Account.
Benefit payments made under the Plan in accordance with determinations of the Plan Administrator pursuant to this Section 9.4 completely discharge any obligation arising under the Plan with
respect to such benefit payments. 

        9.5.    No Right to Employment; No Rights as a Stockholder    

        Nothing
contained in this Plan gives any Employee (i) the right to be retained in the service of the Company, RCM or NCM or to interfere with the right of the Company, RCM or NCM
to demote, discharge or discipline any Employee at any time without regard to the effect that such demotion, discharge or discipline may have upon the Employee under the Plan, or (ii) any
rights as a stockholder of Regal. 

        9.6.    Unfunded Plan    

        The
Plan is an unfunded, unsecured obligation of the Company. The Company is not required to segregate any assets in order to provide payment of Accounts, and the Plan shall not be
construed as providing for such segregation. Any liability of the Company to any Participant or Beneficiary with respect to the payment of Accounts is based solely upon contractual obligations created
by the Plan. Any such obligation is not secured by any pledge or other encumbrance or any property of the Company. 

        9.7.    Trust Fund    

        At
its sole discretion, the Company may establish one or more trusts for the purpose of assisting in the payment of Accounts. To the extent payments provided for under the Plan are made
from any trust, the Company will not have any further obligation to make such payments. The establishment and maintenance of any trust will not alter the nature of Accounts under the Plan as unfunded
and unsecured. 

        9.8.    Business Transaction or Change in Control    

        (a)    Business Transaction    

        The
Company may assign its obligations under this Plan to a successor, whether by merger, consolidation, asset sale or other business reorganization or transaction ("Business
Transaction"). The Company's obligations also may transfer to a successor in a Business Transaction by operation of law. Upon any assignment or transfer of the Company's obligations, this Plan shall
be binding upon and shall inure to the benefit of any successor of the Company resulting from the Business Transaction. 

        (b)    Change of Control    

        In
the event of a Change of Control, all Participants become fully vested in their Account and all Participants will receive a distribution of their entire Account in accordance with
Article 4. 

        9.9.    Miscellaneous    

        (a)    Construction    

        Unless
the contrary is plainly required by the context, wherever any words are used in the masculine, they shall be construed as though they were also used in the feminine, and vice
versa, and wherever any words are used in the singular, they shall be construed as though they were also used in the plural, and vice versa.

 

        (b)    Severability    

        If
any provision of the Plan is held illegal or invalid for any reason, such illegality or invalidity will not affect the remaining parts of the Plan, and the Plan will be construed and
enforced as if such illegal or invalid provision had never been included in it. 

        (c)    Titles and Headings Not to Control    

        The
titles to Articles and the headings of Sections are for convenience of reference only, and, in the event of any conflict, the text of the Plan, rather than the titles or
headings, controls. 

        (d)    Complete Statement of Plan    

        This
document is a complete statement of the Plan. The Plan may be amended, modified or terminated only in writing and then only as provided herein. 

        9.10.    Governing Law    

        The
Plan is be governed by ERISA, and, to the extent not preempted by ERISA, by the laws of the State of Delaware, without regard to its choice of law provisions. 

ARTICLE 10

DEFINITIONS  

        For purposes of this Plan, the following terms have the meaning specified below: 

        10.1.
"Account" means the book entry account established under the Plan for each Participant in which is reflected amounts deferred or
contributed under the Plan. 

        10.2.  "Award Agreement" has the meaning set forth in Section 1(d) of the Incentive Plan. 

        10.3.
"Beneficiary" means the Participant's beneficiary identified pursuant to Article 6 to receive payment of the Participant's
Account or remaining Account balance at the time of his or her death; provided, however, that such person survives the Participant by at least
30 days. 

        10.4.
"Board" means the Board of Directors of the Company. 

        10.5.  "Business Transaction" has the meaning set forth in Section 9.8(a). 

        10.6.
"Cause" has the meaning set forth in Section 1(f) of the Incentive Plan; provided, that for purposes of such
definition NCM shall be substituted for the Company whenever referenced. 

        10.7
"Change in Control" has the meaning set forth in Section 1(g) of the Incentive Plan. 

        10.8.  "Code" means the Internal Revenue Code of 1986, as amended. 

        10.9.
"Common Stock" has the meaning set forth in Article 1. 

        10.10.
"Company" has the meaning set forth in Article 1. 

        10.11.
"Company Contribution" means a contribution or deemed contribution to the Plan pursuant to Section 2.3. 

        10.12.  "Eligible Employee" means an Employee who meets the eligibility requirements of Section 2.1. 

        10.13.
"Employee" means a common law employee of RCM. 

        10.14.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 

        10.15.
"Incentive Plan" has the meaning set forth in Section 2.1. 

        10.16.  "NCM" has the meaning set forth in Article 1.

 

        10.17.
"Participant" means any Eligible Employee who becomes a participant in the Plan pursuant to Section 2.1. 

        10.18.
"Permanent Disability" means any medically determinable physical or mental condition that the Plan Administrator, in its
discretion, finds to permanently prevent a Participant from performing the material duties of his or her current employment. If a Participant makes application for disability benefits under NCM's
long-term disability program, as now in effect or as hereafter amended, and qualifies for such benefits, the Participant shall be presumed to qualify as permanently disabled under this
Plan. 

        10.19.
"Plan" has the meaning set forth in Article 1. 

        10.20.
"Plan Administrator" means the Administrator as defined in Section 1(a) of the Incentive Plan. 

        10.21.  "Regal" has the meaning set forth in Article 1. 

        10.22.
"RCM" has the meaning set forth in Article 1. 

        10.23.
"Retirement" means termination by the Participant of employment or service with NCM on or after reaching the normal retirement age
of sixty-five. 

        10.24.
"Restricted Stock" has the meaning set forth in Article 1. 

        10.25.  "Service" means service as an employee, officer or director of NCM. A Participant's change in position or duties shall not result
in interrupted or terminated Service, so long as the Participant continues to be an employee, officer, or director of NCM. Subject to the preceding sentence, whether a termination of Service has
occurred for purposes of the Plan will be determined by the Plan Administrator, which determination shall be final, binding and conclusive. 

        10.26.
"Surviving Spouse" means the person who, according to the laws of the state of a Participant's domicile, is the Participant's
spouse on the date of the Participant's death. 

        10.27.  "Termination" has the meaning set forth in Section 2.1. 

*
* * * * 

        To
reflect the adoption of this Plan by the Board, effective as of May 25, 2005, the authorized officer executes this Plan document on behalf of the Company. 

	

 	
 	
REGAL CINEMAS, INC.
	
 	
 	

By:	
 	

	 	 	Name:	 	 
	 	 	Title:	 	 

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REGAL CINEMAS, INC. SEVERANCE PLAN FOR EQUITY COMPENSATION (Effective as of May 25, 2005)

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