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EXHIBIT 10.30    
  

 
 

CREDIT AGREEMENT    
  

        THIS CREDIT AGREEMENT (the "Agreement") is made and dated as of the 3rd day of September, 2002, by and between BANK OF THE WEST, doing business as UNITED
CALIFORNIA BANK (the "Lender"), and DIEDRICH COFFEE, INC., a Delaware corporation (the "Company"). 

 
 

RECITALS    
  

        A.    The
Company has requested that the Lender: (1) extend new credit facilities to the Company in the forms of a equipment acquisition facility, a working capital line
of credit, a letter of credit facility, and facilities to finance certain expansion expenditures of the Company, and (2) refinance the term loan facility described on  Annex 1 attached hereto (the
"Existing Term Loan Facility"). 

        B.    The
Lender has agreed to such requests on the terms and subject to the conditions set forth herein and the parties hereto desire to enter into this Agreement to evidence
such credit facilities. 

        NOW,
THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby
agree as follows: 

 
 

AGREEMENT    
  

        1.    Keurig Equipment Acquisition Line.    

        1(a)    Credit Limit.    Subject to the terms and conditions set forth herein, from and after the Effective Date (as
that term and capitalized terms used herein and not otherwise defined herein are defined in Paragraph 16 below), the Lender agrees that it shall
from time to time to but not including the Equipment Acquisition Line Conversion Date make loans (each, an "Equipment Acquisition Loan") to the Company in an aggregate amount not to exceed at any one
time outstanding the Equipment Acquisition Line Credit Limit. Principal amounts prepaid hereunder prior to the Equipment Acquisition Line Conversion Date may be reborrowed on the terms and subject to
the conditions set forth in Paragraph 10(b) below, it being expressly acknowledged and agreed that the credit facility provided under this  Paragraph 1 is a revolving credit facility. 

        1(b)    Principal Repayment; Conversion to Term Loan.    The Company shall pay the principal amount of each Equipment
Acquisition Term Loan on the Equipment Acquisition Line Conversion Date; provided, however, that if but only if on the Equipment Acquisition Line Conversion Date there does not exist an Event of
Default or Potential Default, the outstanding principal balance of all Equipment Acquisition Loans (or such portion thereof as the Company shall elect) shall be converted into a term loan (the
"Equipment Acquisition Line Term-Out Loan"). The principal amount of the Equipment Acquisition Line Term-Out Loan shall be payable in thirty five (35) consecutive equal
monthly installments, said installments to be payable on the last Business Day of each calendar month, commencing on September 30, 2003, and one final installment in an amount necessary to
repay the outstanding principal balance of the Equipment Acquisition Line Term-Out Loan in full on August 31, 2006. 

        1(c)    Payment of Interest.    Interest on Equipment Acquisition Loans and, following the Equipment Acquisition Line
Conversion Date, the Equipment Acquisition Line Term-Out Loan, shall be payable at the rates and at the times provided in  Paragraphs 7(a) and 7(b)
below. 

        1(d)    Use of Proceeds.    The proceeds of the Equipment Acquisition Loans shall be used solely for the purchase of
the Keurig Equipment. 

 

        2.    Fiscal Year 2003 Expansion Line.    

        2(a)    Credit Limit.    Subject to the terms and conditions set forth herein, from and after the Effective Date, the
Lender agrees that it shall from time to time to but not including the FY 2003 Expansion Line Conversion Date make loans (each, a "FY 2003 Expansion Line Loan") to the Company in an aggregate amount
not to exceed at any one time outstanding the FY 2003 Expansion Line Credit Limit. Principal amounts prepaid hereunder prior to the FY 2003 Expansion Line Conversion Date may be reborrowed on the
terms and subject to the conditions set forth in Paragraph 10(b) below, it being expressly acknowledged and agreed that the credit facility
provided under this Paragraph 2 is a revolving credit facility. 

        2(b)    Principal Repayment; Conversion to Term Loan.    The Company shall pay the principal amount of each FY 2003
Expansion Line Loan on the FY 2003 Expansion Line Conversion Date; provided, however, that if but only if on the FY 2003 Expansion Line Conversion Date there does not exist an Event of Default or
Potential Default, the outstanding principal balance of all FY 2003 Expansion Line Loans (or such portion thereof as the Company shall elect) shall be converted into a term loan (the "FY 2003
Expansion Line Term-Out Loan"). The principal amount of the FY 2003 Expansion Line Term-Out Loan shall be payable in thirty five (35) consecutive equal monthly
installments, said installments to be payable on the last Business Day of each calendar month, commencing on July 31, 2003, and one final installment in an amount necessary to repay the
outstanding principal balance of the FY 2003 Expansion Line Term-Out Loan in full on June 30, 2006. 

        2(c)    Payment of Interest.    Interest on FY 2003 Expansion Line Loans and, following the FY 2003 Expansion Line
Conversion Date, the FY 2003 Expansion Line Term-Out Loan, shall be payable at the rates and at the times provided in Paragraphs 7(a) and  7(b) below.

        2(d)    Use of Proceeds.    The proceeds of the FY 2003 Expansion Line Loans shall be used solely to finance Expansion
Expenditures of the Company. 

        3.    Fiscal Year 2004 Expansion Line.    

        3(a)    Credit Limit.    Subject to the terms and conditions set forth herein, from and after the FY 2004 Expansion
Line Effective Date, the Lender agrees that it shall from time to time to but not including the FY 2004 Expansion Line Conversion Date make loans (each, a "FY 2004 Expansion Line Loan") to the Company
in an aggregate amount not to exceed at any one time outstanding the FY 2004 Expansion Line Credit Limit. Principal amounts prepaid hereunder prior to the FY 2004 Expansion Line Conversion Date may be
reborrowed on the terms and subject to the conditions set forth in Paragraph 10(b) below, it being expressly acknowledged and agreed that the
credit facility provided under this Paragraph 3 is a revolving credit facility. 

        3(b)    Principal Repayment; Conversion to Term Loan.    The Company shall pay the principal amount of each FY 2004
Expansion Line Loan on the FY 2004 Expansion Line Conversion Date; provided, however, that if but only if on the FY 2004 Expansion Line Conversion Date there does not exist an Event of Default or
Potential Default, the outstanding principal balance of all FY 2004 Expansion Line Loans (or such portion thereof as the Company shall elect) shall be converted into a term loan (the "FY 2004
Expansion Line Term-Out Loan"). The principal amount of the FY 2004 Expansion Line Term-Out Loan shall be payable in thirty five (35) consecutive equal monthly
installments, said installments to be payable on the last Business Day of each calendar month, commencing on July 31, 2004, and one final installment in an amount necessary to repay the
outstanding principal balance of the FY 2004 Expansion Line Term-Out Loan in full on June 30, 2007. 

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        3(c)    Payment of Interest.    Interest on FY 2004 Expansion Line Loans and, following the FY 2004 Expansion Line
Conversion Date, the FY 2004 Expansion Line Term-Out Loan, shall be payable at the rates and at the times provided in Paragraphs 7(a) and  7(b) below.

        3(d)    Use of Proceeds.    The proceeds of the FY 2004 Expansion Line Loans shall be used solely to finance Expansion
Expenditures of the Company. 

        4.    Working Capital Facility    

        4(a)    Credit Limit.    Subject to the terms and conditions set forth herein, from and after the Effective Date, the
Lender agrees that it shall from time to time to but not including the Working Capital Facility Maturity Date make loans (each, a "Working Capital Loan") to the Company in an aggregate amount not to
exceed at any one time outstanding the lesser of: (i) $500,000.00, and (ii) $675,000.00 minus the dollar amount of all Outstanding Letters of Credit and unrepaid L/C Drawings as of such
date (the "Working Capital Facility Credit Limit"). Principal amounts prepaid hereunder prior to the Working Capital Facility Maturity Date may be reborrowed on the terms and subject to the conditions
set forth in Paragraph 10(b) below, it being expressly acknowledged and agreed that the credit facility provided under this  Paragraph 4 is a
revolving credit facility. The Company hereby acknowledges and agrees that the Company may only request, and the Lender is only
obligated to fund (subject to all other provisions contained in this Agreement), Working Capital Loans during the First Quarter and Fourth Quarter of any Fiscal Year. 

        4(b)    Principal Repayment; Working Capital to Term Loan.    The Company shall pay the principal amount of each
Working Capital Loan on the Working Capital Facility Maturity Date. 

        4(c)    Payment of Interest.    Interest on Working Capital Loans shall be payable at the rates and at the times
provided in Paragraphs 7(a) and 7(b) below. 

        4(d)    Use of Proceeds.    The proceeds of Working Capital Loans shall be used for working capital purposes. 

        5.    Letter of Credit Facility.    

        5(a)    Letter of Credit Sublimit.    On the terms and subject to the conditions set forth herein, the Lender shall
from time to time from and after the Effective Date, issue standby letters of credit (each a "Letter of Credit" and, collectively, the "Letters of Credit") for the account of the Company; provided,
however that in no event shall the Lender issue any Letter of Credit hereunder if after giving effect to such issuance: 

        (1)  The
aggregate dollar amount of Outstanding Letters of Credit and unrepaid L/C Drawings would exceed the L/C Facility Sublimit; or 

        (2)  The
aggregate dollar amount of all Outstanding Letters of Credit and unrepaid L/C Drawings plus the aggregate amount of
all Working Capital Loans outstanding would exceed $675,000.00. 

        5(b)    Issuance of Letters of Credit.    Each Letter of Credit, and any amendment, renewal or extension thereof,
shall be requested by the Company at least thirty (30) Business Days prior to the proposed issuance, amendment, renewal or extension date by delivery to the Lender of a duly executed Letter of
Credit Application, accompanied by all other L/C Documents which the Lender may require as a condition to the requested action. No Letter of Credit shall have a stated expiration date (or provide for
the extension of such stated expiration date or the issuance of any replacement therefor) later than thirty (30) days past the regularly scheduled Working Capital Facility Maturity Date. 

        5(c)    Repayment of L/C Drawings.    Each L/C Drawing shall be payable in full by the Company on the date of such L/C
Drawing. 

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        5(d)    Absolute Obligation to Repay.    The Company's obligation to repay L/C Drawings shall be absolute, irrevocable
and unconditional under any and all circumstances whatsoever and irrespective of any set-off, counterclaim or defense to payment which the Company may have or have had, against any
Lender or any other Person, including, without limitation, any set-off, counterclaim or defense based upon or arising out of: 

        (1)  Any
lack of validity or enforceability of this Agreement or any of the other Loan Documents; 

        (2)  Any
amendment or waiver of or any consent to departure from the terms of any Letter of Credit; 

        (3)  The
existence of any claim, setoff, defense or other right which the Company or any other Person may have at any time against any beneficiary or any transferee of any
Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting); 

        (4)  Any
allegation that any demand, statement or any other document presented under any Letter of Credit is forged, fraudulent, invalid or insufficient in any respect, or
that any statement therein is untrue or inaccurate in any respect whatsoever or that variations in punctuation, capitalization, spelling or format were contained in the drafts or any statements
presented in connection with any L/C Drawing; 

        (5)  Any
payment by the Lender under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of
Credit, or any payment made by the Lender under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of
creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any insolvency
proceeding; 

        (6)  Any
exchange, release or non-perfection of any Collateral; or 

        (7)  Any
other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a
defense available to, or a discharge of the Company. 

Nothing
contained herein shall constitute a waiver of any rights of the Company against the Lender arising out of the gross negligence or willful misconduct of the Lender in connection with any Letter
of Credit issued hereunder; provided, however, that the exercise of such rights is subject to and conditioned upon the prior payment in full of all Obligations, including, without limitation, unrepaid
L/C Drawings, and termination of the credit facility evidenced hereby. 

        5(e)    Uniform Customs and Practice.    The Uniform Customs and Practice for Documentary Credits as published by the
International Chamber of Commerce most recently at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in such Letter of Credit) apply to such Letter of Credit. 

        5(f)    Relationship to Letter of Credit Applications.    In the event of any inconsistency between the terms and
provisions of this Agreement and the terms and provisions of the Letter of Credit Applications, the terms and provisions of this Agreement shall supersede and govern. 

        6.    Replacement Term Loan Facility.    

        6(a)    Credit Limit; Repayment of Principal.    On the terms and subject to the conditions set forth herein, the
Lender agrees that on the Effective Date it shall advance, in a single disbursement, a term loan in a principal amount not to exceed $3,000,000.00 (the "Replacement Term Loan"). Following
disbursement, amounts repaid on account of the Replacement Term Loan may not be reborrowed. The principal amount of the Replacement Term Loan shall be payable 

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monthly, on the last Business Day of each calendar month, commencing September 30, 2002, in twenty nine (29) consecutive equal monthly installments of $100,000.00 and one final
installment in the amount necessary to repay the Replacement Term Loan in full on March 31, 2005. 

        6(b)    Payment of Interest.    Interest on the Replacement Term Loan and portions thereof outstanding shall be
payable at the rates and times provided in Paragraphs 7(a) and 7(b) below. 

        6(c)    Use of Proceeds.    The proceeds of the Replacement Term Loan shall be utilized to pay all amounts outstanding
under the Existing Term Loan Facility in full. 

        7.    Pricing Provisions.    

        7(a)    Applicable Interest Rates.    The Company shall pay interest on Loans outstanding from the date disbursed to
but not including the date of payment, at a rate per annum equal to, at the option of and as selected by the Company from time to time and subject to provisions set forth in this  Paragraph 7:

        (1)  The
floating Reference Rate during the applicable computation period plus three quarters of one percent (0.75%); or 

        (2)  The
LIBOR Rate for the selected Interest Period plus two and one-half percent (2.50%). 

        7(b)    Interest Billing and Payment Requirements.    Interest accruing on Loans shall be payable monthly, in arrears,
for each calendar month on the last Business Day of such calendar month in the amount set forth in an interest billing for such Loans delivered to the Company by the Lender (which delivery may be
telephonic). 

        7(c)    Requests for and Funding of Loans.    

        (1)  Subject
to the timing provisions relating to the funding of or conversion into LIBOR Rate Loans provided in  Paragraph 7(d) below, if the Company desires to borrow an Equipment Acquisition Loan, a FY 2003
Expansion Line Loan, a Working Capital Loan, or
following the FY 2004 Expansion Line Effective Date, a FY 2004 Expansion Line Loan hereunder, the Company shall deliver a Loan Request therefor to the Lender no later than: (i) in the case of a
Loan to be initially funded as a LIBOR Rate Loan, 11:00 a.m. (Los Angeles time) on the proposed funding date, and (ii) in the case of a Loan to be initially funded as a Reference Rate
Loan, 2:30 p.m. (Los Angeles time) on the proposed funding date. 

        (2)  The
principal amount of each LIBOR Rate Loan (including any Reference Rate Loan which is converted into a LIBOR Rate Loan) shall be in the minimum amount of $100,000.00. 

        (3)  All
Loan Requests shall be irrevocable and shall be delivered in writing (which may be by facsimile transmission), or telephonically to be promptly confirmed in writing
(which may be by facsimile transmission). 

        (4)  Subject
to the conditions set forth in Paragraph 10(b) below, the Lender shall make available each requested Loan
by crediting the amount thereof, in immediately available same day funds, to the Funding Account at the opening of business of the Lender at its Contact Office on the first Business Day immediately
following the receipt of such Loan Request. 

        7(d)    Conversion and Continuation Options.    

        (1)  The
Company may elect from time to time to convert portions of outstanding LIBOR Rate Loans to Reference Rate Loans or to convert portions of outstanding Reference Rate
Loans to LIBOR Rate Loans by giving the Lender irrevocable notice of such election: 

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(i) in the case of LIBOR Rate Loans being converted into Reference Rate Loans, no later than 2:30 p.m. (Los Angeles time) on the date of the proposed conversion, and (ii) in the
case of Reference Rate Loans being converted into LIBOR Rate Loans, no later than 11:00 a.m. (Los Angeles time) on the date of the proposed conversion. Any conversion of LIBOR Rate Loans to
Reference Rate Loans may only be made on the last day of the applicable Interest Period. No Reference Rate Loan may be converted into a LIBOR Rate Loan if an Event of Default or Potential Default has
occurred and is continuing at the requested conversion date. 

        (2)  The
Company may elect from time to time to have outstanding LIBOR Rate Loans continued as LIBOR Rate Loans upon the expiration of the Interest Period applicable thereto
by giving the Lender irrevocable notice of such election no later than 11:00 a.m. (Los Angeles time) on the last day of such Interest Period; provided, however, that no LIBOR Rate Loan may be
continued as such when any Event of Default or Potential Default has occurred and is continuing, but shall be automatically converted to a Reference Rate Loan on the last day of the Interest Period
applicable thereto. If the Company shall fail to give notice of its election to continue a LIBOR Rate Loan as a LIBOR Rate Loan as provided above, the Company shall be deemed to have elected to
convert such LIBOR Rate Loan to a Reference Rate Loan on the last day of the applicable Interest Period. 

        (3)  Each
request for the conversion into or continuation of a LIBOR Rate Loan shall be evidenced by the timely delivery by the Company to the Lender of a duly executed Loan
Request (which delivery may be by facsimile transmission) or, but only with the prior agreement of the Lender, telephonically. 

        7(e)    Illegality.    Notwithstanding any other provisions herein, if any law, regulation, treaty or directive or any
change therein or in the interpretation (whether by the Lender, in its reasonable judgment, or by any Governmental Authority) or application thereof, shall make it unlawful for the Lender to make or
maintain LIBOR Rate Loans as contemplated by this Agreement: (1) the commitment of the Lender hereunder to make or to continue LIBOR Rate Loans or to convert Reference Rate Loans to LIBOR Rate
Loans shall forthwith be canceled and (2) Loans then outstanding as LIBOR Rate Loans, if any, shall be converted automatically to Reference Rate Loans at the end of their respective Interest
Periods or within such earlier period as may be required by law. In the event of a conversion of any LIBOR Rate Loan prior to the end of its applicable Interest Period the Company hereby agrees
promptly to pay the Lender, upon demand, the amounts required pursuant to Paragraph 7(h) below, it being agreed and understood that such
conversion shall constitute a prepayment for all purposes hereof. The provisions hereof shall survive the termination of this Agreement and payment of the outstanding Loans and all other Obligations. 

        7(f)    Requirements of Law; Increased Costs.    In the event that any applicable law, order, regulation, treaty or
directive issued by any central bank or other governmental authority, agency or instrumentality or in the governmental or judicial interpretation or application thereof, or compliance by the Lender
with any request or directive (whether or not having the force of law) issued by any central bank or other governmental authority, agency or instrumentality: 

        (1)  Does
or shall subject the Lender to any tax of any kind whatsoever with respect to this Agreement or any Loans made hereunder, or change the basis of taxation of
payments to the Lender of principal, fee, interest or any other amount payable hereunder (except for change in the rate of tax on the overall net income of the Lender); 

        (2)  Does
or shall impose, modify or hold applicable any reserve, capital requirement, special deposit, compulsory loan or similar requirements against assets held by, or
deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or 

6

 

any other acquisition of funds by, any office of the Lender which are not otherwise included in the determination of interest payable on the Obligations; or 

        (3)  Does
or shall impose on the Lender any other condition; 

and
the result of any of the foregoing is to increase the cost to the Lender of making, renewing or maintaining any Loan or to reduce any amount receivable in respect thereof or the rate of return on
the capital of the Lender or any corporation controlling the Lender, then, in any such case, the Company shall promptly pay to the Lender, upon its written notice and demand made through the Lender,
any additional amounts necessary to compensate the Lender for such additional cost or reduced amounts receivable or rate of return as determined by the Lender with respect to this Agreement or Loans
made hereunder. If the Lender becomes entitled to claim any additional amounts pursuant to this Paragraph 7(f), it shall promptly notify the
Company of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to the foregoing sentence containing the calculation thereof in
reasonable detail submitted by the Lender to the Company shall be conclusive in the absence of manifest error. The provisions hereof shall survive the termination of this Agreement and payment of the
outstanding Loans and all other Obligations. 

        7(g)    Funding.    The Lender shall be entitled to fund all or any portion of the Loans in any manner it may
determine in its sole discretion, including, without limitation, in the Grand Cayman inter-bank market, the London inter-bank market and within the United States. 

        7(h)
Prepayment Premium. In addition to all other payment obligations hereunder, in the event: (1) a LIBOR Rate Loan is prepaid prior to the last day of the applicable Interest
Period, whether following the occurrence of an Event of Default or otherwise, or (2) the Company shall fail to continue or to make a conversion to a LIBOR Rate Loan after the Company has given
notice thereof as provided in Paragraph 7(d) above, then the Company shall immediately pay to the Lender an additional premium sum compensating
the Lender for losses, costs and expenses incurred by the Lender in connection with such prepayment or such failure to borrow, continue or convert. If the Lender becomes entitled to claim any
additional amounts pursuant to this Paragraph 7(h), it shall promptly notify the Company of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant to the foregoing sentence containing the calculation thereof in reasonable detail
submitted by the Lender to the Company shall be conclusive in the absence of manifest error. Determination of amounts payable under this  Paragraph 7(h) in connection with any LIBOR Rate Loan shall
be calculated as though the Lender funded such LIBOR Rate Loan through the purchase
of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the interest rate applicable to such LIBOR Rate Loan, whether in fact that is the case or not. The
provisions of this Paragraph 7(h) shall survive the termination of this Agreement and the payment of all Loans and all other Obligations. 

        7(i)    Default Interest.    Following the occurrence and during the continuance of an Event of Default, all
Obligations outstanding shall, unless such requirement is waived in writing by the Lender, bear interest at a default rate which is three percent (3%) in excess of the rate or rates otherwise payable
under this Agreement, in either case until the earlier of (1) the date on which such Event of Default shall be cured or waived pursuant to the terms of this Agreement, and (2) the date
on which all Obligations (including, without limitation, all accrued and unpaid default interest) shall be paid in full, said default interest to be payable by the Company upon demand of the Lender. 

        7(j)    Fees.    The Company shall pay to the Lender on or before the Effective Date, a one time,
non-refundable facility fee in the amount of $25,000.00. 

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        7(k)    Letter of Credit Fees.    The Company shall pay to the Lender: 

        (1)  On
or before the date of issuance by the Lender of a Letter of Credit, a non-refundable issuance fee in an amount equal to the greater of:
(i) $410.00, or (ii) the per annum rate of one percent (1.00%) multiplied by the face amount of such Letter of Credit for the effective term of such Letter of Credit; 

        (2)  From
time to time upon demand by the Lender, such additional fees and charges, including, without limitation, renewal, increase, extension and transfer fees and
miscellaneous charges relating to the Letters of Credit as the Lender customarily charges with respect to similar letters of credit issued by it; and 

        (3)  All
costs incurred and payments made by the Lender by reason of any further assessment, reserve, deposit or similar requirement or any surcharge, tax or fee imposed upon
it or as a result of its compliance with any directive or requirement of any regulatory authority pertaining or relating to any Letter of Credit. 

        7(l)    Computations.    All computations of interest and fees payable hereunder shall be based upon a year of three
hundred and sixty (360) days for the actual number of days elapsed. 

        8.    Miscellaneous Provisions.    

        8(a)    Open Book Account.    The obligation of the Company to repay the Loans shall be evidenced by notations on the
books and records of the Lender. If requested by the Company from time to time, the Lender shall deliver a statement of account to the Company setting forth the unpaid balance of Loans outstanding
hereunder. Such statement shall (absent clerical error) be deemed conclusively correct and accepted by the Company unless the Company notifies the Lender to the contrary within ten
(10) Business Days following delivery of such statement. Upon any advance of any Equipment Acquisition Loan, FY 2003 Expansion Line Loan, FY 2004 Expansion Line Loan, or Working Capital Loan or
payment or prepayment of any Loan, the Lender is hereby authorized to record the date and amount of each such advance made by the Lender, or the date and amount of each such payment or prepayment of
principal of the Loans on its books (or by any analogous method the Lender may elect consistent with its customary practices) and any such recordation shall constitute prima
facie evidence of the accuracy of the information so recorded absent manifest error. The failure of the Lender to make any such notation shall not affect in any manner or to
any extent the Company's Obligations hereunder. 

        8(b)    Nature and Place of Payments.    All payments made on account of the Obligations shall be made by the Company
to the Lender without setoff or counterclaim, in lawful money of the United States of America in immediately available same day funds, free and clear of and without deduction for any taxes, fees or
other charges of any nature whatsoever imposed by any taxing authority and must be received by the Lender by 2:30 p.m. (Los Angeles time) on the day of payment, it being expressly agreed and
understood that if a payment is received after the applicable deadline by the Lender, such payment will be considered to have been made by the Company on the next succeeding Business Day and interest
thereon shall be payable by the Company at then applicable rate during such extension. All payments on account of the Obligations shall be made to the Lender through the Contact Office. If any payment
required to be made by the Company hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest thereon
shall be payable at then applicable rate during such extension. The Lender is hereby irrevocably authorized by the Company, without prior notice to the Company, but is not obligated, to debit any
general operating accounts of the Company maintained with the Lender for the full amount of monthly and periodic interest billings, fees and other Obligations payable hereunder which the Lender is
authorized to collect; provided, however, that the failure of the Lender to so 

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debit such accounts shall not in any manner or to any extent affect the obligation of the Company to pay such Obligations as provided herein and in the other Loan Documents. 

        8(c)    Prepayments.    

        (1)  The
Company may prepay Loans (other than LIBOR Rate Loans) in whole or in part at any time, it being agreed and understood that LIBOR Rate Loans outstanding may only be
repaid at the end of their respective Interest Periods. 

        (2)  All
prepayments on the Term Loans shall be applied against principal installments thereon in inverse order of maturity. 

        (3)  In
the event notwithstanding the prohibition set forth in subparagraph (1) above a LIBOR Rate Loan is prepaid prior to the end of its Interest Period, the Company
shall concurrently pay to the Lender all amounts, if any, required pursuant to Paragraph 7(h) above. 

        (4)  If
at any time the Company shall fail to maintain Liquid Assets in an aggregate dollar amount equal to or greater than $800,000.00 in accounts maintained with the
Lender, upon notice from the Lender (which notice may be telephonic), the Company shall immediately prepay the principal amount and all accrued but unpaid interest with respect to all Working Capital
Loans outstanding as of such date, together with all amounts, if any, required pursuant to Paragraph 7(h) above. 

        8(d)    Allocation of Payments Received Following Default.    Following the occurrence of an Event of Default and
acceleration of the Obligations, all amounts received by the Lender on account of the Obligations shall be applied by the Lender as follows: 

        (1)  First,
to the payment of reasonable expenses incurred by the Lender in connection with the enforcement of its rights under the Loan Documents, including, without
limitation, all costs and expenses of collection, attorneys' fees, court costs and foreclosure expenses; 

        (2)  Then,
to the Lender until all outstanding Loans, interest accrued thereon, and unrepaid L/C Drawings have been paid in full, said amounts to be allocated first to
interest and then, but only after all accrued interest has been paid in full, to principal; 

        (3)  Then,
to the Lender on account of all other outstanding Obligations until the same have been paid and performed in full; 

        (4)  Then,
and if but only if there remain Outstanding any Letters of Credit, to the Lender to hold as cash collateral for the obligation of the Company to reimburse any
future L/C Drawings as the same may occur, until there are no further Outstanding Letters of Credit; and 

        (5)  Then,
to such Persons as may be legally entitled thereto. 

        8(e)    Telephonic/Facsimile Communications.    Any agreement of the Lender herein to receive certain notices by
telephone or facsimile is solely for the convenience and at the request of the Company. The Lender shall be entitled to rely on the authority of any Person reasonably believed by the Lender to be an
authorized Person and the Lender shall not have any liability to the Company or other Person on account of any action taken or not taken by the Lender in reasonable reliance upon such telephonic or
facsimile notice. The obligation of the Company to repay the Loans shall not be affected in any way or to any extent by any failure by the Lender to receive written confirmation of any telephonic or
facsimile notice or the receipt by the Lender of a confirmation which is at variance with the terms understood by the Lender to be contained in the telephonic or facsimile notice. 

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        9.    Collateral and Credit Support Documents.    

        9(a)    Collateral Security.    As collateral security for the Obligations, on or before the Effective Date the
Company shall execute and deliver to the Lender each of the following: (1) a security agreement in the form of that attached hereto as  Exhibit A (the "Security Agreement") pursuant to which
the Company shall grant to the Lender a security interest in the Collateral, which
security interest shall be first priority and perfected to the extent required by the Lender, (2) if required by the Lender, supplemental security agreements in recordable form for filing with
the U.S. Patent and Trademark Office and Copyright Office covering all federally registered patents, trademarks and copyrights of the Company (the "Supplemental PTO Agreements"), and (3) such
authorizations to file UCC financing statements as the Lender shall request. 

        9(b)    Guarantor Credit Support.    As additional credit support for the Obligations, on or before the Effective
Date, the Company shall cause each of the Initial Guarantors to execute and deliver to the Lender each of the following: (1) a credit guaranty in the of that attached hereto as  Exhibit B (each,
 a "Guaranty") pursuant to which such Guarantor shall guarantee the Obligations on the terms and conditions set forth therein,
(2) a security agreement in the form of that attached hereto as Exhibit C (each, a "Guarantor Security Agreement") pursuant to which such
Guarantor shall grant to the Lender a security interest in the collateral described therein, which security interest shall be first priority and perfected to the extent required by the Lender,
(3) if required by the Lender, Supplemental PTO Agreements, and (4) such authorizations to file UCC financing statements as the Lender shall request. 

        9(c)    Additional Guarantor Credit Support.    As additional credit support for the Obligations, the Company shall
cause each Subsidiary of the Company formed or acquired after the Effective Date to execute and deliver to the Lender, on the date of the formation or acquisition of such Subsidiary, each of the
following: (1) a Guaranty, (2) a Guarantor Security Agreement, (3) if required by the Lender, Supplemental PTO Agreements, and (4) such authorizations to file UCC financing
statements as the Lender shall request. 

        9(d)    Additional Documents.    The Company agrees to execute and deliver and to cause to be executed and delivered
to the Lender on or before the Effective Date and from time to time thereafter, such additional documents, instruments and agreements, including, without limitation, notices to and consents of third
parties, as are in the Lender's judgment necessary or desirable to obtain for the Lender the benefit of the Collateral and the Loan Documents. 

        10.    Conditions Precedent.    

        10(a)    Effective Date.    As conditions precedent to the effectiveness of this Agreement: 

        (1)  The
Company shall have delivered or shall have had delivered to the Lender, in form and substance satisfactory to the Lender and its counsel and duly executed and
certified as required, each of the following: 

        (i)    This
Agreement; 

        (ii)  The
Security Agreement; 

        (iii)  From
each of the Initial Guarantors, a Guaranty; 

        (iv)  From
each of the Initial Guarantors, a Guarantor Security Agreement; 

        (v)  Any
Supplemental PTO Agreements requested by the Lender; 

        (vi)  All
UCC financing statements and other documents, instruments and agreements deemed necessary or appropriate by the Lender to confirm, obtain and maintain in favor of
the Lender a first priority, perfected security interest in and lien upon the Collateral, 

10

 

accompanied by such evidence as the Lender may reasonably require that after the filing of such UCC financing statements and other documents, as applicable, the Lender will have a first priority,
perfected security interest in the Collateral to the extent required by the Lender; 

        (vii) A
certificate of the Secretary or an Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to execute
and deliver the Loan Documents to which the Company is party and attaching: (x) a copy of the Articles of Incorporation of the Company and any amendments thereto, certified by the Secretary of
State of the State of California, (y) a copy of the Bylaws of the Company and any amendments thereto, certified as being accurate and complete, and (z) copies of resolutions of the Board
of Directors of the Company approving the execution and delivery of the Loan Documents to which the Company is party, the performance of its
obligations thereunder and the consummation of the transactions contemplated by the Loan Documents; 

        (viii)  A
certificate of the Secretary or an Assistant Secretary of each of the Initial Guarantors certifying the names and true signatures of the officers of
such Guarantor authorized to execute and deliver the Loan Documents to which such Guarantor is party and attaching: (x) a copy of the Articles of Incorporation of such Guarantor and any
amendments thereto, certified by the Secretary of State of the state in which such Guarantor is organized, (y) a copy of the Bylaws of such Guarantor and any amendments thereto, certified as
being accurate and complete, and (z) copies of resolutions of the Board of Directors of such Guarantor approving the execution and delivery of the Loan Documents to which such Guarantor is
party, the performance of its obligations thereunder and the consummation of the transactions contemplated by the Loan Documents; 

        (ix)  Evidence
of good standing for the Company and each of the Initial Guarantors in the state in which such Person is organized; 

        (x)  An
opinion of counsel to the Company and the Initial Guarantors in form and substance satisfactory to the Lender; 

        (xi)  Such
landlord estoppel certificates and consents to removal of personal property, as the Lender may reasonably require, all in form and substance satisfactory to the
Lender; 

        (xii) Evidence
satisfactory to the Lender that upon the funding of the Replacement Term Loan, all Indebtedness of the Company outstanding under the Existing Term Loan
Facility shall have been paid in full, the credit facilities evidenced thereby terminated and any and all Liens securing the Indebtedness thereunder terminated or assigned to the Lender, as required
by the Lender; and 

        (xiii)  Evidence
satisfactory to the Lender that any fees required to be paid pursuant to Paragraph 7(j)
above and all other Indebtedness, fees, costs and expenses payable by the Company hereunder on or prior to the Effective Date shall have been paid or will be timely paid; and 

        (2)  All
acts and conditions (including, without limitation, the obtaining of any necessary regulatory approvals and the making of any required filings, recordings or
registrations) required to be done and performed and to have happened precedent to the execution, delivery and performance of the Loan Documents and to constitute the same legal, valid and binding
obligations, enforceable in accordance with their respective terms, shall have been 

11

 

done and performed and shall have happened in due and strict compliance with all applicable laws. 

If
the conditions precedent set forth in this Paragraph 10(a) shall not have occurred on or before September 30, 2002, then any agreement
on the part of the Lender hereunder shall, at the option of the Lender, terminate and be of no further force or effect. 

        10(b)    All Credit Events.    As conditions precedent to the Lender's obligation to fund any Loan or issue any Letter
of Credit on or after the Effective Date or to permit the continuation of any LIBOR Rate Loan as such or the conversion of any Loan to a LIBOR Rate Loan, at and as of the date of such funding,
continuation or conversion: 

        (1)  In
the case of an Equipment Acquisition Loan, a FY 2003 Expansion Line Loan, a FY 2004 Expansion Line Loan, or a Working Capital Loan, the Company shall have delivered a
written Loan Request therefore; 

        (2)  In
the case of the issuance of a Letter of Credit, there shall have been delivered to the Lender a Letter of Credit Application and all required L/C Documents relating
thereto, and the Company shall be in compliance with the limits set forth in Paragraph 5(a) above; 

        (3)  The
representations and warranties of the Company and its Subsidiaries contained in the Loan Documents shall be accurate and complete in all material respects as if made
on and as of the date of such funding, continuation or conversion; 

        (4)  There
shall not have occurred and be continuing an Event of Default or Potential Default; 

        (5)  If
such Loan is a Working Capital Loan: (i) the aggregate amount of Working Capital Loans outstanding shall not exceed the Working Capital Facility Credit Limit,
and (ii) Liquid Assets in an aggregate dollar amount equal to or greater than $800,000.00 shall be in accounts maintained with the Lender; and 

        (6)  If
such Loan is an Equipment Acquisition Loan, a FY 2003 Expansion Line Loan, a FY 2004 Expansion Line Loan, or a Working Capital Loan, evidence satisfactory to the
Lender that the proceeds of such Loan will be used for the purposes set forth in Paragraphs 1(d), 2(d), 3(d), and  4(d) above, as applicable. 

By
delivering a Loan Request to the Lender hereunder, the Company shall be deemed to have represented and warranted the accuracy and completeness of the statements set forth in subparagraphs (b)(2)
through (b)(6) above, as applicable. 

        11.    Representations and Warranties of the Company.    As an inducement to the Lender to enter into this Agreement
and to fund Loans as provided herein, the Company represents and warrants to the Lender that: 

        11(a)    Financial Condition.    The financial statements, dated the Statement Date and the Interim Date, copies of
which have heretofore been furnished to the Lender by the Company, are complete and correct in all material respects and present fairly in accordance with GAAP the consolidated and consolidating
financial condition of the Company and its Subsidiaries at such dates and the results of its operations and changes in financial position for the fiscal periods then ended, subject, in the case of the
financial statements dated as of the Interim Date, to normal year-end audit adjustments. 

        11(b)    No Change.    Since the Statement Date there has been no Material Adverse Effect. 

        11(c)    Corporate Existence; Compliance with Law.    The Company and each of its Subsidiaries: (1) is duly
organized, validly existing and in good standing as a corporation under the laws of the 

12

 

jurisdiction of its organization and is qualified to do business in each jurisdiction where its ownership of property or conduct of business requires such qualification and where failure to qualify
is reasonably likely to have a Material Adverse Effect, (2) has the corporate power and authority and the legal right to own and operate its property and to conduct business in the manner in
which it does and proposes so to do, and (3) is in material compliance with all Requirements of Law and Contractual Obligations, the failure to comply with which could have a Material Adverse
Effect. 

        11(d)    Corporate Power; Authorization; Enforceable Obligations.    The Company and each of its Subsidiaries has the
power and authority and the legal right to execute, deliver and perform the Loan Documents to which it is a party and has taken all necessary corporate or other organizational action to authorize the
execution, delivery and performance of such Loan Documents. The Loan Documents to which the Company and each of its Subsidiaries are party have been duly executed and delivered on behalf of such
Person and constitute legal, valid and binding obligations of such Person, enforceable against such Person in accordance with their respective terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and the effect of equitable principles whether applied in an action at law or a suit in equity. 

        11(e)    No Legal Bar.    The execution, delivery and performance of the Loan Documents to which the Company and each
of its Subsidiaries is party, the borrowing hereunder and the use of the proceeds thereof, will not violate any Requirement of Law or any Contractual Obligation of the Company or any of its
Subsidiaries in any material respect or create or result in the creation of any Lien on any assets of the Company or any of its Subsidiaries (other than the Liens created by the Loan Documents). 

        11(f)    No Material Litigation.    No litigation, investigation or proceeding of or before any arbitrator, court or
Governmental Authority is pending or, to the knowledge of the Company or any of its Subsidiaries, threatened by or against the Company or any of its Subsidiaries or against its or their properties or
revenues which is likely to be adversely determined and which, if adversely determined, is likely to have a Material Adverse Effect. 

        11(g)    Taxes.    The Company and each of its Subsidiaries has filed or caused to be filed all U.S. and other
material tax returns that are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property other than taxes
which are being contested in good faith by appropriate proceedings and as to which the Company or such Subsidiary, as applicable, has established adequate reserves in conformity with GAAP. 

        11(h)    Investment Company Act.    Neither the Company nor any of its Subsidiaries is an "investment company" or a
company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 

        11(i)    Subsidiaries.    Set forth on Schedule 11(i) is an
accurate and complete list of the Subsidiaries of the Company, their respective jurisdictions of incorporation and the percentage of their capital stock owned by the Company or Subsidiaries of the
Company. All of the issued and outstanding share of capital stock of such Subsidiaries have been duly authorized and issued and are fully paid and non-assessable. 

        11(j)    Federal Reserve Board Regulations.    Neither the Company nor any of its Subsidiaries is engaged nor will it
engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" within the respective meanings of such
terms under Regulation U. No part of the proceeds of any Loan issued hereunder will be used for "purchasing" or "carrying" "margin stock" as so defined or for 

13

 

any purpose which violates, or which would be inconsistent with, the provisions of the Regulations of the Board of Governors of the Federal Reserve System. 

        11(k)    ERISA.    The Company and each of its Subsidiaries is in compliance in all material respects with the
requirements of ERISA and, to the knowledge of the Company, no Reportable Event has occurred under any Plan maintained by the Company and any of its Subsidiaries which is likely to result in the
termination of such Plan for purposes of Title IV of ERISA. 

        11(l)    Assets.    The Company and each of its Subsidiaries has good and marketable title to all property and assets
reflected in the financial statements dated the Statement Date referred to in Paragraph 11(a) above, except property and assets sold or otherwise
disposed of in the ordinary course of business subsequent to the Statement Date. Neither the Company nor any of its Subsidiaries has outstanding
Liens on any of its properties or assets nor are there any security agreements to which the Company or any of its Subsidiaries, including the Company, is a party, or title retention agreements,
whether in the form of leases or otherwise, of any personal property except as permitted under Paragraph 13(a) below. 

        11(m)    Securities Acts.    Neither the Company nor any of its Subsidiaries has issued any unregistered securities in
violation of the registration requirements of Section 5 of the Securities Act of 1933, as amended, or any other law, and is not in material violation of any rule, regulation or requirement
under the Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended. The Company is not required to qualify an indenture under the Trust Indenture Act of 1939, as
amended, in connection with its execution and delivery of the Loan Documents. 

        11(n)    Consents, Etc.    No consent, approval, authorization of, or registration, declaration or filing with any
Governmental Authority or any other Person is required in connection with the execution and delivery of the Loan Documents (other than filings to perfect the Liens granted pursuant to the Loan
Documents) or the performance of or compliance with the terms, provisions and conditions hereof or thereof other than such as have been obtained prior to the Effective Date. 

        11(o)    Hazardous Materials.    Neither the Company nor, to the knowledge of the Company, any other Person has:
(1) caused or permitted any Hazardous Materials to be disposed of in, on, under or about any Property or any part thereof, and neither any Property, nor any part thereof, has ever been used
(whether by the Company or, to the knowledge of the Company, by any other Person) for activities involving, directly or indirectly, the disposal of any Hazardous Materials; (2) caused or
permitted to be incorporated into or utilized in the construction of any improvements located on any Property any chemical, material, or substance to which exposure is prohibited, limited or regulated
by any Hazardous Materials Laws or which, even if not so regulated, is known to pose a hazard (either in its present form or if disturbed or removed) to the health and safety of the occupants of any
Property or of property adjacent to any Property; or (3) discovered any occurrence or condition on any Property that could cause any Property or any part thereof to be in violation of any
Hazardous Materials Laws. 

        11(p)    Regulated Entities.    Neither the Company nor any of its Subsidiaries is subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its
ability to incur Indebtedness. 

        11(q)    Copyrights, Patents, Trademarks and Licenses, Etc.    The Company and each of its Subsidiaries or is licensed
or otherwise have the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights used by such Person in the conduct of
its business. To the knowledge of the Company, no slogan or other 

14

 

advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any of its Subsidiaries infringes upon any rights
held by any other Person in any material respect. No claim or litigation regarding any of the foregoing is
pending or, to the Company's knowledge, threatened and, to the knowledge of the Company, no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is
pending or proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. 

        11(r)    Insurance.    The properties and assets of the Company and each of its Subsidiaries are insured with
financially sound and reputable insurance companies (not Affiliates) acceptable to the Lender, in such amounts, with such deductibles and covering such risks as are customarily carried by companies
engaged in similar businesses and owning similar properties in localities where the Company and such Subsidiaries operate. 

        12.    Affirmative Covenants.    The Company hereby covenants and agrees with the Lender that, as long as any
Obligations remain unpaid or the Lender has any obligation to make Loans hereunder, the Company shall: 

        12(a)    Financial Statements and Reports.    Furnish or cause to be furnished to the Lender: 

        (1)  Within
one hundred twenty (120) days after the last day of each Fiscal Year, a copy of the consolidated and consolidating statements of income and cash flow
statements for the Company and its Subsidiaries for such year and balance sheets as of the end of such Fiscal Year presented fairly in accordance with GAAP and reviewed by a firm of independent
certified public accountants reasonably acceptable to the Lender; provided, however, that a copy of an audited 10-K the Company has submitted for filing with the Securities and Exchange
Commission for such Fiscal Year may be substituted for such documents unless the Company is otherwise notified by the Lender; 

        (2)  Within
sixty (60) days after the last day of each fiscal quarter, a copy of the consolidated and consolidating statements of income and cash flow statements for
the Company and its Subsidiaries for such fiscal quarter and balance sheets as of the end of such fiscal quarter presented fairly in accordance with GAAP and reviewed by a firm of independent
certified public accountants reasonably acceptable to the Lender; provided, however, that a copy of an audited 10-Q the Company has submitted for filing with the Securities and Exchange
Commission for such fiscal quarter may be substituted for such documents unless the Company is otherwise notified by the Lender; 

        (3)  Within
thirty (30) days after the end of each fiscal quarter, a receivables aging report, a payables aging report, same store sales and EBITDA reports, and
inventory reports for the Company and its Subsidiaries as of the last day of such fiscal quarter, said reports to be in form and detail reasonably satisfactory to the Lender; 

        (4)  Copies
of all proxy statements, financial statements, and reports which the Company sends to its stockholders, and copies of all regular, periodic and special reports,
and all registration statements
under the Act which the Company files with the Securities and Exchange Commission or any Governmental Authority which may be substituted therefor, or with any national securities exchange; and 

        (5)  Promptly
upon request of the Lender, such additional financial and other information, including, without limitation, financial statements of the Company and its
Subsidiaries as the Lender may from time to time reasonably request, including, without limitation, such information as is necessary to enable the Lender to assign or participate out any of its
interests in the Loans and other Obligations hereunder. 

15

 

        12(b)    Payment of Indebtedness.    And shall cause each of its Subsidiaries to, pay, discharge or otherwise satisfy
at or before maturity or before it becomes delinquent, defaulted or accelerated, as the case may be, all its Indebtedness (including taxes), except Indebtedness being contested in good faith and for
which provision is made to the satisfaction of the Lender for the payment thereof in the event the Company or such Subsidiary is found to be obligated to pay such Indebtedness and which Indebtedness
is thereupon promptly paid by the Company or such Subsidiary. 

        12(c)    Maintenance of Existence and Properties.    And shall cause each of its Subsidiaries to: (1) maintain
its corporate existence (except, subject to the requirements of Paragraph 13(c) below, a merger into the Company or another Subsidiary),
(2) maintain all rights, privileges, licenses, approvals, franchises, properties and assets necessary or desirable in the normal conduct of its business (except to the extent that failure to do
so could not reasonably be expected to have a Material Adverse Effect), and (3) comply in all material respects with all Contractual Obligations and Requirements of Law the failure to comply
with which could reasonably expected to have a Material Adverse Effect. 

        12(d)    Inspection of Property; Books and Records; Discussions.    And shall cause each of its Subsidiaries to, keep
proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law and permit representatives of the Lender to visit and inspect any of its
or their properties and examine and make abstracts from any of its or their books and records at any reasonable time and as often as may reasonably be desired by the Lender and to discuss the
business, operations, properties and financial and other condition of the Company and its Subsidiaries with officers and employees of the Company, and with its or their independent certified public
accountants. As long as there has not occurred and is continuing an Event of Default or Potential Default, such inspections shall be at no cost to the Company. 

        12(e)    Notices.    Promptly give written notice to the Lender of: 

        (1)  The
occurrence of any Potential Default or Event of Default; 

        (2)  Any
litigation or proceedings affecting the Company or any of its Subsidiaries or the Collateral involving amounts in excess of $100,000.00 in the aggregate; and 

        (3)  Any
other event which, in the reasonable business judgment of the Company, could have a Material Adverse Effect. 

        12(f)    Expenses.    Pay all reasonable out-of-pocket expenses (including fees and
disbursements of outside counsel and allocated costs of internal counsel) of incurred by or assessed against the Lender incident to: (1) the preparation, negotiation and closing of the
transaction contemplated hereby and the administration of the Loan Documents; and (2) the protection of the rights of the Lender under the Loan Documents and the enforcement of payment of the
Obligations, whether by judicial proceedings or otherwise, including, without limitation, in connection with bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar
proceedings involving the Company or a "workout" of the Obligations. The Obligations of the Company under this Paragraph 12(f) shall be effective
and enforceable whether or not any Loan is funded and shall survive payment of all other Obligations. 

        12(g)    Loan Documents.    Comply with and observe all terms and conditions of the Loan Documents. 

        12(h)    Insurance.    And shall cause each of its Subsidiaries to, obtain and maintain insurance, including, without
limitation, property insurance, casualty insurance and general liability insurance, with responsible companies, in such amounts and against such risks as are usually carried by 

16

 

corporations engaged in similar businesses similarly situated, and furnish the Lender upon request with certificates evidencing such insurance. 

        12(i)    Hazardous Materials.    And shall cause each of its Subsidiaries to: 

        (1)  Conduct
its operations and keep and maintain its Properties in material compliance with all applicable Environmental Laws. 

        (2)  Give
prompt written notice to the Lender, but in no event later than ten (10) days after becoming aware thereof, of the following: (i) any enforcement,
cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Company or any of its Affiliates or any of their respective properties pursuant to any
applicable Environmental Laws where the potential liability to the Company or any of its Subsidiaries could reasonably be expected to be in excess of $100,000.00 in the aggregate for all such cases,
(ii) all other Environmental Claims, and (iii) any
environmental or similar condition on any real property adjoining or in the vicinity of the property of the Company or its Affiliates that could reasonably be anticipated to cause such property or any
part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of such property under any Environmental Laws. 

        (3)  Upon
the written request of the Lender, submit to the Lender, at the Company's sole cost and expense, at reasonable intervals, a report providing an update of the status
of any environmental, health or safety compliance, hazard or liability issue identified in any notice required pursuant to this Paragraph 12(i). 

        (4)  At
all times indemnify and hold harmless the Lender from and against all liability arising out of any Environmental Claims, except those Environmental Claims caused as a
primary and direct result of the gross negligence or willful misconduct of the Lender. 

        12(j)    ERISA.    Furnish to the Lender promptly and in any event within ten (10) days after the Company knows
or has reason to know of the occurrence of a Reportable Event with respect to a Plan with regard to which notice must be provided to the PBGC, a copy of such materials required to be filed with the
PBGC with respect to such Reportable Event and in each such case a statement of the chief financial officer of the Company setting forth details as to such Reportable Event and the action which the
Company proposes to take with respect thereto. 

        12(k)    Compliance with Laws.    And shall cause each of its Subsidiaries to, comply, in all material respects with
all Requirements of Law and Contractual Obligations the failure to comply with which could reasonably be expected to have a Material Adverse Effect. 

        12(l)    Line Cleanup.    Reduce the dollar amount of Working Capital Loans outstanding to zero during the Second
Quarter and Third Quarter of each Fiscal Year. 

        13.    Negative Covenants.    The Company hereby agrees that, as long as any Obligations remain unpaid or the Lender
has any obligation to make Loans hereunder, the Company shall not, directly or indirectly: 

        13(a)    Liens.    Nor permit any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of
its property and assets, including, without limitation, property and assets included in the Collateral, except Liens securing the Obligations and: 

        (1)  Liens
or charges for current taxes, assessments or other governmental charges which are not delinquent or which remain payable without penalty, or the validity of which
are contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof, provided the
Company or such Subsidiary shall have set aside on its books and shall maintain adequate reserves for the payment of same in conformity with GAAP; 

17

  

        (2)  Liens,
deposits or pledges made to secure statutory obligations, surety or appeal bonds, or bonds to obtain, or to obtain the release of, attachments, writs of
garnishment or for stay of execution, or to secure the performance of bids, tenders, contracts (other than for the payment of borrowed money), leases or for purposes of like general nature in the
ordinary course of the business of the Company and its Subsidiaries; 

        (3)  Purchase
money security interests for property hereafter acquired, conditional sale agreements, or other title retention agreements, with respect to property hereafter
acquired; provided, however, that no such security interest or agreement shall extend to any property other than the property acquired and the principal amount of the Indebtedness secured thereby
shall not exceed one hundred percent (100%) of the cost of such property; 

        (4)  Statutory
Liens of landlord's, carriers, warehousemen, mechanics, materialmen and other similar Liens imposed by law and created in the ordinary course of business for
amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves are being maintained in conformity with GAAP; 

        (5)  Attachment
and judgment Liens not otherwise constituting an Event of Default each of which Lien is in existence less than thirty (30) days after the entry thereof
or with respect to which execution has been stayed, payment is covered in full by insurance, or the Borrowers shall in good faith be prosecuting an appeal or proceedings for review and shall have set
aside on its books such reserves as may be required by GAAP with respect to such judgment or award; and 

        (6)  Liens
existing on the Effective Date shown on the financial statements referred in Paragraph 11(a) above (other
than Liens securing Indebtedness under the Existing Term Loan Facility). 

        13(b)    Indebtedness.    Nor permit any of it Subsidiaries to create, incur, assume or suffer to exist, or otherwise
become or be liable in respect of any Indebtedness except: 

        (1)  The
Obligations; 

        (2)  Indebtedness
reflected in the financial statements referred to in Paragraph 11(a) above (other than Indebtedness
under the Existing Term Loan Facility); 

        (3)  Trade
debt incurred in the ordinary course of business and outstanding less than ninety (90) days after the same has become due and payable or which is being
contested in good faith, provided provision is made to the reasonable satisfaction of the Lender for the eventual payment thereof in the event it is found that such contested trade debt is payable by
it; 

        (4)  Indebtedness
secured by Liens permitted under Paragraph 13(a)(1) through  (a)(5) above; 

        (5)  Letters
of Credit Nos. 1297258 and 50090701 issued by Fleet National Bank for the account of the Company and the Guarantors, which letters of credit will not be renewed
or in any way extended longer than the expiration dates set forth thereon as of the Effective Date; and 

        (6)  Other
Indebtedness (restricted to purchase money transactions) not to exceed $100,000.00 in the aggregate at any time outstanding. 

        13(c)    Consolidation and Merger.    Nor permit any of its Subsidiaries to liquidate or dissolve or enter into any
consolidation, merger, partnership, joint venture, syndicate or other combination other than mergers and consolidations of Subsidiaries into the Company or other Subsidiaries or other mergers,
consolidations and acquisitions in which the Company shall be the surviving 

18

 

corporation; provided, however, in no event shall the Company make acquisitions for a total consideration in excess of $250,000.00 during any Fiscal Year. 

        13(d)    Payment of Dividends.    Declare or pay any dividends upon its shares of stock now or hereafter outstanding
or make any distribution of assets to its stockholders as such, whether in cash, property or securities, except dividends payable in shares of capital stock. 

        13(e)    Repurchase of Stock.    Nor permit any of its Subsidiaries to acquire, purchase, redeem or retire any shares
of its capital stock now or hereafter outstanding, in one transaction or a series of transactions. 

        13(f)    Sale of Assets.    Nor permit any of its Subsidiaries to sell, lease, assign, transfer or otherwise dispose
of any of its assets, whether now owned or hereafter acquired, other than: (1) dispositions of inventory in the ordinary course of business (which dispositions may be made free from the Liens
of the Loan
Documents), the disposition in the ordinary course of business, without replacement, of equipment which is obsolete or no longer needed in the conduct of its business and the disposition and
replacement in the ordinary course of business of equipment with other equipment of at least equal utility and value (provided that, except for purchase money security interests and rights of lessors
of equipment if permitted hereunder, the Lender's Lien upon such newly-acquired equipment shall have the same priority as the Lender's Lien upon the replaced equipment), (2) the liquidation of
assets of retail stores which have been closed, and (3) the sale of retail stores in accordance with Paragraph 13(p) below. 

        13(g)    Limitation on Transactions with Affiliates.    Nor permit any of its Subsidiaries to purchase, acquire or
lease any property from, or sell, transfer or lease any property to, or lend or advance any money to, or borrow any money from, or guarantee any obligation of, or acquire any stock, obligations or
securities of, or enter into any merger or consolidation agreement, or any management or similar fee, agreement with, any Affiliate, or enter into any other transaction or arrangement or make any
payment to or otherwise deal with, in the ordinary course of business or otherwise, any Affiliate other than: (1) on terms no less favorable to the Company or such Subsidiary as would be
obtained in an arms-length transaction with a non-Affiliate, and (2) if but only if such transaction, arrangement, payment or other dealing would not violate any other
term or provision of this Agreement or the other Loan Documents. 

        13(h)    Accounting Changes.    Make any significant change in accounting treatment or reporting practices, except as
required by GAAP, or change its fiscal year. 

        13(i)    Capital Expenditures.    Nor permit any of its Subsidiaries to make or commit to make Capital Expenditures
(including Expansion Expenditures) in excess of $3,800,000.00 in the aggregate during the Fiscal Year ending on July 2, 2003 and $2,000,000.00 in the aggregate during any Fiscal Year
thereafter. 

        13(j)    Loans; Advances.    Nor permit any of its Subsidiaries to, directly or indirectly, make or commit to make any
advance, loan or extension of credit (other than extensions of credit to customers in the ordinary course of business) or capital contribution to any Person other than: (1) trade credit
extended in the ordinary course of business, (2) loan and advances to employees in an aggregate amount not to exceed $50,000.00 at any time outstanding, and (3) intercompany loans and
investments in other Subsidiaries or the Company. 

        13(k)    Leverage Ratio.    Permit as of the end of any fiscal quarter, the ratio of Indebtedness of the Company and
its Subsidiaries on a consolidated basis to the Effective Tangible Net Worth of the Company and its Subsidiaries on a consolidated basis to be less than 2.75:1.00. 

19

 

        13(l)    Minimum Effective Tangible Net Worth.    Permit as of the end of any fiscal quarter the Effective Tangible
Net Worth of the Company and its Subsidiaries on a consolidated basis to be less than $4,900,000.00. 

        13(m)    Minimum EBITDA.    Permit as of the end of any fiscal quarter, calculated for such fiscal quarter and the
immediately preceding three fiscal quarters, EBITDA of the Company and its Subsidiaries on a consolidated basis to be less than $4,000,000.00. 

        13(n)    Profitability.    

        (1)  Permit
the combined net income of the Company and its Subsidiaries, determined in accordance with GAAP, as of the end of any fiscal quarter other than the First Quarter
of any Fiscal Year to be less than $1.00; and 

        (2)  Permit
losses as of the end of the First Quarter of any Fiscal Year to be more than $400,000.00. 

        13(o)    Minimum Liquid Assets    Permit for more than ten (10) Business Days during any Fiscal Year, the
aggregate dollar amount of Liquid Assets held by the Company in accounts maintained with the Lender to be less than $800,000.00. 

        13(p)    Retail Stores    Permit, during any fiscal year of the Company, the number of stores directly operated by the
Company or its Subsidiaries which have been sold during such fiscal year to exceed fifteen percent (15%) of the total number of retail stores directly operated by the Company or its Subsidiaries as of
the first day of such fiscal year. 

        14.    Events of Default.    Upon the occurrence of any of the following events (an "Event of Default"): 

        14(a)The
Company shall fail to pay any principal or interest on the Loans or fees on the date when due or shall fail to pay within five (5) days of the date when due
any other Obligation under the Loan Documents; or 

        14(b)Any
representation or warranty made by the Company or any of the Guarantors in any Loan Document shall be inaccurate or incomplete in any material respect on or as of
the date made; or 

        14(c)The
Company shall fail to maintain its corporate existence or shall default in the observance or performance of any covenant or agreement contained in  Paragraph 12(l) or Paragraphs 13(a) through 13(n)
above; 

        14(d)The
Company shall default in the observance or performance of the covenant contained in Paragraph 13(o) above
and such default shall continue five (5) days after delivery by the Lender to the Company of written notice of such default; or 

        14(e)The
Company or any of the Guarantors shall fail to observe or perform any other term or provision contained in the Loan Documents and such failure shall continue
thirty (30) days after delivery by the Lender to the Company of written notice of such failure; or 

        14(f)(1)
The Company or any of the Guarantors shall default in any payment of principal of or interest on any Indebtedness (other than the Obligations) or (2) any
Person shall default in the payment of any Indebtedness upon which the Company or any of the Guarantors is contingently liable, or (3) any other event shall occur, the effect of which is to
permit such Indebtedness to be declared or otherwise to become due prior to its stated maturity; or 

        14(g)(1)
The Company or any of the Guarantors shall commence any case, proceeding or other action (i) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief 

20

 

entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (ii) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or
the Company or any of the Guarantors shall make a general assignment for the benefit of its creditors; or (2) there shall be commenced against the Company or any of the Guarantors any case,
proceeding or other action of a nature referred to in clause (1) above which (i) results in the entry of an order for relief or any such adjudication or appointment, or
(ii) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (3) there shall be commenced against the Company or any of the Guarantors any case,
proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of its assets which results in the entry of an order
for any such relief which shall not have been vacated, discharged, stayed, satisfied or bonded pending appeal within sixty (60) days from the entry thereof; or (4) the Company or any of
the Guarantors shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in (other than in connection with a final settlement), any of the acts set forth in
clause (1), (2) or (3) above; or (5) the Company or any of the Guarantors shall generally not, or shall be unable to, or shall admit in writing its inability to pay its
debts as they become due; or 

        14(h)(1)
Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(2) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or nor waived, shall exist with respect to any Plan, (3) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or institution of proceedings is, in the reasonable opinion of the Lender,
likely to result in the termination of such Plan for purposes of Title IV of ERISA, and, in the case of a Reportable Event, the continuance of such Reportable Event unremedied for ten days after
notice of such Reportable Event pursuant to Section 4042(a), (c) or (d) of ERISA is given or the continuance of such proceedings for ten days after commencement thereof, as the
case may be, (4) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (5) any withdrawal liability to a Multiemployer Plan shall be incurred by the Company or
(6) any other event or condition shall occur or exist; and in each case in clauses (1) through (6) above, such event or condition, together with all other such events or
conditions, if any, is likely to subject the Company to any tax, penalty or other liabilities in the aggregate material in relation to the business, operations, property or financial or other
condition of the Company; or 

        14(i)One
or more judgments or decrees in excess of $500,000.00 in the aggregate shall be entered against the Company or any of the Guarantors and such judgments or decrees
shall not have been vacated, discharged, stayed, satisfied or bonded pending appeal within sixty (60) days from the entry thereof; or 

        14(j)Any
of the Guarantors shall fail to observe or perform any provision of its Guaranty, or any other Loan Document to which it is party, or shall attempt to rescind or
revoke its Guaranty or any other such Loan Document, with respect to future transactions or otherwise; or 

        14(k)There
shall occur following the Effective Date any event which is reasonably likely to have a Material Adverse Effect; or 

        14(k)The
Lien of the Lender upon any of the Collateral shall cease to be perfected or shall cease to have the priority required pursuant to the Loan Documents; 

THEN,
automatically upon the occurrence of an Event of Default under Paragraph 14(g) above and, in all other cases, at the option of the Lender:
(1) the Lender's obligation to make Loans or issue Letters of Credit shall terminate and the principal balance of outstanding Loans and interest 

21

 

accrued but unpaid thereon and all other Obligations shall become immediately due and payable, without demand upon or presentment to the Company, which are expressly waived by the Company, and
(2) the Lender may immediately exercise all rights, powers and remedies available to it at law, in equity or otherwise, including, without limitation, under the Collateral Documents and the
Guaranties. 

        15.    Miscellaneous Provisions.    

        15(a)    No Assignment.    The Company may not assign its rights or obligations under this Agreement or any other Loan
Document without the prior written consent of the Lender. Any purported assignment in violation of this Paragraph 15(a) shall automatically be
deemed null and void. Subject to the foregoing, all provisions contained in this Agreement and in any document or agreement referred to herein or relating hereto shall inure to the benefit of the
Lender, its successors and assigns, and shall be binding upon the Company, its successors and assigns. 

        15(b)    Amendment.    Neither this Agreement nor any other Loan Document may be amended or terms or provisions hereof
waived unless such amendment or waiver is in writing and signed by the Lender and the Company. 

        15(c)    Cumulative Rights; No Waiver.    The rights, powers and remedies of the Lender under this Agreement and the
other Loan Documents are cumulative and in addition to all rights, power and remedies provided under any and all agreements between the Company and the Lender relating hereto, at law, in equity or
otherwise. Any delay or failure by the Lender to exercise any right, power or remedy shall not constitute a waiver thereof by the Lender, and no single or partial exercise by the Lender of any right,
power or remedy shall preclude other or further exercise thereof or any exercise of any other rights, powers or remedies. 

        15(d)    Entire Agreement.    This Agreement and the documents and agreements referred to herein embody the entire
agreement and understanding between the parties hereto and supersede all prior agreements and understandings relating to the subject matter hereof and thereof. 

        15(e)    Survival.    All representations, warranties, covenants and agreements contained in this Agreement and in the
other Loan Documents on the part of the Company shall survive the termination of this Agreement and shall be effective until the Obligations are paid and performed in full or longer as expressly
provided herein. 

        15(f)    Notices.    All notices given by any party to the others under this Agreement and the other Loan Documents
shall be in writing unless otherwise provided for herein, delivered by facsimile transmission, by personal delivery or by overnight courier, addressed to the party as set forth on  Annex 2 attached
hereto, as such Annex 2 may be amended from time to time. Any party may change the
address to which notices are to be sent by notice of such change to each other party given as provided herein. Such notices shall be effective on the date received. 

        15(g)    Governing Law.    This Agreement and the other Loan Documents shall be governed by and construed in
accordance with the internal laws of the State of California. 

        15(h)    Assignments, Participations, Etc.    

        (1)  The
Lender may at any time with, but only so long as there does not exist an Event of Default, the consent of the Company (such consent not to be unreasonably withheld),
assign and delegate to one or more financial institutions (each an "Assignee") all, or any part of its rights and obligations hereunder and under the other Loan Documents 

        (2)  In
addition, the Lender may at any time sell to one or more financial institutions or other Persons participating interests in any Loans, the funding commitment of the
Lender (including any commitment to fund future Loans) and the other interests of the Lender 

22

 

hereunder and under the other Loan Documents; provided, however, that (i) the Lender's obligations under this Agreement shall remain unchanged, (ii) the Lender shall remain solely
responsible for the performance of such obligations, and (iii) the Company shall continue to deal solely and directly with the Lender in connection with this Agreement and the other Loan
Documents. 

        (3)  Notwithstanding
any other provision contained in this Agreement or any other Loan Document to the contrary, the Lender may assign all or any portion of the Loans held by
it to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank. 

        15(i)    Counterparts.    This Agreement and the other Loan Documents may be executed in any number of counterparts,
all of which together shall constitute one agreement. 

        15(j)    Consent to Jurisdiction.    ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY
AND THE LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY AND THE LENDER IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN
RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY AND THE LENDER EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY CALIFORNIA LAW. 

        15(k)    Waiver of Jury Trial.    THE COMPANY AND THE LENDER EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY AND THE
LENDER EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A
TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THE COMPANY WAIVES ITS RIGHT TO NOTICE OR HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 

        15(l)    Indemnity.    Whether or not the transactions contemplated hereby are consummated, the Company shall
indemnify and hold the Lender and each of its officers, directors, employees, 

23

 

counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses and disbursements (including reasonable attorney's fees and expenses, including the documented cost of internal counsel) of any kind or nature whatsoever
which may at any time (including at any time following repayment of the Loans) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of the inaccuracy or
incompleteness of any representation or warranty made by the Company or the Guarantor in any Loan Document or otherwise relating to or arising out of this Agreement or any document contemplated by or
referred to herein, or the transactions contemplated hereby or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any insolvency proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or the use of the proceeds thereof,
whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, however, that the Company shall have no obligation hereunder to any
Indemnified Person with respect to Indemnified Liabilities resulting from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this  Paragraph 13(l) shall survive
payment of all other Obligations and the termination of this Agreement. 

        15(m)    Marshalling; Payments Set Aside.    The Lender shall not be under any obligation to marshall any assets in
favor of the Company or any other Person or against or in payment of any or all of the Obligations. To the extent that the Company makes a payment or payments to the Lender or the Lender enforces the
Liens under the Collateral Documents or exercises its rights of set-off, and such payment or payments or the proceeds of such enforcement or set-off or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including
pursuant to any settlement entered into by the Lender in its discretion) to be repaid to a trustee, receiver or any other party in connection with any insolvency proceeding, or otherwise, then, to the
extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such
enforcement or set-off had not occurred. 

        15(n)    Set-off.    In addition to any rights and remedies of the Lender provided by law, if an Event of
Default exists, the Lender is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing to, the Lender to or for the credit or
the account of the Company against any and all Obligations owing to the Lender, now or hereafter existing, irrespective of whether or not the Lender shall have made demand under this Agreement or any
Loan Document and although such Obligations may be contingent or unmatured. The Lender agrees promptly to notify the Company after any such set-off and application made by the Lender;
provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. 

        15(o)    Severability.    The illegality or unenforceability of any provision of this Agreement or any other Loan
Document or any instrument or agreement required hereunder or thereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions hereof or thereof. 

        15(p)    No Third Parties Benefited.    This Agreement and the other Loan Documents are made and entered into for the
sole protection and legal benefit of the Company and the Lender and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct
or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. The Lender shall not have any obligation to any Person not a party to this Agreement or
other Loan Documents. 

24

  

        15(q)    No Further Commitment.    THE COMPANY EXPRESSLY ACKNOWLEDGES AND AGREES THAT NOTHING CONTAINED IN THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL IN ANY MANNER OR TO ANY EXTENT CONSTITUTE OR BE IMPLIED TO CONSTITUTE ANY AGREEMENT OF THE LENDER TO EXTEND THE MATURITY DATE OF ANY CREDIT FACILITY BEING
PROVIDED TO THE COMPANY BY THE LENDER BEYOND THE DATE SET FORTH HEREIN, NOTWITHSTANDING THE COMPLIANCE OF THE COMPANY WITH ALL TERMS AND CONDITIONS SET FORTH HEREIN. THE COMPANY HEREBY REPRESENTS AND
WARRANTS TO THE LENDER THAT IT IS TAKING SUCH ACTIONS AS ARE NECESSARY TO ASSURE THE AVAILABILITY TO THE COMPANY OF FINANCING FOR ITS OPERATIONS FROM AND AFTER SUCH DATES FROM SOURCES OTHER THAN THE
LENDER. 

        16.    Definitions.    For purposes of this Agreement, the terms set forth below shall have the following meanings: 

        "Affiliate" shall mean, as to any Person, any other Person directly or indirectly controlling, controlled by or under direct or indirect
common control with, such Person. "Control" as used herein means with respect to any business entity the power to direct the management and policies of such business entity. 

        "Agreement" shall mean this Credit Agreement, as the same may be amended, extended or replaced from time to time. 

        "Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banks in Los Angeles, California are authorized or
obligated to close their regular banking business. 

        "Capital Expenditures" shall mean, for any period, the aggregate of all expenditures by the Company and its Subsidiaries for the
acquisition or leasing of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) which should be capitalized under GAAP on
a consolidated balance sheet of the Company, less net proceeds from sales of fixed or capital assets received by the Company and its Subsidiaries during such period. 

        "Collateral" shall mean, collectively and severally, all property and assets of the Company which is at any time subject to a Lien in
favor of the Lender under the Collateral Documents. 

        "Collateral Documents" shall mean, collectively and severally, the Security Agreement, each of the Guarantor Security Agreements, and all
other documents, instruments and agreements at any time executed and delivered to the Lender relating to the Collateral, and shall include any and all amendments and extensions and replacements
thereof. 

        "Commonly Controlled Entity" of a Person shall mean a Person, whether or not incorporated, which is under common control with such Person
within the meaning of Section 411(c) of the Internal Revenue Code. 

        "Contact Office" shall mean the Lender's office located at 4400 Mac Arthur Boulevard, Suite 150, Newport Beach, California 92660, or such
other office as the Lender may notify the Company from time to time in writing. 

        "Contractual Obligation" as to any Person shall mean any provision of any security issued by such Person or of any agreement, instrument
or undertaking to which such Person is a party or by which it or any of its property is bound. 

        "EBITDA" shall mean, with respect to any Person for any fiscal period, earnings (exclusive of extraordinary gains) and before deductions
for interest and income taxes plus depreciation and amortization. 

25

 

        "Effective Date" shall mean the date on which all of the conditions precedent set forth in  Paragraph 10(a) above shall have been met to the satisfaction of the
Lender. 

        "Effective Tangible Net Worth" shall mean, with respect to any Person, total assets (exclusive of goodwill, patents, trademarks, trade
names, copyrights, organization expense, investments in and all amounts due from Affiliates, officers, or employees), plus Subordinated Debt, less Total Liabilities (excluding Subordinated Debt), at
such time. 

        "Environmental Claims" shall mean all claims, however asserted, where the potential liability to the Company and its Subsidiaries could
reasonably be expected to be in excess of $250,000.00 in the aggregate with respect to all such claims, by any governmental authority or other person alleging potential liability or responsibility for
violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources
damage, or otherwise alleging liability or responsibility for damages
(punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief resulting from or based upon (a) the
presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or
non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Materials at, in, or from property owned, operated or controlled by the Company, or
(b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. 

        "Environmental Laws" shall mean all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requested, licenses, authorizations and permits of, and agreements with, any governmental authorities, in each case relating to environmental,
health, safety and land use matters; including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water
Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community
Right-to-Know Act, the California Waste Control Law, the California Solid Waste Management, Resource, Recovery and Recycling Act, the California Water Code and the California
Health and Safety Code. 

        "Equipment Acquisition Line Conversion Date" shall mean August 29, 2003. 

        "Equipment Acquisition Line Credit Limit" shall mean $1,000,000.00. 

        "Equipment Acquisition Line Term-Out Loan shall have the meaning given such term in Paragraph 1(b) above. 

        "Equipment Acquisition Loan" shall have the meaning given such term in  Paragraph 1(a) above. 

        "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may from time to time be supplemented or amended. 

        "Event of Default" shall have the meaning given such term in Paragraph 14 above. 

        "Expansion Expenditures" shall mean Capital Expenditures directly related to the construction of new stores. 

        "Existing Term Loan Facility" shall have the meaning given such term in Recital A above. 

        "First Quarter" shall mean, with respect to any Fiscal Year, the fiscal quarter ending on or about September 30. 

        "Fiscal Year" shall mean each fiscal year of the Company, with each such fiscal year ending on the Wednesday closest to the last calendar
day of each June. 

26

 

        "Fourth Quarter" shall mean, with respect to any Fiscal Year, the fiscal quarter ending on or about June 30. 

        "Funding Account" shall mean account no. 106116938 maintained in the Company's name with the Lender. 

        "FY 2003 Expansion Line Conversion Date" shall mean June 30, 2003. 

        "FY 2003 Expansion Line Credit Limit" shall mean $1,000,000.00. 

        "FY 2003 Expansion Line Loan" shall have the meaning given such term in  Paragraph 2(a) above. 

        "FY 2003 Expansion Line Term-Out Loan" shall have the meaning given such term in  Paragraph 2(b) above. 

        "FY 2004 Expansion Line Conversion Date" shall mean June 30, 2004. 

        "FY 2004 Expansion Line Credit Limit" shall mean $1,000,000.00. 

        "FY 2004 Expansion Line Effective Date" shall mean July 1, 2003. 

        "FY 2004 Expansion Line Loan" shall have the meaning given such term in  Paragraph 2(a) above. 

        "FY 2004 Expansion Line Term-Out Loan" shall have the meaning given such term in  Paragraph 2(b) above. 

        "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time. 

        "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. 

        "Guarantors" shall mean, collectively and severally, each of the Initial Guarantors and each Subsidiary of the Company formed or acquired
following the Effective Date. 

        "Guarantor Security Agreement" shall have the meaning given such term in  Paragraph 9(b) above, and shall include any and all amendments and extensions and
replacements thereof. 

        "Guaranty" shall have the meaning given such term in Paragraph 9(b) above, and
shall include any and all amendments and extensions and replacements thereof. 

        "Hazardous Materials" shall mean: (a) "hazardous substances", "hazardous wastes," "hazardous materials," or "toxic substances," as
defined in any of the Hazardous Material Laws; (b) any pollutant or contaminant, or hazardous, dangerous or toxic chemical, material, waste or substance ("pollutant") which Hazardous Material
Laws prohibit, limit or otherwise regulate as to use, exposure, release, generation, manufacture, sale, transport, handling, storage, treatment, reuse, presence, disposal or recycling;
(c) petroleum, crude oil or any fraction of petroleum or crude oil; (d) any radioactive material, including any source, special nuclear or by-product material, as defined at
42 U.S.C. §2011 et seq., and amendments thereto and reauthorizations thereof; (e) asbestos-containing materials in any form or
condition; and (f) polychlorinated biphenyls. 

        "Indebtedness" of any Person shall mean all items of indebtedness which, in accordance with GAAP and practices, would be included in
determining liabilities as shown on the liability side of a statement of condition of such Person as of the date as of which indebtedness is to be determined, including, without limitation, all
obligations for money borrowed and capitalized lease obligations, and shall also include all indebtedness and liabilities of others assumed or guaranteed by such Person or in respect of which such
Person is secondarily or contingently liable (other than by 

27

 

endorsement of instruments in the course of collection) whether by reason of any agreement to acquire such indebtedness or to supply or advance sums or otherwise. 

        "Initial Guarantors" shall mean each of the following, collectively and severally: (1) Coffee People Worldwide, Inc., a
Delaware corporation, (2) Coffee People, Inc., an Oregon corporation, (3) Gloria Jean's, Inc., a Delaware corporation, (4) Edglo Enterprises, Inc., an
Illinois corporation, (5) Gloria Jean's Gourmet Coffees Corp., an Illinois corporation, and (6) Gloria Jean's Gourmet Coffees Franchising Corp., an Illinois corporation. 

        "Interim Date" shall mean May 29, 2002. 

        "Interest Period" shall mean, with respect to any LIBOR Rate Loan, the period commencing on the date such Loan is advanced and ending one,
two, three, four, five, or six months thereafter, as designated in the related Loan Request; provided, however, that: (1) any Interest Period which would otherwise end on a day which is not a
Business Day shall be extended to the next succeeding Business Day; (2) in the case of an Equipment Acquisition Loan, no Interest Period shall end after the Equipment Acquisition Line
Conversion Date, (3) in the case of a FY 2003 Expansion Line Loan, no Interest Period shall end after the FY 2003 Expansion Line Conversion Date, (4) in the case of a FY 2004 Expansion
Line Loan, no Interest Period shall end after the FY 2003 Expansion Line Conversion Date, (5) in the case of a Working Capital Loan, no Interest Period shall end after the Working Capital
Facility Maturity Date, and (6) in the case of any Term Loan, no Interest Period shall end after the scheduled final maturity date therefor. 

        "Keurig Equipment" shall mean the Packaging Lines as defined in that certain Licensing Agreement dated as of March 13, 2000 by and
between the Company and Keurig, Inc which the Company has the right to purchase thereunder. 

        "L/C Documents" shall mean any and all documents, instruments and agreements as the Lender may require be delivered to it as a condition
precedent to the issuance by the Lender of a Letter of Credit. 

        "L/C Drawing" shall mean any drawing under a Letter of Credit. 

        "L/C Facility Sublimit" shall mean $250,000.00. 

        "Lender" shall have the meaning given such term in the introductory paragraph hereof. 

        "Letter of Credit" shall have the meaning given such term in Paragraph 5(a) above. 

        "Letter of Credit Application" shall mean an application for the issuance of a Letter of Credit in form satisfactory to the Lender. 

        "LIBOR Rate" shall mean, with respect to any Interest Period for a LIBOR Rate Loan, the rate for the applicable Interest Period determined
by the Lender's Treasury Desk as being the arithmetic mean (rounded upwards, if necessary, to the nearest whole multiple of one-sixteenth of one percent (1/16%)) of the U.S.
dollar London Interbank Offered Rates for such period appearing on Page 3750 (or such other page as may replace page 3750) of the Telerate screen at or about 11:00 a.m. (London time) on the
second Business Day prior to the first days of such Interest Period (adjusted for any and all assessments, surcharges and reserve requirements. 

        "LIBOR Rate Loan" shall mean a Loan during such time as it is made and/or being maintained at a rate of interest based upon the LIBOR
Rate. 

        "Lien" shall mean any security interest, mortgage, pledge, lien, claim on property, charge or encumbrance (including any conditional sale
or other title retention agreement), any lease in the nature thereof, and the filing of or agreement to give any financial statement under the Uniform Commercial Code of any jurisdiction. 

28

 

        "Liquid Assets" shall mean cash, cash equivalents, marketable securities, and such other similar items as may be agreed upon by the
Company and the Lender from time to time. 

        "Loan Documents" shall mean this Agreement, the Collateral Documents, the Guaranties and each other document, instrument or agreement
executed by the Company or the Guarantors in connection herewith or therewith, as any of the same may be amended, extended or replaced from time to time. 

        "Loan Request" shall mean a request for a Loan in form satisfactory to the Lender. 

        "Loans" shall mean, collectively and severally, the Equipment Acquisition Loans, the FY 2003 Expansion Line Loans, the FY 2004 Expansion
Line Loans, the Working Capital Facility Loans and the Term Loans. 

        "Material Adverse Effect" shall mean a material adverse change in, or a material adverse effect upon, any of: (a) the operations,
business, properties, condition (financial or otherwise) or prospects of the Company; (b) a material impairment of the ability of the Company or the Guarantor to perform under any Loan Document
to which it is party and to avoid any Event of Default; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability of any Loan Document or the perfection or
priority of the Lender's security interest in the Collateral. 

        "Multiemployer Plan" as to any Person shall mean a Plan of such Person which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA. 

        "Obligations" shall mean any and all debts, obligations and liabilities of the Company to the Lender (whether now existing or hereafter
arising, voluntary or involuntary, whether or not jointly owed with others, direct or indirect, absolute or contingent, liquidated or unliquidated, and whether or not from time to time decreased or
extinguished and later increased, created or incurred), arising out of or related to the Loan Documents. 

        "Outstanding" shall mean with respect to Letters of Credit, any Letter of Credit which has not been canceled, expired, unutilized or fully
drawn upon and reference to the "amount" of any Outstanding Letter of Credit shall be deemed to mean the amount available for drawing thereunder. 

        "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA and any successor
thereto. 

        "Person" shall mean any corporation, natural person, firm, joint venture, partnership, limited liability company, trust, unincorporated
organization, government or any department or agency of any government. 

        "Plan" shall mean as to any Person, any pension plan that is covered by Title IV of ERISA and in respect of which such Person or a
Commonly Controlled Entity of such Person is an "employer" as defined in Section 2(5) of ERISA. 

        "Potential Default" shall mean an event which but for the lapse of time or the giving of notice, or both, would constitute an Event of
Default. 

        "Property" shall mean, collectively and severally, any and all real property, including all improvements and fixtures thereon, owned or
occupied by the Company, including all real properties which are the subject of franchise agreements. 

        "Reference Rate" shall mean the fluctuating per annum rate announced from time to time by the Lender in Los Angeles, California, as its
"Reference Rate". The Reference Rate is a rate set by the Lender based upon various factors including the Lender's costs and desired return, general economic conditions, and other factors, and is used
as a reference point for pricing some loans, which may be priced at, above or below the Reference Rate. 

29

 

        "Reference Rate Loans" shall mean Loans or portions thereof during such time as they are made and/or being maintained at a rate of
interest based upon the Reference Rate. 

        "Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System (12 C.F.R. § 221), as
the same may from time to time be amended, supplemented or superseded. 

        "Replacement Term Loan" shall have the meaning given such term in Paragraph 6(a)
above. 

        "Reportable Event" shall mean a reportable event as defined in Title IV of ERISA, except actions of general applicability by the Secretary
of Labor under Section 110 of ERISA. 

        "Requirements of Law" shall mean as to any Person the Certificate/Articles of Incorporation and ByLaws or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation, or a final and binding determination of an arbitrator or a determination of a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. 

        "Second Quarter" shall mean, with respect to any Fiscal Year, the fiscal quarter ending on or about December 31. 

        "Security Agreement" shall have the meaning given such term in Paragraph 9(a)
above, and shall include any and all amendments and extensions and replacements thereof. 

        "Single Employer Plan" shall mean as to any Person any Plan of such Person which is not a Multiemployer Plan. 

        "Statement Date" shall mean June 27, 2001. 

        "Subordinated Debt" shall mean for any Person Indebtedness of such Person subordinated to the Obligations pursuant to a written
subordination agreement in form and substance acceptable to the Lender, in its sole and absolute discretion. 

        "Subsidiary" shall mean with respect to any Person, any corporation, partnership or joint venture more than fifty percent (50%) of the
stock or other ownership interest of which having by the terms thereof ordinary voting power to elect the board of directors, managers or trustees of such corporation, partnership or joint venture
shall, at the time as of which any determination is being made, be owned by such Person, either directly or through Subsidiaries of such Person (irrespective of whether or not at the time stock of any
other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency). 

        "Term Loans" shall mean, collectively and severally, the Replacement Term Loan, the Equipment Acquisition Term Loan, the FY 2003 Expansion
Line Term-Out Loan, and the FY 2004 Expansion Line Term-Out Loan. 

        "Third Quarter" shall mean, with respect to any Fiscal Year, the fiscal quarter ending on or about March 31. 

        "Total Liabilities" shall mean for any Person at any time of determination, all liabilities of such Person which in accordance with GAAP
would be shown on the liability side of a balance sheet of such Person, as determined in accordance with GAAP. 

        "Working Capital Facility Credit Limit" shall have the meaning give such term in  Paragraph 4(a) above. 

        "Working Capital Loan" shall have the meaning given such term in Paragraph 4(a)
above. 

        "Working Capital Facility Maturity Date" shall mean August 31, 2003. 

[Signature
Page Following] 

30

 

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

	 	 	DIEDRICH COFFEE, INC.,

a Delaware corporation
	

 	
 	

By:	

/s/  PHILIP G. HIRSCH      

	 	 	Name:	Philip G. Hirsch
	 	 	Title:	Chief Executive Officer
	

 	
 	

By:	

/s/  MATTHEW C. MCGUINNESS      

	 	 	Name:	Matthew C. McGuinness
	 	 	Title:	Executive Vice President and Chief Financial Officer
	

 	
 	

BANK OF THE WEST, doing business as

UNITED CALIFORNIA BANK
	

 	
 	

By:	

/s/  BRUCE YOUNG      

	 	 	Name:	Bruce Young, Vice President

31

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EXHIBIT 10.30

CREDIT AGREEMENT

RECITALS

AGREEMENTQuickLinks
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EXHIBIT 10.31    
  

 
 

FORM OF
  GUARANTY    
  

        THIS GUARANTY (the "Guaranty") is made and dated as of the 3rd day of September, 2002
by                        ,
a                        ("Guarantor"). 

 
 

RECITALS    
  

        A.    This
Guaranty is being executed and delivered to BANK OF THE WEST, doing business as UNITED CALIFORNIA BANK (the "Lender") pursuant to that certain Credit Agreement dated
concurrently herewith by and among DIEDRICH COFFEE, INC., a California corporation (the "Company") and the Lender (as amended, extended and replaced from time to time, the "Credit Agreement,"
and with capitalized terms not otherwise defined herein used with the meanings given such terms in the Credit Agreement). 

        B.    Pursuant
to the Credit Agreement the Lender has agreed to extend credit to the Company on the terms and subject to the conditions set forth therein. 

        C.    As
a condition precedent to the Lender's obligation to extend credit under the Credit Agreement, Guarantor is required, among other things, to execute and deliver this
Guaranty to the Lender. 

        NOW,
THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Guarantor hereby agrees
as follows: 

 
 

AGREEMENT    
  

        1.    Guarantor
hereby absolutely and unconditionally guarantees the payment when due, upon maturity, acceleration or otherwise, of all Obligations of the Company to the Lender
under the Credit Agreement, including in all cases, whether heretofore, now, or hereafter made, incurred or created, whether voluntary or involuntary and however arising, absolute or contingent,
liquidated or unliquidated, determined or undetermined, whether or not such Obligations are from time to time reduced, or extinguished and thereafter increased or incurred, whether the Company may be
liable individually or jointly with others, whether or not recovery upon such Obligations may be or hereafter become barred by any statute of limitations, and whether or not such Obligations may be or
hereafter become otherwise unenforceable. 

        2.    Guarantor
hereby absolutely and unconditionally guarantees the payment of the Obligations, whether or not due or payable by the Company, upon: (a) the dissolution,
insolvency or business failure of, or any assignment for benefit of creditors by, or commencement of any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceedings by or
against, either the Company or Guarantor, as applicable, or (b) the appointment of a receiver for, or the attachment, restraint of or making or levying of any order of court or legal process
affecting, the property of either the Company or Guarantor, and unconditionally promises to pay such Obligations to the Lender, or order, on demand, in lawful money of the United States. 

        3.    The
liability of Guarantor hereunder is exclusive and independent of any security for or other guaranty of the Obligations, whether executed by Guarantor or by any other
party, and the liability of Guarantor hereunder is not affected or impaired by (a) any direction of application of payment by the Company or by any other party, or (b) any other
guaranty, undertaking or maximum liability of Guarantor or of any other party as to the Obligations, or (c) any payment on or in reduction of any such other guaranty or undertaking, or
(d) any revocation or release of any obligations of any other guarantor of the Obligations, or (e) any dissolution, termination or increase, decrease or change in personnel of Guarantor,
or (f) any payment made to the Lender on the Obligations which the Lender 

 

repays to the Company pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and Guarantor waives any right to the deferral or
modification of Guarantor's obligations hereunder by reason of any such proceeding. 

        4.    (a)    The
obligations of Guarantor hereunder are independent of the obligations of the Company with respect to the Obligations, and a separate action or
actions may be brought and prosecuted against Guarantor whether or not action is brought against the Company and whether or not the Company be joined in any such action or actions. Guarantor waives,
to the fullest extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by the Company or other circumstance which
operates to toll any statute of limitations as to the Company shall operate to toll the statute of limitations as to Guarantor. 

                (b)    All
payments made by Guarantor under this Guaranty shall be made without set-off or counterclaim and free and clear of and without deductions
for any present or future taxes, fees, withholdings or conditions of any nature ("Taxes"). Guarantor shall pay any such Taxes, including Taxes on any amounts so paid, and will promptly furnish the
Lender copies of any tax receipts or such other evidence of payment as the Lender may require. 

        5.    Guarantor
authorizes the Lender (whether or not after termination of this Guaranty), without notice or demand (except as shall be required by applicable statute and
cannot be waived), and without affecting or impairing its liability hereunder, from time to time to (a) renew, compromise, extend, increase, accelerate or otherwise change the time for payment
of, or otherwise change the terms of Obligations or any part thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security for the payment of this Guaranty
or the Obligations and exchange, enforce, waive and release any such security; (c) apply such security and direct the order or manner of sale thereof as the Lender in its reasonable discretion
may determine (for the avoidance of doubt, it shall not be reasonable for the Lender to apply sums received by it in such way as to trigger an Event of Default under the Credit Agreement if such Event
of Default could have been avoided through a different application of such sums reasonably acceptable to the Lender); and (d) release or substitute any one or more endorsers, guarantors, the
Company or other obligors. The Lender may, without notice to or the further consent of the Company or Guarantor, assign this Guaranty in whole or in part to any person acquiring an interest in the
Obligations. 

        6.    It
is not necessary for the Lender to inquire into the capacity or power of the Company or the officers acting or reasonably believed to be acting on their behalf, and
Obligations made or created in reasonable reliance upon the professed exercise of such powers shall be guaranteed hereunder. 

        7.    Guarantor
waives any right to require the Lender to (a) proceed against the Company or any other party; (b) proceed against or exhaust any security held
from the Company; or (c) pursue any other remedy whatsoever. Guarantor waives any personal defense based on or arising out of any personal defense of the Company other than payment in full of
the Obligations, including, without limitation, any defense based on or arising out of the disability of either the Company, or the unenforceability of the Obligations or any part thereof from any
cause, or the cessation from any cause of the liability of the Company other than payment in full of the Obligations. The Lender may, at its election, foreclose
on any security held for the Obligations by one or more judicial or nonjudicial sales, or exercise any other right or remedy they may have against the Company, or any security, without affecting or
impairing in any way the liability of Guarantor hereunder except to the extent the Obligations have been paid. Guarantor waives all rights and defenses arising out of an election of remedies, even
though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Guarantor's rights of subrogation and reimbursement against the
principal by operation of Section 580d of the California Code of Civil Procedure. 

        8.    Guarantor
hereby waives any claim or other rights which Guarantor may now have or may hereafter acquire against the Company or any other guarantor of all or any of the
Obligations that 

2

 

arise from the existence or performance of Guarantor's obligations under this Guaranty or any other of the Loan Documents (all such claims and rights being referred to as the "Guarantor's Conditional
Rights"), including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, or indemnification, any right to participate in any claim or remedy which the Lender has
against the Company or any collateral which the Lender now has or hereafter acquires for the Obligations, whether or not such claim, remedy or right arises in equity or under contract, statute or
common law, by any payment made hereunder or otherwise, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by setoff or
in any other manner, payment or security on account of such claim or other rights. If, notwithstanding the foregoing provisions, any amount shall be paid to Guarantor on account of Guarantor's
Conditional Rights and either (a) such amount is paid to Guarantor at any time when the Obligations shall not have been paid or performed in full, or (b) regardless of when such amount
is paid to Guarantor any payment made by the Company to the Lender is at any time determined to be a preferential payment, then such amount paid to Guarantor shall be deemed to be held in trust for
the benefit of Lender and shall forthwith be paid to the Lender to be credited and applied upon the Obligations, whether matured or unmatured, in such order and manner as Lender, in its reasonable
discretion, shall determine (for the avoidance of doubt, it shall not be reasonable for the Lender to apply sums received by it in such way as to trigger an Event of Default under the Credit Agreement
if such Event of Default could have been avoided through a different application of such sums reasonably acceptable to the Lender). To the extent that any of the provisions of this Paragraph 8
shall not be enforceable, Guarantor agrees that until such time as the Obligations have been paid and performed in full and the period of time has expired during which any payment made by the Company
or Guarantor may be determined to be a preferential payment, Guarantor's Conditional Rights to the extent not validly waived shall be subordinate to the Lender's right to full payment and performance
of the Obligations and Guarantor shall not seek to enforce Guarantor's Conditional Rights during such period. 

        9.    Guarantor
waives all presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance, notices of protest, notices of
dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional Obligations. Guarantor assumes all responsibility for being and keeping
itself informed of either the Company's financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the
risks which Guarantor assumes and incurs hereunder, and agrees that the Lender shall have no duty to advise Guarantor of information known to it regarding such circumstances or risks. 

        10.  In
addition to the Obligations, Guarantor agrees to pay reasonable attorneys' fees and all other reasonable costs and expenses incurred by the Lender in enforcing this
Guaranty in any action or proceeding arising out of or relating to this Guaranty. 

        11.  Guarantor
hereby represents and warrants to the Lender that: 

        (a)  Guarantor:
(1) has the power and authority and the legal right to own and operate Guarantor's property and to conduct business in the manner in which Guarantor
does and proposes so to do, (2) is in compliance with all Requirements of Law binding upon or applicable to Guarantor, and (3) has reviewed and approved the Credit Agreement and the
other Loan Documents; 

        (b)  Guarantor
has the corporate power and authority and the legal right to execute, deliver and perform this Guaranty. This Guaranty has been duly executed and delivered by
Guarantor and constitute the legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except as such enforceability may be affected by the effect
of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors generally; 

3

 

        (c)  The
execution, delivery and performance of this Guaranty by Guarantor will not violate any Requirement of Law or Contractual Obligation binding upon or applicable to
Guarantor; and 

        (d)  All
representations and warranties relating to Guarantor set forth in the Credit Agreement are accurate and complete in all respects. 

        12.  Guarantor
hereby covenants and agrees with the Lender that it will cooperate with the Company to facilitate the Company's compliance with all the covenants set forth in
the Credit Agreement. Guarantor further agrees to execute any and all further documents, instruments and agreements as the Lender from time to time reasonably requests to evidence Guarantor's
obligations hereunder. 

        13.  This
Guaranty shall be governed by and construed in accordance with the laws of the State of California without giving effect to its choice of law rules. 

        14.  ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES
FOR THE CENTRAL DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, GUARANTOR CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF
THOSE COURTS. GUARANTOR IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY. GUARANTOR WAIVES PERSONAL SERVICE
OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW. 

        15.  GUARANTOR,
AND BY ACCEPTING THIS GUARANTY THE LENDER, WAIVES ITS RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO
THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS,
TORT CLAIMS, OR OTHERWISE. GUARANTOR AND THE LENDER AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, GUARANTOR FURTHER
AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS GUARANTY OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY. 

        IN
WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed as of the day and year first written above. 

	 	 	[GUARANTOR]
	

 	
 	

By:	

    

	 	 	Name:	 
	 	 	Its:	 
	

 	
 	

By:	

    

	 	 	Name:	 
	 	 	Its:	 

4

QuickLinks

EXHIBIT 10.31

FORM OF GUARANTY

RECITALS

AGREEMENT

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