Document:

EXHIBIT 10.2
 
SECURITY AGREEMENT
 
THIS SECURITY AGREEMENT, dated as of September 29, 2009 (this “Agreement”), is among Etelos, Inc., a Delaware corporation (the “Company”), all of the Subsidiaries of the Company (such subsidiaries, the “Guarantors” and together with the Company, the “Debtors”) and the holders of the Company’s 10% Senior Secured Convertible Debentures due two years following their issuance, in the original aggregate principal amount of $3,000,000 (collectively, the “Debentures”) signatory hereto, their endorsees, transferees and assigns (collectively, the “Secured Parties”).
 
W I T N E S S E T H:
 
WHEREAS, pursuant to the Purchase Agreement (as defined in the Debentures), the Secured Parties have severally agreed to extend the loans to the Company evidenced by the Debentures;
 
WHEREAS, pursuant to a certain Subsidiary Guarantee, dated as of the date hereof (the “Guarantee”), the Guarantors have jointly and severally agreed to guarantee and act as surety for payment of such Debentures; and
 
WHEREAS, in order to induce the Secured Parties to extend the loans evidenced by the Debentures, each Debtor has agreed to execute and deliver to the Secured Parties this Agreement and to grant the Secured Parties, pari  passu with each other Secured Party and through the Agent (as defined in Section 18 hereof), a security interest in certain property of such Debtor to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Debentures and the Guarantors’ obligations under the Guarantee.
 
NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
 
1.             Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1.  Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.
 
(a)           “Collateral” means the collateral in which the Secured Parties are granted a security interest by this Agreement and which shall include the following personal property of the Debtors, whether presently owned or existing or hereafter acquired or coming into existence, wherever situated, and all additions and accessions thereto and all 

 

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substitutions and replacements thereof, and all proceeds, products and accounts thereof, including, without limitation, all proceeds from the sale or transfer of the Collateral and of insurance covering the same and of any tort claims in connection therewith, and all dividends, interest, cash, notes, securities, equity interest or other property at any time and from time to time acquired, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Securities (as defined below):
 

(i)            All goods, including, without limitation,
(A) all machinery, equipment, computers, motor vehicles, trucks, tanks,
boats, ships, appliances, furniture, special and general tools, fixtures, test
and quality control devices and other equipment of every kind and nature and
wherever situated, together with all documents of title and documents representing the same, all additions and accessions
thereto, replacements therefor, all parts therefor, and all substitutes for any
of the foregoing and all other items used and useful in connection with any
Debtor’s businesses and all improvements thereto; and (B) all inventory;

 

(ii)           All contract rights and other general intangibles,
including, without limitation, all partnership interests, membership interests,
stock or other securities, rights under any of the Organizational Documents,
agreements related to the Pledged Securities, licenses, distribution and other
agreements, computer software (whether “off-the-shelf”, licensed from any third
party or developed by any Debtor), computer software development rights,
leases, franchises, customer lists, quality control procedures, grants and
rights, goodwill, trademarks, service marks, trade styles, trade names,
patents, patent applications, copyrights, and income tax refunds;

 

(iii)          All accounts, together with all instruments, all documents of title representing any of the foregoing, all rights in any merchandising, goods, equipment, motor vehicles and trucks which any of the same may represent, and all right, title, security and guaranties with respect to each account, including any right of stoppage in transit;
 
(iv)          All documents, letter-of-credit rights, instruments and chattel paper;
 
(v)           All commercial tort claims;
 
(vi)          All deposit accounts and all cash (whether or not deposited in such deposit accounts);
 
(vii)         All investment property;
 
(viii)        All supporting obligations; and
 
(ix)           All files, records, books of account, business papers, and computer programs; and

 

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(x)            the products and proceeds of all of the foregoing Collateral set forth in clauses (i)-(ix) above.
 

Without limiting the
generality of the foregoing, the “Collateral” shall include all
investment property and general intangibles respecting ownership and/or other
equity interests in each Guarantor, including, without limitation, the shares
of capital stock and the other equity interests listed on Schedule H
hereto (as the same may be modified from time to time pursuant to the terms
hereof), and any other shares of capital stock and/or other equity interests of
any other direct or indirect subsidiary of any Debtor obtained in the future,
and, in each case, all certificates representing such shares and/or equity
interests and, in each case, all rights, options, warrants, stock, other
securities and/or equity interests that may hereafter be received, receivable
or distributed in respect of, or exchanged for, any of the foregoing and all
rights arising under or in connection with the Pledged Securities, including,
but not limited to, all dividends, interest and cash.

 

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.
 
(b)           “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision 

 

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thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.
 

(c)           “Majority in Interest” means, at any time of
determination, the majority in interest (based on then-outstanding principal
amounts of Debentures at the time of such determination) of the Secured
Parties.

 

(d)           “Necessary Endorsement” means undated stock powers
endorsed in blank or other proper instruments of assignment duly executed and
such other instruments or documents as the Agent (as that term is defined
below) may reasonably request.

 

(e)           “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of any Debtor to the Secured Parties, including, without limitation, all obligations under this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from any of the Secured Parties as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time.  Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Debentures and the loans extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Debtors from time to time under or in connection with this Agreement, the Debentures, the Guarantee and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Debtor.
 
(f)            “Organizational Documents” means with respect to any Debtor, the documents by which such Debtor was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Debtor (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).
 
(g)           “Pledged Interests” shall have the meaning ascribed to such term in Section 4(j).

 

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(h)           “Pledged Securities” shall have the meaning ascribed to such term in Section 4(i).
 
(i)            “UCC” means the Uniform Commercial Code of the State of New York and or any other applicable law of any state or states which has jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time.  It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense.  Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.
 
2.             Grant of Security Interest in Collateral. As an inducement for the Secured Parties to extend the loans as evidenced by the Debentures and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, each Debtor hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured Parties a security interest in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a “Security Interest” and, collectively, the “Security Interests”).
 
3.             Delivery of Certain Collateral.  Contemporaneously or prior to the execution of this Agreement, each Debtor shall deliver or cause to be delivered to the Agent (a) any and all certificates and other instruments representing or evidencing the Pledged Securities, and (b) any and all certificates and other instruments or documents representing any of the other Collateral, in each case, together with all Necessary Endorsements.  The Debtors are, contemporaneously with the execution hereof, delivering to Agent, or have previously delivered to Agent, a true and correct copy of each Organizational Document governing any of the Pledged Securities.
 
4.             Representations, Warranties, Covenants and Agreements of the Debtors. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Parties concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, each Debtor represents and warrants to, and covenants and agrees with, the Secured Parties as follows:
 
(a)   Each Debtor has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery and performance by each Debtor of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of such Debtor and no further action is required by such Debtor.  This Agreement has been duly executed by each Debtor.  This Agreement constitutes the legal, valid and binding obligation of each Debtor, enforceable against each Debtor in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization and similar laws of general application 

 

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relating to or affecting the rights and remedies of creditors and by general principles of equity.
 
(b)          The Debtors have no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto.  Except as specifically set forth on Schedule A, each Debtor is the record owner of the real property where such Collateral is located, and there exist no mortgages or other liens on any such real property except for Permitted Liens (as defined in the Debentures).  Except as disclosed on Schedule A, none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent or processor.
 
(c)    Except for Permitted Liens (as defined in the Debentures) and except as set forth on Schedule B attached hereto, the Debtors are the sole owner of the Collateral (except for non-exclusive licenses granted by any Debtor in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights or claims, and are fully authorized to grant the Security Interests.  Except as set forth on Schedule C attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Parties pursuant to this Agreement) covering or affecting any of the Collateral.  Except as set forth on Schedule C attached hereto and except pursuant to this Agreement, as long as this Agreement shall be in effect, the Debtors shall not execute and shall not knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Parties pursuant to the terms of this Agreement).
 
(d)           No written claim has been received that any Collateral or any Debtor’s use of any Collateral violates the rights of any third party. There has been no adverse decision to any Debtor’s claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to any Debtor’s right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of any Debtor, threatened before any court, judicial body, administrative or regulatory agency, arbitrator or other governmental authority.
 
(e)           Each Debtor shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Parties at least 30 days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Parties a valid, perfected and continuing perfected first priority lien in the Collateral.

 

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(f)            This Agreement creates in favor of the Secured Parties a valid security interest in the Collateral, subject only to Permitted Liens (as defined in the Debentures) securing the payment and performance of the Obligations.  Upon making the filings described in the immediately following paragraph, all security interests created hereunder in any Collateral which may be perfected by filing Uniform Commercial Code financing statements shall have been duly perfected.  Except for the filing of the Uniform Commercial Code financing statements referred to in the immediately following paragraph, the recordation of the Intellectual Property Security Agreement (as defined in Section 4(p) hereof) with respect to copyrights and copyright applications in the United States Copyright Office referred to in paragraph (m), the execution and delivery of deposit account control agreements satisfying the requirements of Section 9-104(a)(2) of the UCC with respect to each deposit account of the Debtors, and the delivery of the certificates and other instruments provided in Section 3, no action is necessary to create, perfect or protect the security interests created hereunder.  Without limiting the generality of the foregoing, except for the filing of said financing statements, the recordation of said Intellectual Property Security Agreement, and the execution and delivery of said deposit account control agreements, no consent of any third parties and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for (i) the execution, delivery and performance of this Agreement, (ii) the creation or perfection of the Security Interests created hereunder in the Collateral or (iii) the enforcement of the rights of the Agent and the Secured Parties hereunder.
 
(g)          Each Debtor hereby authorizes the Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it.
 
(h)          The execution, delivery and performance of this Agreement by the Debtors does not (i) violate any of the provisions of any Organizational Documents of any Debtor or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to any Debtor or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing any Debtor’s debt or otherwise) or other understanding to which any Debtor is a party or by which any property or asset of any Debtor is bound or affected. If any, all required consents (including, without limitation, from stockholders or creditors of any Debtor) necessary for any Debtor to enter into and perform its obligations hereunder have been obtained.
 
(i)           The capital stock and other equity interests listed on Schedule H hereto (the “Pledged Securities”) represent all of the capital stock and other equity interests of the Guarantors, and represent all capital stock and other equity interests owned, directly or indirectly, by the Company.  All of the Pledged Securities are validly issued, fully paid

 

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and nonassessable, and the Company is the legal and beneficial owner of the Pledged Securities, free and clear of any lien, security interest or other encumbrance except for the security interests created by this Agreement and other Permitted Liens (as defined in the Debentures).
 
(j)            The ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral (the “Pledged Interests”) by their express terms do not provide that they are securities governed by Article 8 of the UCC and are not held in a securities account or by any financial intermediary.
 
(k)           Except for Permitted Liens (as defined in the Debentures), each Debtor shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected first priority liens and security interests in the Collateral in favor of the Secured Parties until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 hereof.  Each Debtor hereby agrees to defend the same against the claims of any and all persons and entities. Each Debtor shall safeguard and protect all Collateral for the account of the Secured Parties.  Upon the request of the Agent, each Debtor will sign and deliver to the Agent on behalf of the Secured Parties at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, each Debtor shall pay all fees, taxes and other amounts necessary to maintain the Collateral and the Security Interests hereunder, and each Debtor shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder.
 
(l)            No Debtor will transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for non-exclusive licenses granted by a Debtor in its ordinary course of business and sales of inventory by a Debtor in its ordinary course of business) without the prior written consent of a Majority in Interest.
 
(m)          Each Debtor shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.
 

(n)           Each Debtor shall maintain with financially sound and
reputable insurers, insurance with respect to the Collateral, including
Collateral hereafter acquired, against loss or damage of the kinds and in the
amounts customarily insured against by entities of established reputation
having similar properties similarly situated and in such amounts as are
customarily carried under similar circumstances by other such entities and
otherwise as is prudent for entities engaged in similar businesses but in any
event sufficient to cover the full replacement cost thereof.  Each Debtor shall cause each insurance policy
issued

 

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in connection herewith to provide, and
the insurer issuing such policy to certify to the Agent, that (a) the
Agent will be named as lender loss payee and additional insured under each such
insurance policy; (b) if such insurance be proposed to be cancelled or
materially changed for any reason whatsoever, such insurer will promptly notify
the Agent and such cancellation or change shall not be effective as to the
Agent for at least thirty (30) days after receipt by the Agent of such notice,
unless the effect of such change is to extend or increase coverage under the
policy; and (c) the Agent will have the right (but no obligation) at its
election to remedy any default in the payment of premiums within thirty (30)
days of notice from the insurer of such default.  If no Event of Default (as defined in the
Debentures) exists and if the proceeds arising out of any claim or series of
related claims do not exceed $100,000, loss payments in each instance will be
applied by the applicable Debtor to the repair and/or replacement of property
with respect to which the loss was incurred to the extent reasonably feasible,
and any loss payments or the balance thereof remaining, to the extent not so
applied, shall be payable to the applicable Debtor; provided, however,
that payments received by any Debtor after an Event of Default occurs and is
continuing or in excess of $100,000 for any occurrence or series of related
occurrences shall be paid to the Agent on behalf of the Secured Parties and, if
received by such Debtor, shall be held in trust for the Secured Parties and
immediately paid over to the Agent unless otherwise directed in writing by the
Agent.   Copies of such policies or the
related certificates, in each case, naming the Agent as lender loss payee and
additional insured shall be delivered to the Agent at least annually and at the
time any new policy of insurance is issued.

 

(o)           Each Debtor shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Parties promptly, in sufficient detail, of any material adverse change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Parties’ security interest, through the Agent, therein.
 
(p)          Each Debtor shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Parties’ security interest in the Collateral including, without limitation, if applicable, the execution and delivery of a separate security agreement with respect to each Debtor’s Intellectual Property (“Intellectual Property Security Agreement”) in which the Secured Parties have been granted a security interest hereunder, substantially in a form reasonably acceptable to the Agent, which Intellectual Property Security Agreement, other than as stated therein, shall be subject to all of the terms and conditions hereof.
 
(q)           Each Debtor shall permit the Agent and its representatives and agents to inspect the Collateral during normal business hours and upon reasonable prior notice, and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from time to time.

 

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(r)            Each Debtor shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.
 
(s)           Each Debtor shall promptly notify the Secured Parties in sufficient detail upon becoming aware of any attachment, garnishment, execution or other legal process levied against any Collateral and of any other information received by such Debtor that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Parties hereunder.
 
(t)            All information heretofore, herein or hereafter supplied to the Secured Parties by or on behalf of any Debtor with respect to the Collateral is accurate and complete in all material respects as of the date furnished.
 
(u)           The Debtors shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business.
 
(v)           No Debtor will change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least 30 days prior written notice to the Secured Parties of such change and, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.
 
(w)          Except in the ordinary course of business, no Debtor may consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Agent which shall not be unreasonably withheld.
 
(x)            No Debtor may relocate its chief executive office to a new location without providing 30 days prior written notification thereof to the Secured Parties and so long as, at the time of such written notification, such Debtor provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.
 
(y)          Each Debtor was organized and remains organized solely under the laws of the state set forth next to such Debtor’s name in Schedule D attached hereto, which Schedule D sets forth each Debtor’s organizational identification number or, if any Debtor does not have one, states that one does not exist.
 
(z)            (i) The actual name of each Debtor is the name set forth in Schedule D attached hereto; (ii) no Debtor has any trade names except as set forth on Schedule E  

 

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attached hereto; (iii) no Debtor has used any name other than that stated in the preamble hereto or as set forth on Schedule E for the preceding five years; and (iv) no entity has merged into any Debtor or been acquired by any Debtor within the past five years except as set forth on Schedule E.
 
(aa)         At any time and from time to time that any Collateral consists of instruments, certificated securities or other items that require or permit possession by the secured party to perfect the security interest created hereby, the applicable Debtor shall deliver such Collateral to the Agent.
 

(bb)         Each Debtor, in its capacity as issuer,
hereby agrees to comply with any and all orders and instructions of Agent
regarding the Pledged Interests consistent with the terms of this Agreement
without the further consent of any Debtor as contemplated by Section 8-106
(or any successor section) of the UCC. 
Further, each Debtor agrees that it shall not enter into a similar
agreement (or one that would confer “control” within the meaning of Article 8
of the UCC) with any other person or entity.

 

(cc)         Upon the request of the Agent each Debtor shall cause all tangible chattel paper constituting Collateral to be delivered to the Agent, or, if such delivery is not possible, then to cause such tangible chattel paper to contain a legend noting that it is subject to the security interest created by this Agreement.  To the extent that any Collateral consists of electronic chattel paper, the applicable Debtor shall cause the underlying chattel paper to be “marked” within the meaning of Section 9-105 of the UCC (or successor section thereto).
 
(dd)         If there is any investment property or deposit account included as Collateral that can be perfected by “control” through an account control agreement, the applicable Debtor shall cause such an account control agreement, in form and substance in each case satisfactory to the Agent, to be entered into and delivered to the Agent for the benefit of the Secured Parties upon the request of the Agent.
 
(ee)         To the extent that any Collateral consists of letter-of-credit rights, the applicable Debtor shall cause the issuer of each underlying letter of credit to consent to an assignment of the proceeds thereof to the Secured Parties upon the request of the Agent.
 
(ff)           To the extent that any Collateral is in the possession of any third party, the applicable Debtor shall join with the Agent in notifying such third party of the Secured Parties’ security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.
 
(gg)         If any Debtor shall at any time hold or acquire a commercial tort claim, such Debtor shall promptly notify the Secured Parties in a writing signed by such Debtor of the particulars thereof and grant to the Secured Parties in such writing a security 

 

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interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Agent.
 
(hh)         Upon the request of the Agent, each Debtor shall immediately provide written notice to the Secured Parties of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.
 
(ii)          Each Debtor shall cause each subsidiary of such Debtor to immediately become a party hereto (an “Additional Debtor”), by executing and delivering an Additional Debtor Joinder in substantially the form of Annex A attached hereto and comply with the provisions hereof applicable to the Debtors.  Concurrent therewith, the Additional Debtor shall deliver replacement schedules for, or supplements to all other Schedules to (or referred to in) this Agreement, as applicable, which replacement schedules shall supersede, or supplements shall modify, the Schedules then in effect.  The Additional Debtor shall also deliver such opinions of counsel, authorizing resolutions, good standing certificates, incumbency certificates, organizational documents, financing statements and other information and documentation as the Agent may reasonably request.  Upon delivery of the foregoing to the Agent, the Additional Debtor shall be and become a party to this Agreement with the same rights and obligations as the Debtors, for all purposes hereof as fully and to the same extent as if it were an original signatory hereto and shall be deemed to have made the representations, warranties and covenants set forth herein as of the date of execution and delivery of such Additional Debtor Joinder, and all references herein to the “Debtors” shall be deemed to include each Additional Debtor.
 
(jj)           Each Debtor shall vote the Pledged Securities to comply with the covenants and agreements set forth herein and in the Debentures.
 
(kk)         Each Debtor shall register the pledge of the applicable Pledged Securities on the books of such Debtor.  Each Debtor shall notify each issuer of Pledged Securities to register the pledge of the applicable Pledged Securities in the name of the Secured Parties on the books of such issuer.  Further, except with respect to certificated securities delivered to the Agent, the applicable Debtor shall deliver to Agent an acknowledgement of pledge (which, where appropriate, shall comply with the requirements of the relevant UCC with respect to perfection by registration) signed by the issuer of the applicable Pledged Securities, which acknowledgement shall confirm that: (a) it has registered the pledge on its books and records; and (b) at any time directed by Agent during the continuation of an Event of Default, such issuer will transfer the record ownership of such Pledged Securities into the name of any designee of Agent, will take such steps as 

 

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may be necessary to effect the transfer, and will comply with all other instructions of Agent regarding such Pledged Securities without the further consent of the applicable Debtor.
 

(ll)           In the event that, upon an occurrence
of an Event of Default, Agent shall sell all or any of the Pledged Securities
to another party or parties (herein called the “Transferee”) or shall
purchase or retain all or any of the Pledged Securities, each Debtor shall, to
the extent applicable: (i) deliver to Agent or the Transferee, as the case
may be, the articles of incorporation, bylaws, minute books, stock certificate
books, corporate seals, deeds, leases, indentures, agreements, evidences of
indebtedness, books of account, financial records and all other Organizational
Documents and records of the Debtors and their direct and indirect
subsidiaries; (ii) use its best efforts to obtain resignations of the
persons then serving as officers and directors of the Debtors and their direct
and indirect subsidiaries, if so requested; and (iii) use its best efforts
to obtain any approvals that are required by any governmental or regulatory
body in order to permit the sale of the Pledged Securities to the Transferee or
the purchase or retention of the Pledged Securities by Agent and allow the
Transferee or Agent to continue the business of the Debtors and their direct
and indirect subsidiaries.

 

(mm)       Without limiting the generality of the other obligations of the Debtors hereunder, each Debtor shall promptly, upon the request of the Agent (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.
 
(nn)       Each Debtor will from time to time, at the joint and several expense of the Debtors, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Parties to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.
 
(oo)         Schedule F attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned by any of the Debtors as of the date hereof.  Schedule F lists all material licenses in favor of any Debtor for the use of any patents, trademarks, copyrights and domain names as of the date hereof.  All material patents and trademarks of the Debtors have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Debtors have been duly recorded at the United States Copyright Office.
 
(pp)         Except as set forth on Schedule G attached hereto, none of the account debtors or other persons or entities obligated on any of the Collateral is a governmental 

 

13

 

authority covered by the Federal Assignment of Claims Act or any similar federal, state or local statute or rule in respect of such Collateral.
 
5.             Effect of Pledge on Certain Rights.  If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which any Debtor is subject or to which any Debtor is party.
 
6.             Defaults. The following events shall be “Events of Default”:
 
(a)   The occurrence of an Event of Default (as defined in the Debentures) under the Debentures;
 
(b)   Any representation or warranty of any Debtor in this Agreement shall prove to have been incorrect in any material respect when made;
 
(c)   The failure by any Debtor to observe or perform any of its obligations hereunder for ten (10) days after delivery to such Debtor of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and such Debtor is using best efforts to cure same in a timely fashion; or
 
(d)   If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Debtor, or a proceeding shall be commenced by any Debtor, or by any governmental authority having jurisdiction over any Debtor, seeking to establish the invalidity or unenforceability thereof, or any Debtor shall deny that any Debtor has any liability or obligation purported to be created under this Agreement.
 
7.             Duty To Hold In Trust.
 
(a)           Upon the occurrence of any Event of Default and at any time thereafter, each Debtor shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Debentures or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Parties and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Parties, pro-rata in proportion to their respective then-currently outstanding principal amount of Debentures for application to the satisfaction of the Obligations (and if any 

 

14

 

Debenture is not outstanding, pro-rata in proportion to the initial purchases of the remaining Debentures).
 
(b)           If any Debtor shall become entitled to receive or shall receive any securities or other property (including, without limitation, shares of Pledged Securities or instruments representing Pledged Securities acquired after the date hereof, or any options, warrants, rights or other similar property or certificates representing a dividend, or any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization of such Debtor or any of its direct or indirect subsidiaries) in respect of the Pledged Securities (whether as an addition to, in substitution of, or in exchange for, such Pledged Securities or otherwise), such Debtor agrees to (i) accept the same as the agent of the Secured Parties; (ii) hold the same in trust on behalf of and for the benefit of the Secured Parties; and (iii) to deliver any and all certificates or instruments evidencing the same to Agent on or before the close of business on the fifth business day following the receipt thereof by such Debtor, in the exact form received together with the Necessary Endorsements, to be held by Agent subject to the terms of this Agreement as Collateral.
 
8.             Rights and Remedies Upon Default.
 
(a)           Upon the occurrence of any Event of Default and at any time thereafter, the Secured Parties, acting through the Agent, shall have the right to exercise all of the remedies conferred hereunder and under the Debentures, and the Secured Parties shall have all the rights and remedies of a secured party under the UCC.  Without limitation, the Agent, for the benefit of the Secured Parties, shall have the following rights and powers:
 
(i)   The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and each Debtor shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at such Debtor’s premises or elsewhere, and make available to the Agent, without rent, all of such Debtor’s respective premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.
 
(ii)        Upon notice to the Debtors by Agent, all rights of each Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of each Debtor to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease.  Upon such notice, Agent shall have the right to receive, for the benefit of the Secured Parties, any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent’s discretion all voting rights pertaining thereto.  Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the 

 

15

 

Collateral as it were the sole and absolute owner thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or any Debtor or any of its direct or indirect subsidiaries.
 
(iii)   The Agent shall have the right to operate the business of each Debtor using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to any Debtor or right of redemption of a Debtor, which are hereby expressly waived.  Upon each such sale, lease, assignment or other transfer of Collateral, the Agent, for the benefit of the Secured Parties, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of any Debtor, which are hereby waived and released.
 
(iv)       The Agent shall have the right (but not the obligation) to notify any account debtors and any obligors under instruments or accounts to make payments directly to the Agent, on behalf of the Secured Parties, and to enforce the Debtors’ rights against such account debtors and obligors.
 
(v)        The Agent, for the benefit of the Secured Parties, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Agent, on behalf of the Secured Parties, or its designee.
 
(vi)       The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of any Debtor at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Parties or any designee or any purchaser of any Collateral.
 

(b)           The Agent shall comply with any applicable
law in connection with a disposition of Collateral and such compliance will not
be considered adversely to affect the commercial reasonableness of any sale of
the Collateral.  The Agent may sell the
Collateral without giving any warranties and may specifically disclaim such
warranties.  If the Agent sells any of
the Collateral on credit, the Debtors will only be credited with payments
actually made by the purchaser.  In addition,
each Debtor waives any and all rights that it may have to a judicial hearing in
advance of the enforcement of any of the Agent’s rights and remedies hereunder,
including, without limitation, its right following

 

16

 

an Event of Default to take
immediate possession of the Collateral and to exercise its rights and remedies
with respect thereto.

 

(c)           For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, each Debtor hereby grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Debtor) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by such Debtor, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.
 
9.             Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral, to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing the Secured Parties’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Parties (based on then-outstanding principal amounts of Debentures at the time of any such determination), and to the payment of any other amounts required by applicable law, after which the Secured Parties shall pay to the applicable Debtor any surplus proceeds. If, upon the sale, license or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which the Secured Parties are legally entitled, the Debtors will be liable for the deficiency, together with interest thereon, at the rate of 18% per annum or the lesser amount permitted by applicable law (the “Default Rate”), and the reasonable fees of any attorneys employed by the Secured Parties to collect such deficiency.  To the extent permitted by applicable law, each Debtor waives all claims, damages and demands against the Secured Parties arising out of the repossession, removal, retention or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Parties as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.
 

10.           Securities
Law Provision.  Each Debtor
recognizes that Agent may be limited in its ability to effect a sale to the
public of all or part of the Pledged Securities by reason of certain
prohibitions in the Securities Act of 1933, as amended, or other federal or
state securities laws (collectively, the “Securities Laws”), and may be
compelled to resort to one or more sales to a restricted group of purchasers
who may be required to agree to acquire the Pledged Securities for their own
account, for investment and not with a view to the distribution or resale
thereof.  Each Debtor agrees that sales
so made may be at prices and on terms less favorable than if the Pledged
Securities were sold to the public, and that Agent has no obligation to delay
the sale of any Pledged Securities for the period of time necessary to register
the Pledged Securities for sale to the public under the Securities Laws.  Each Debtor shall cooperate with Agent in its
attempt to satisfy any requirements under the Securities Laws (including,
without limitation, registration thereunder if requested by Agent) applicable
to the sale of the Pledged Securities by Agent.

 

17

 

11.           Costs and Expenses. Each Debtor agrees to pay all reasonable out-of-pocket fees, costs and expenses incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent.  The Debtors shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein.  The Debtors will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, may incur in connection with the creation, perfection, protection, satisfaction, foreclosure, collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement and pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Parties, and the Secured Parties may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Parties under the Debentures.  Such fees shall be paid within 30 days of submission of a request by Agent to Debtor.  Any fees payable hereunder shall be added to the principal amount of the Debentures and shall bear interest at the Default Rate.
 
12.           Responsibility for Collateral. The Debtors assume all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage or theft of any of the Collateral or its unavailability for any reason.  Without limiting the generality of the foregoing, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) each Debtor shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by such Debtor thereunder.  Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of any Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.
 
13.           Security Interests Absolute. All rights of the Secured Parties and all obligations of the Debtors hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Debentures or any agreement entered into in connection with the foregoing, or any portion hereof or thereof; (b) any change in the time,

 

18

 

manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Debentures or any other agreement entered into in connection with the foregoing; (c) any exchange, release or nonperfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to a Debtor, or a discharge of all or any part of the Security Interests granted hereby.  Until the Obligations shall have been paid and performed in full, the rights of the Secured Parties shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations or bankruptcy.  Each Debtor expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Parties hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Parties, then, in any such event, each Debtor’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof.  Each Debtor waives all right to require the Secured Parties to proceed against any other person or entity or to apply any Collateral which the Secured Parties may hold at any time, or to marshal assets, or to pursue any other remedy. Each Debtor waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.
 
14.           Term of Agreement. This Agreement and the Security Interests shall terminate on the date on which all payments under the Debentures have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Debtors contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.
 
15.           Power of Attorney; Further Assurances.
 
(a)          Each Debtor authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as such Debtor’s true and lawful attorney-in-fact, with power, in the name of the Agent or such Debtor, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any note, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to the

 

19

 

Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Debtors, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Debentures all as fully and effectually as the Debtors might or could do; and each Debtor hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof.  This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.  The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which any Debtor is subject or to which any Debtor is a party.  Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.
 
(b)          On a continuing basis, each Debtor will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.
 
(c)           Each Debtor hereby irrevocably appoints the Agent as such Debtor’s attorney-in-fact, with full authority in the place and instead of such Debtor and in the name of such Debtor, from time to time in the Agent’s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of such Debtor where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Agent.  This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.

 

20

 

 

 
16.                                 Notices. All notices, requests, demands and other communications hereunder shall be subject to the notice provision of the Purchase Agreement (as such term is defined in the Debentures).
 
17.                                 Other Security. To the extent that the Obligations are now or hereafter  secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation or other entity, then the Agent shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Parties’ rights and remedies hereunder.
 
18.                                 Appointment of Agent.  The Secured Parties hereby appoint Enable Growth Partners LP to act as their agent (“Enable” or “Agent”) for purposes of exercising any and all rights and remedies of the Secured Parties hereunder. Such appointment shall continue until revoked in writing by a Majority in Interest, at which time a Majority in Interest shall appoint a new Agent, provided that Enable may not be removed as Agent unless Enable shall then hold less than $50,000 in principal amount of Debentures; provided, further, that such removal may occur only if each of the other Secured Parties shall then hold not less than an aggregate of $250,000 in principal amount of Debentures.  The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto.
 
19.                                 Miscellaneous.
 
(a)                                  No course of dealing between the Debtors and the Secured Parties, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Parties, any right, power or privilege hereunder or under the Debentures shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
 
(b)                                 All of the rights and remedies of the Secured Parties with respect to the Collateral, whether established hereby or by the Debentures or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently.
 
(c)                                  This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Debtors and the Secured Parties holding 67% or more of the principal amount of Debentures then outstanding, or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.

 

21

 
(d)                                 If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
 
(e)                                  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
 
(f)                                    This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Secured Party (other than by merger).  Any Secured Party may assign any or all of its rights under this Agreement to any Person (as defined in the Purchase Agreement) to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Parties.”
 
(g)                                 Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.
 
(h)  Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, all questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, each Debtor agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Debentures (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan.  Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, each Debtor hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or 

 

22

 
discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper.  Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
 
(i)                                     This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.
 
(j)                                     All Debtors shall jointly and severally be liable for the obligations of each Debtor to the Secured Parties hereunder.
 
(k)                                  Each Debtor shall indemnify, reimburse and hold harmless the Agent and the Secured Parties and their respective partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction.  This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Debentures, the Purchase Agreement (as such term is defined in the Debentures) or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.
 
(l)                                     Nothing in this Agreement shall be construed to subject Agent or any Secured Party to liability as a partner in any Debtor or any if its direct or indirect subsidiaries that is a partnership or as a member in any Debtor or any of its direct or indirect subsidiaries that is a limited liability company, nor shall Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any such Debtor or any of its direct 

 

23

 
or indirect subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for such Debtor as a partner or member, as applicable, pursuant hereto.
 
(m)                               To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of any Debtor or any direct or indirect subsidiary of any Debtor or compliance with any provisions of any of the Organizational Documents, the Debtors hereby grant such consent and approval and waive any such noncompliance with the terms of said documents.
 
[SIGNATURE PAGES FOLLOW]
 
24

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

	
  ETELOS,
  INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:
  Daniel J.A. Kolke

  	
   

  
	
   

  	
  Title:
  Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  [INSERT
  NAMES OF SUBSIDIARIES]

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
				

 

[SIGNATURE PAGE OF HOLDERS
FOLLOWS]

 

25

 

[SIGNATURE PAGE OF HOLDERS
TO ETLO SA]

 

	
  Name of Investing Entity:

  	
   

  
	
   

  
	
  Signature of
  Authorized Signatory of Investing entity:

  	
   

  
	
   

  
	
  Name of Authorized Signatory:

  	
   

  
	
   

  
	
  Title of Authorized
  Signatory:

  	
   

  
					

 

[SIGNATURE
PAGE OF HOLDERS FOLLOWS]

 

26

 

ANNEX A

to

SECURITY

AGREEMENT

 

FORM OF
ADDITIONAL DEBTOR JOINDER

 

Security Agreement dated as
of September      , 2009 made by

Etelos, Inc.

and its subsidiaries party
thereto from time to time, as Debtors

to and in favor of

the Secured Parties
identified therein (the “Security Agreement”)

 

Reference is made to the Security
Agreement as defined above; capitalized terms used herein and not otherwise
defined herein shall have the meanings given to such terms in, or by reference
in, the Security Agreement.

 

The undersigned hereby agrees that
upon delivery of this Additional Debtor Joinder to the Secured Parties referred
to above, the undersigned shall (a) be an Additional Debtor under the
Security Agreement, (b) have all the rights and obligations of the Debtors
under the Security Agreement as fully and to the same extent as if the
undersigned was an original signatory thereto and (c) be deemed to have
made the representations and warranties set forth therein as of the date of
execution and delivery of this Additional Debtor Joinder.  WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE SECURED PARTIES A
SECURITY INTEREST IN THE COLLATERAL AS MORE FULLY SET FORTH IN THE SECURITY
AGREEMENT AND ACKNOWLEDGES AND AGREES TO THE WAIVER OF JURY TRIAL PROVISIONS
SET FORTH THEREIN.

 

Attached hereto are supplemental
and/or replacement Schedules to the Security Agreement, as applicable.

 

An executed copy of this Joinder
shall be delivered to the Secured Parties, and the Secured Parties may rely on
the matters set forth herein on or after the date hereof.  This Joinder shall not be modified, amended
or terminated without the prior written consent of the Secured Parties.

 

27

 

IN WITNESS WHEREOF, the undersigned
has caused this Joinder to be executed in the name and on behalf of the
undersigned.

 

	
   

  	
  [Name of Additional Debtor]

  
	
   

  	
   

  
	
   

  	
  By:

  
	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Address:

  
	
   

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  

 

28

 

ANNEX B

to

SECURITY

AGREEMENT

 

THE AGENT

 

1.  Appointment.  The
Secured Parties (all capitalized terms used herein and not otherwise defined
shall have the respective meanings provided in the Security Agreement to which
this Annex B is attached (the “Agreement”)), by their acceptance of the
benefits of the Agreement, hereby designate Enable Growth Partners LP (“Enable”
or “Agent”) as the Agent to act as specified herein and in the
Agreement.  Each Secured Party shall be
deemed irrevocably to authorize the Agent to take such action on its behalf
under the provisions of the Agreement and any other Transaction Document (as
such term is defined in the Purchase Agreement) and to exercise such powers and
to perform such duties hereunder and thereunder as are specifically delegated
to or required of the Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto. 
The Agent may perform any of its duties hereunder by or through its
agents or employees.

 

2.  Nature of Duties. 
The Agent shall have no duties or responsibilities except those
expressly set forth in the Agreement. 
Neither the Agent nor any of its partners, members, shareholders,
officers, directors, employees or agents shall be liable for any action taken
or omitted by it as such under the Agreement or hereunder or in connection
herewith or therewith, be responsible for the consequence of any oversight or
error of judgment or answerable for any loss, unless caused solely by its or
their gross negligence or willful misconduct as determined by a final judgment
(not subject to further appeal) of a court of competent jurisdiction.  The duties of the Agent shall be mechanical
and administrative in nature; the Agent shall not have by reason of the
Agreement or any other Transaction Document a fiduciary relationship in respect
of any Debtor or any Secured Party; and nothing in the Agreement or any other
Transaction Document, expressed or implied, is intended to or shall be so
construed as to impose upon the Agent any obligations in respect of the
Agreement or any other Transaction Document except as expressly set forth
herein and therein.

 

3.  Lack of Reliance on the
Agent.  Independently and
without reliance upon the Agent, each Secured Party, to the extent it deems
appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Company and its
subsidiaries in connection with such Secured Party’s investment in the Debtors,
the creation and continuance of the Obligations, the transactions contemplated
by the Transaction Documents, and the taking or not taking of any action in
connection therewith, and (ii) its own appraisal of the creditworthiness
of the Company and its subsidiaries, and of the value of the Collateral from
time to time, and the Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Secured Party with any
credit, market or other information with respect thereto, whether coming into
its possession before any Obligations are incurred or

 

29

 

at any time or times
thereafter.  The Agent shall not be
responsible to the Debtors or any Secured Party for any recitals, statements,
information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith, or for the
execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of the Agreement or any other Transaction
Document, or for the financial condition of the Debtors or the value of any of
the Collateral, or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of the
Agreement or any other Transaction Document, or the financial condition of the
Debtors, or the value of any of the Collateral, or the existence or possible
existence of any default or Event of Default under the Agreement, the
Debentures or any of the other Transaction Documents.

 

4.  Certain Rights of the
Agent.  The Agent shall have
the right to take any action with respect to the Collateral, on behalf of all
of the Secured Parties.  To the extent
practical, the Agent shall request instructions from the Secured Parties with
respect to any material act or action (including failure to act) in connection
with the Agreement or any other Transaction Document, and shall be entitled to
act or refrain from acting in accordance with the instructions of a Majority in
Interest; if such instructions are not provided despite the Agent’s request
therefor, the Agent shall be entitled to refrain from such act or taking such
action, and if such action is taken, shall be entitled to appropriate
indemnification from the Secured Parties in respect of actions to be taken by
the Agent; and the Agent shall not incur liability to any person or entity by
reason of so refraining.  Without
limiting the foregoing, (a) no Secured Party shall have any right of
action whatsoever against the Agent as a result of the Agent acting or
refraining from acting hereunder in accordance with the terms of the Agreement
or any other Transaction Document, and the Debtors shall have no right to
question or challenge the authority of, or the instructions given to, the Agent
pursuant to the foregoing and (b) the Agent shall not be required to take
any action which the Agent believes (i) could reasonably be expected to
expose it to personal liability or (ii) is contrary to this Agreement, the
Transaction Documents or applicable law.

 

5.  Reliance.  The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
the proper person or entity, and, with respect to all legal matters pertaining
to the Agreement and the other Transaction Documents and its duties thereunder,
upon advice of counsel selected by it and upon all other matters pertaining to
this Agreement and the other Transaction Documents and its duties thereunder,
upon advice of other experts selected by it. 
Anything to the contrary notwithstanding, the Agent shall have no obligation
whatsoever to any Secured Party to assure that the Collateral exists or is
owned by the Debtors or is cared for, protected or insured or that the liens
granted pursuant to the Agreement have been properly or sufficiently or
lawfully created, perfected, or enforced or are entitled to any particular
priority.

 

30

 

6.  Indemnification. 
To the extent that the Agent is not reimbursed and indemnified by the
Debtors, the Secured Parties will jointly and severally reimburse and indemnify
the Agent, in proportion to their initially purchased respective principal
amounts of Debentures, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in performing its duties hereunder or
under the Agreement or any other Transaction Document, or in any way relating
to or arising out of the Agreement or any other Transaction Document except for
those determined by a final judgment (not subject to further appeal) of a court
of competent jurisdiction to have resulted solely from the Agent’s own gross
negligence or willful misconduct.  Prior
to taking any action hereunder as Agent, the Agent may require each Secured
Party to deposit with it sufficient sums as it determines in good faith is
necessary to protect the Agent for costs and expenses associated with taking
such action.

 

7.  Resignation by the Agent.

 

(a) 
The Agent may resign from the performance of all its functions and duties under
the Agreement and the other Transaction Documents at any time by giving 30 days’
prior written notice (as provided in the Agreement) to the Debtors and the
Secured Parties.  Such resignation shall
take effect upon the appointment of a successor Agent pursuant to clauses (b) and
(c) below.

 

(b)  Upon any such notice of
resignation, the Secured Parties, acting by a Majority in Interest, shall
appoint a successor Agent hereunder.

 

(c) If a successor Agent
shall not have been so appointed within said 30-day period, the Agent shall
then appoint a successor Agent who shall serve as Agent until such time, if
any, as the Secured Parties appoint a successor Agent as provided above.  If a successor Agent has not been appointed
within such 30-day period, the Agent may petition any court of competent
jurisdiction or may interplead the Debtors and the Secured Parties in a
proceeding for the appointment of a successor Agent, and all fees, including,
but not limited to, extraordinary fees associated with the filing of
interpleader and expenses associated therewith, shall be payable by the Debtors
on demand.

 

8.  Rights with respect to
Collateral.  Each Secured Party agrees with all other
Secured Parties and the Agent (i) that it shall not, and shall not attempt to,
exercise any rights with respect to its security interest in the Collateral,
whether pursuant to any other agreement or otherwise (other than pursuant to
this Agreement), or take or institute any action against the Agent or any of
the other Secured Parties in respect of the Collateral or its rights hereunder
(other than any such action arising from the breach of this Agreement) and (ii) that
such Secured Party has no other rights with respect to the Collateral other
than as set forth in this Agreement and the other Transaction Documents.  Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights,

 

31

 

powers, privileges and
duties of the retiring Agent and the retiring Agent shall be discharged from
its duties and obligations under the Agreement.  After any retiring Agent’s
resignation or removal hereunder as Agent, the provisions of the Agreement
including this Annex B shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent.

 

32Exhibit
10.1

 

REVOLVING
CREDIT

AND

SECURITY
AGREEMENT

 

 

PNC BANK,
NATIONAL ASSOCIATION

(AS LENDER
AND AS AGENT)

 

 

WITH

 

 

CROCS, INC.

CROCS RETAIL, INC.

CROCS ONLINE, INC.

OCEAN MINDED, INC.

JIBBITZ LLC

BITE, INC.

 

AND

 

EACH PERSON JOINED HERETO AS A BORROWER FROM TIME TO TIME

 

(BORROWERS)

 

 

September 25,
2009

 

 

TABLE
OF CONTENTS

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  I.

  	
  DEFINITIONS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.1.

  	
  Accounting Terms

  	
   

  	
  1

  
	
   

  	
  1.2.

  	
  General Terms

  	
   

  	
  1

  
	
   

  	
  1.3.

  	
  Uniform Commercial Code
  Terms

  	
   

  	
  23

  
	
   

  	
  1.4.

  	
  Certain Matters of
  Construction

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  II.

  	
  ADVANCES, PAYMENTS

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1.

  	
  Revolving Advances

  	
   

  	
  25

  
	
   

  	
  2.2.

  	
  Procedure for Revolving
  Advances Borrowing

  	
   

  	
  26

  
	
   

  	
  2.3.

  	
  Disbursement of Advance
  Proceeds

  	
   

  	
  28

  
	
   

  	
  2.4.

  	
  Reserved

  	
   

  	
  28

  
	
   

  	
  2.5.

  	
  Maximum Advances

  	
   

  	
  28

  
	
   

  	
  2.6.

  	
  Repayment of Advances

  	
   

  	
  28

  
	
   

  	
  2.7.

  	
  Repayment of Excess
  Advances

  	
   

  	
  29

  
	
   

  	
  2.8.

  	
  Statement of Account

  	
   

  	
  29

  
	
   

  	
  2.9.

  	
  Letters of Credit

  	
   

  	
  29

  
	
   

  	
  2.10.

  	
  Issuance of Letters of
  Credit

  	
   

  	
  29

  
	
   

  	
  2.11.

  	
  Requirements For Issuance
  of Letters of Credit

  	
   

  	
  30

  
	
   

  	
  2.12.

  	
  Disbursements,
  Reimbursement

  	
   

  	
  31

  
	
   

  	
  2.13.

  	
  Repayment of Participation
  Advances

  	
   

  	
  32

  
	
   

  	
  2.14.

  	
  Documentation

  	
   

  	
  32

  
	
   

  	
  2.15.

  	
  Determination to Honor
  Drawing Request

  	
   

  	
  32

  
	
   

  	
  2.16.

  	
  Nature of Participation
  and Reimbursement Obligations

  	
   

  	
  33

  
	
   

  	
  2.17.

  	
  Indemnity

  	
   

  	
  34

  
	
   

  	
  2.18.

  	
  Liability for Acts and
  Omissions

  	
   

  	
  34

  
	
   

  	
  2.19.

  	
  Additional Payments

  	
   

  	
  36

  
	
   

  	
  2.20.

  	
  Manner of Borrowing and
  Payment

  	
   

  	
  36

  
	
   

  	
  2.21.

  	
  Mandatory Prepayments

  	
   

  	
  37

  
	
   

  	
  2.22.

  	
  Use of Proceeds

  	
   

  	
  38

  
	
   

  	
  2.23.

  	
  Defaulting Lender

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
  III.

  	
  INTEREST AND FEES

  	
   

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1.

  	
  Interest

  	
   

  	
  39

  
	
   

  	
  3.2.

  	
  Letter of Credit Fees

  	
   

  	
  39

  
	
   

  	
  3.3.

  	
  Facility Fee

  	
   

  	
  40

  
	
   

  	
  3.4.

  	
  Collateral Evaluation Fee
  Collateral Monitoring Fee and Fee Letter

  	
   

  	
  40

  
	
   

  	
  3.5.

  	
  Computation of Interest
  and Fees

  	
   

  	
  41

  
	
   

  	
  3.6.

  	
  Maximum Charges

  	
   

  	
  41

  
	
   

  	
  3.7.

  	
  Increased Costs

  	
   

  	
  41

  
	
   

  	
  3.8.

  	
  Basis For Determining
  Interest Rate Inadequate or Unfair

  	
   

  	
  42

  
	
   

  	
  3.9.

  	
  Capital Adequacy

  	
   

  	
  43

  
	
   

  	
  3.10.

  	
  Gross Up for Taxes

  	
   

  	
  43

  
	
   

  	
  3.11.

  	
  Withholding Tax Exemption

  	
   

  	
  44

  

 

i

 

	
  IV.

  	
  COLLATERAL:  GENERAL TERMS

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1.

  	
  Security Interest in the
  Collateral

  	
   

  	
  44

  
	
   

  	
  4.2.

  	
  Perfection of Security
  Interest

  	
   

  	
  45

  
	
   

  	
  4.3.

  	
  Disposition of Collateral

  	
   

  	
  45

  
	
   

  	
  4.4.

  	
  Preservation of Collateral

  	
   

  	
  45

  
	
   

  	
  4.5.

  	
  Ownership of Collateral

  	
   

  	
  46

  
	
   

  	
  4.6.

  	
  Defense of Agent’s and
  Lenders’ Interests

  	
   

  	
  46

  
	
   

  	
  4.7.

  	
  Books and Records

  	
   

  	
  47

  
	
   

  	
  4.8.

  	
  Financial Disclosure

  	
   

  	
  47

  
	
   

  	
  4.9.

  	
  Compliance with Laws

  	
   

  	
  47

  
	
   

  	
  4.10.

  	
  Inspection of Premises

  	
   

  	
  47

  
	
   

  	
  4.11.

  	
  Insurance

  	
   

  	
  48

  
	
   

  	
  4.12.

  	
  Failure to Pay Insurance

  	
   

  	
  48

  
	
   

  	
  4.13.

  	
  Payment of Taxes

  	
   

  	
  49

  
	
   

  	
  4.14.

  	
  Payment of Leasehold
  Obligations

  	
   

  	
  49

  
	
   

  	
  4.15.

  	
  Receivables

  	
   

  	
  49

  
	
   

  	
  4.16.

  	
  Inventory

  	
   

  	
  52

  
	
   

  	
  4.17.

  	
  Maintenance of Equipment

  	
   

  	
  52

  
	
   

  	
  4.18.

  	
  Exculpation of Liability

  	
   

  	
  52

  
	
   

  	
  4.19.

  	
  Environmental Matters

  	
   

  	
  52

  
	
   

  	
  4.20.

  	
  Financing Statements

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  
	
  V.

  	
  REPRESENTATIONS AND
  WARRANTIES

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1.

  	
  Authority

  	
   

  	
  54

  
	
   

  	
  5.2.

  	
  Formation and
  Qualification

  	
   

  	
  55

  
	
   

  	
  5.3.

  	
  Survival of
  Representations and Warranties

  	
   

  	
  55

  
	
   

  	
  5.4.

  	
  Tax Returns

  	
   

  	
  55

  
	
   

  	
  5.5.

  	
  Financial Statements

  	
   

  	
  56

  
	
   

  	
  5.6.

  	
  Entity Names

  	
   

  	
  56

  
	
   

  	
  5.7.

  	
  O.S.H.A. and Environmental
  Compliance

  	
   

  	
  57

  
	
   

  	
  5.8.

  	
  Solvency; No Litigation,
  Violation, Indebtedness or Default; ERISA Compliance

  	
   

  	
  57

  
	
   

  	
  5.9.

  	
  Patents, Trademarks,
  Copyrights and Licenses

  	
   

  	
  58

  
	
   

  	
  5.10.

  	
  Licenses and Permits

  	
   

  	
  59

  
	
   

  	
  5.11.

  	
  Default of Indebtedness

  	
   

  	
  59

  
	
   

  	
  5.12.

  	
  No Default

  	
   

  	
  59

  
	
   

  	
  5.13.

  	
  No Burdensome Restrictions

  	
   

  	
  59

  
	
   

  	
  5.14.

  	
  No Labor Disputes

  	
   

  	
  59

  
	
   

  	
  5.15.

  	
  Margin Regulations

  	
   

  	
  60

  
	
   

  	
  5.16.

  	
  Investment Company Act

  	
   

  	
  60

  
	
   

  	
  5.17.

  	
  Disclosure

  	
   

  	
  60

  
	
   

  	
  5.18.

  	
  Reserved

  	
   

  	
  60

  
	
   

  	
  5.19.

  	
  Swaps

  	
   

  	
  60

  
	
   

  	
  5.20.

  	
  Conflicting Agreements

  	
   

  	
  60

  
	
   

  	
  5.21.

  	
  Application of Certain
  Laws and Regulations

  	
   

  	
  60

  
	
   

  	
  5.22.

  	
  Business and Property of
  Borrowers

  	
   

  	
  60

  

 

ii

 

	
   

  	
  5.23.

  	
  Section 20 Subsidiaries

  	
   

  	
  61

  
	
   

  	
  5.24.

  	
  Anti-Terrorism Laws

  	
   

  	
  61

  
	
   

  	
  5.25.

  	
  Trading with the Enemy

  	
   

  	
  62

  
	
   

  	
  5.26.

  	
  Federal Securities Laws

  	
   

  	
  62

  
	
   

  	
  5.27.

  	
  Equity Interests

  	
   

  	
  62

  
	
   

  	
   

  	
   

  	
   

  
	
  VI.

  	
  AFFIRMATIVE COVENANTS

  	
   

  	
  62

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1.

  	
  Payment of Fees

  	
   

  	
  62

  
	
   

  	
  6.2.

  	
  Conduct of Business and
  Maintenance of Existence and Assets

  	
   

  	
  62

  
	
   

  	
  6.3.

  	
  Violations

  	
   

  	
  63

  
	
   

  	
  6.4.

  	
  Government Receivables

  	
   

  	
  63

  
	
   

  	
  6.5.

  	
  Financial Covenants

  	
   

  	
  63

  
	
   

  	
  6.6.

  	
  Execution of Supplemental
  Instruments

  	
   

  	
  63

  
	
   

  	
  6.7.

  	
  Payment of Indebtedness

  	
   

  	
  63

  
	
   

  	
  6.8.

  	
  Standards of Financial Statements

  	
   

  	
  63

  
	
   

  	
  6.9.

  	
  Federal Securities Laws

  	
   

  	
  63

  
	
   

  	
  6.10.

  	
  Post Closing Conditions

  	
   

  	
  64

  
	
   

  	
   

  	
   

  	
   

  
	
  VII.

  	
  NEGATIVE COVENANTS

  	
   

  	
  64

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1.

  	
  Merger, Consolidation,
  Acquisition and Sale of Assets

  	
   

  	
  64

  
	
   

  	
  7.2.

  	
  Creation of Liens

  	
   

  	
  64

  
	
   

  	
  7.3.

  	
  Guarantees

  	
   

  	
  64

  
	
   

  	
  7.4.

  	
  Investments

  	
   

  	
  64

  
	
   

  	
  7.5.

  	
  Loans

  	
   

  	
  65

  
	
   

  	
  7.6.

  	
  Capital Expenditures

  	
   

  	
  65

  
	
   

  	
  7.7.

  	
  Dividends

  	
   

  	
  65

  
	
   

  	
  7.8.

  	
  Indebtedness

  	
   

  	
  65

  
	
   

  	
  7.9.

  	
  Nature of Business

  	
   

  	
  65

  
	
   

  	
  7.10.

  	
  Transactions with
  Affiliates

  	
   

  	
  66

  
	
   

  	
  7.11.

  	
  Reserved

  	
   

  	
  66

  
	
   

  	
  7.12.

  	
  Subsidiaries

  	
   

  	
  66

  
	
   

  	
  7.13.

  	
  Fiscal Year and Accounting
  Changes

  	
   

  	
  66

  
	
   

  	
  7.14.

  	
  Pledge of Credit

  	
   

  	
  66

  
	
   

  	
  7.15.

  	
  Amendment of Articles of
  Incorporation or By-Laws

  	
   

  	
  66

  
	
   

  	
  7.16.

  	
  Compliance with ERISA

  	
   

  	
  66

  
	
   

  	
  7.17.

  	
  Prepayment of Indebtedness

  	
   

  	
  67

  
	
   

  	
  7.18.

  	
  Anti-Terrorism Laws

  	
   

  	
  67

  
	
   

  	
  7.19.

  	
  Membership/Partnership
  Interests

  	
   

  	
  67

  
	
   

  	
  7.20.

  	
  Trading with the Enemy Act

  	
   

  	
  67

  
	
   

  	
   

  	
   

  	
   

  
	
  VIII.

  	
  CONDITIONS PRECEDENT

  	
   

  	
  67

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1.

  	
  Conditions to Initial
  Advances

  	
   

  	
  67

  
	
   

  	
  8.2.

  	
  Conditions to Each Advance

  	
   

  	
  71

  
	
   

  	
   

  	
   

  	
   

  
	
  IX.

  	
  INFORMATION AS TO
  BORROWERS

  	
   

  	
  71

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1.

  	
  Disclosure of Material
  Matters

  	
   

  	
  72

  
	
   

  	
  9.2.

  	
  Schedules

  	
   

  	
  72

  

 

iii

 

	
   

  	
  9.3.

  	
  Environmental Reports

  	
   

  	
  72

  
	
   

  	
  9.4.

  	
  Litigation

  	
   

  	
  72

  
	
   

  	
  9.5.

  	
  Material Occurrences

  	
   

  	
  72

  
	
   

  	
  9.6.

  	
  Government Receivables

  	
   

  	
  73

  
	
   

  	
  9.7.

  	
  Annual Financial
  Statements

  	
   

  	
  73

  
	
   

  	
  9.8.

  	
  Quarterly Financial
  Statements

  	
   

  	
  73

  
	
   

  	
  9.9.

  	
  Monthly Financial
  Statements

  	
   

  	
  74

  
	
   

  	
  9.10.

  	
  Other Reports

  	
   

  	
  74

  
	
   

  	
  9.11.

  	
  Additional Information

  	
   

  	
  74

  
	
   

  	
  9.12.

  	
  Projected Operating Budget

  	
   

  	
  74

  
	
   

  	
  9.13.

  	
  Variances From Operating
  Budget

  	
   

  	
  74

  
	
   

  	
  9.14.

  	
  Notice of Suits, Adverse
  Events

  	
   

  	
  74

  
	
   

  	
  9.15.

  	
  ERISA Notices and Requests

  	
   

  	
  75

  
	
   

  	
  9.16.

  	
  Additional Documents

  	
   

  	
  75

  
	
   

  	
   

  	
   

  	
   

  
	
  X.

  	
  EVENTS OF DEFAULT

  	
   

  	
  76

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.1.

  	
  Nonpayment

  	
   

  	
  76

  
	
   

  	
  10.2.

  	
  Breach of Representation

  	
   

  	
  76

  
	
   

  	
  10.3.

  	
  Financial Information

  	
   

  	
  76

  
	
   

  	
  10.4.

  	
  Judicial Actions

  	
   

  	
  76

  
	
   

  	
  10.5.

  	
  Noncompliance

  	
   

  	
  76

  
	
   

  	
  10.6.

  	
  Judgments

  	
   

  	
  76

  
	
   

  	
  10.7.

  	
  Bankruptcy

  	
   

  	
  76

  
	
   

  	
  10.8.

  	
  Inability to Pay

  	
   

  	
  77

  
	
   

  	
  10.9.

  	
  Reserved;

  	
   

  	
  77

  
	
   

  	
  10.10.

  	
  Material Adverse Effect

  	
   

  	
  77

  
	
   

  	
  10.11.

  	
  Lien Priority

  	
   

  	
  77

  
	
   

  	
  10.12.

  	
  Reserved.;

  	
   

  	
  77

  
	
   

  	
  10.13.

  	
  Cross Default

  	
   

  	
  77

  
	
   

  	
  10.14.

  	
  Breach of Guaranty or
  Pledge Agreement

  	
   

  	
  77

  
	
   

  	
  10.15.

  	
  Change of Ownership

  	
   

  	
  77

  
	
   

  	
  10.16.

  	
  Invalidity

  	
   

  	
  77

  
	
   

  	
  10.17.

  	
  Licenses

  	
   

  	
  77

  
	
   

  	
  10.18.

  	
  Seizures

  	
   

  	
  78

  
	
   

  	
  10.19.

  	
  Operations

  	
   

  	
  78

  
	
   

  	
  10.20.

  	
  Pension Plans

  	
   

  	
  78

  
	
   

  	
   

  	
   

  	
   

  
	
  XI.

  	
  LENDERS’ RIGHTS AND
  REMEDIES AFTER DEFAULT

  	
   

  	
  78

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.1.

  	
  Rights and Remedies

  	
   

  	
  78

  
	
   

  	
  11.2.

  	
  Agent’s Discretion

  	
   

  	
  80

  
	
   

  	
  11.3.

  	
  Setoff

  	
   

  	
  80

  
	
   

  	
  11.4.

  	
  Rights and Remedies not
  Exclusive

  	
   

  	
  80

  
	
   

  	
  11.5.

  	
  Allocation of Payments
  After Event of Default

  	
   

  	
  80

  
	
   

  	
   

  	
   

  	
   

  
	
  XII.

  	
  WAIVERS AND JUDICIAL
  PROCEEDINGS

  	
   

  	
  81

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.1.

  	
  Waiver of Notice

  	
   

  	
  81

  
	
   

  	
  12.2.

  	
  Delay

  	
   

  	
  81

  

 

iv

 

	
   

  	
  12.3.

  	
  Jury Waiver

  	
   

  	
  81

  
	
   

  	
   

  	
   

  	
   

  
	
  XIII.

  	
  EFFECTIVE DATE AND
  TERMINATION

  	
   

  	
  82

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.1.

  	
  Term

  	
   

  	
  82

  
	
   

  	
  13.2.

  	
  Termination

  	
   

  	
  82

  
	
   

  	
   

  	
   

  	
   

  
	
  XIV.

  	
  REGARDING AGENT

  	
   

  	
  83

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.1.

  	
  Appointment

  	
   

  	
  83

  
	
   

  	
  14.2.

  	
  Nature of Duties

  	
   

  	
  83

  
	
   

  	
  14.3.

  	
  Lack of Reliance on Agent
  and Resignation

  	
   

  	
  83

  
	
   

  	
  14.4.

  	
  Certain Rights of Agent

  	
   

  	
  84

  
	
   

  	
  14.5.

  	
  Reliance

  	
   

  	
  84

  
	
   

  	
  14.6.

  	
  Notice of Default

  	
   

  	
  84

  
	
   

  	
  14.7.

  	
  Indemnification

  	
   

  	
  85

  
	
   

  	
  14.8.

  	
  Agent in its Individual
  Capacity

  	
   

  	
  85

  
	
   

  	
  14.9.

  	
  Delivery of Documents

  	
   

  	
  85

  
	
   

  	
  14.10.

  	
  Borrowers’ Undertaking to
  Agent

  	
   

  	
  85

  
	
   

  	
  14.11.

  	
  No Reliance on Agent’s
  Customer Identification Program

  	
   

  	
  85

  
	
   

  	
  14.12.

  	
  Other Agreements

  	
   

  	
  86

  
	
   

  	
   

  	
   

  	
   

  
	
  XV.

  	
  BORROWING AGENCY

  	
   

  	
  86

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  15.1.

  	
  Borrowing Agency
  Provisions

  	
   

  	
  86

  
	
   

  	
  15.2.

  	
  Waiver of Subrogation

  	
   

  	
  87

  
	
   

  	
   

  	
   

  	
   

  
	
  XVI.

  	
  MISCELLANEOUS

  	
   

  	
  87

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  16.1.

  	
  Governing Law

  	
   

  	
  87

  
	
   

  	
  16.2.

  	
  Entire Understanding

  	
   

  	
  87

  
	
   

  	
  16.3.

  	
  Successors and Assigns;
  Participations; New Lenders

  	
   

  	
  90

  
	
   

  	
  16.4.

  	
  Application of Payments

  	
   

  	
  92

  
	
   

  	
  16.5.

  	
  Indemnity

  	
   

  	
  92

  
	
   

  	
  16.6.

  	
  Notice

  	
   

  	
  92

  
	
   

  	
  16.7.

  	
  Survival

  	
   

  	
  94

  
	
   

  	
  16.8.

  	
  Severability

  	
   

  	
  94

  
	
   

  	
  16.9.

  	
  Expenses

  	
   

  	
  94

  
	
   

  	
  16.10.

  	
  Injunctive Relief

  	
   

  	
  95

  
	
   

  	
  16.11.

  	
  Consequential Damages

  	
   

  	
  95

  
	
   

  	
  16.12.

  	
  Captions

  	
   

  	
  95

  
	
   

  	
  16.13.

  	
  Counterparts; Facsimile
  Signatures

  	
   

  	
  95

  
	
   

  	
  16.14.

  	
  Construction

  	
   

  	
  95

  
	
   

  	
  16.15.

  	
  Confidentiality; Sharing
  Information

  	
   

  	
  95

  
	
   

  	
  16.16.

  	
  Publicity

  	
   

  	
  96

  
	
   

  	
  16.17.

  	
  Certifications From Banks
  and Participants; US PATRIOT Act

  	
   

  	
  96

  

 

v

 

LIST
OF EXHIBITS AND SCHEDULES

 

Exhibits

 

	
  Exhibit 1.2

  	
  Borrowing Base Certificate

  
	
  Exhibit 2.1(a)

  	
  Revolving Credit Note

  
	
  Exhibit 5.5(b)

  	
  Financial Projections

  
	
  Exhibit 8.1(k)

  	
  Financial Condition
  Certificate

  
	
  Exhibit 16.3

  	
  Commitment Transfer
  Supplement

  

 

Schedules

 

	
  Schedule 1.2

  	
  Permitted Encumbrances

  
	
  Schedule 4.5

  	
  Equipment and Inventory
  Locations

  
	
  Schedule 4.15(h)

  	
  Deposit and Investment
  Accounts

  
	
  Schedule 4.19

  	
  Real Property

  
	
  Schedule 5.1

  	
  Consents

  
	
  Schedule 5.2(a)

  	
  States of Qualification
  and Good Standing

  
	
  Schedule 5.2(b)

  	
  Subsidiaries

  
	
  Schedule 5.4

  	
  Federal Tax Identification
  Number

  
	
  Schedule 5.6

  	
  Prior Names

  
	
  Schedule 5.7

  	
  Environmental

  
	
  Schedule 5.8(b)

  	
  Litigation

  
	
  Schedule 5.8(d)

  	
  Plans

  
	
  Schedule 5.9

  	
  Intellectual Property,
  Source Code Escrow Agreements

  
	
  Schedule 5.10

  	
  Licenses and Permits

  
	
  Schedule 5.14

  	
  Labor Disputes

  
	
  Schedule 5.27

  	
  Equity Interests

  

 

vi

 

REVOLVING
CREDIT

 

AND

 

SECURITY
AGREEMENT

 

Revolving Credit and
Security Agreement dated as of September 25, 2009 among CROCS, INC., a corporation organized under the laws of the
State of Delaware (“Crocs”), CROCS RETAIL, INC.,
a corporation organized under the laws of the State of Colorado (“Retail”),
CROCS ONLINE, INC., a corporation
organized under the laws of the State of Colorado (“Online”), OCEAN MINDED, INC., corporation organized under the laws of
the State of Colorado (“Ocean”) JIBBITZ LLC, a
limited liability company organized under the laws of the State of Colorado (“Jibbitz”),
BITE, INC., corporation organized under
the laws of the State of Colorado (“Bite”, together with Crocs, Retail,
Online, Ocean, Jibbitz and each other Person joined hereto as a borrower from
time to time, collectively “Borrowers” and each a “Borrower”),
the financial institutions which are now or which hereafter become a party
hereto (collectively, the “Lenders” and each individually a “Lender”)
and PNC BANK, NATIONAL ASSOCIATION (“PNC”),
as agent for Lenders (PNC, in such capacity, the “Agent”).

 

IN CONSIDERATION of the
mutual covenants and undertakings herein contained, Borrowers, Lenders and
Agent hereby agree as follows:

 

I.                                         DEFINITIONS.

 

1.1.          Accounting Terms. 
As used in this Agreement, the Other Documents or any certificate,
report or other document made or delivered pursuant to this Agreement,
accounting terms not defined in Section 1.2 or elsewhere in this Agreement
and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP; provided,
however, whenever such accounting terms are used for the purposes of
determining compliance with financial covenants in this Agreement, such
accounting terms shall be defined in accordance with GAAP as applied in
preparation of the audited financial statements of Borrowers for the fiscal
year ended December 31, 2008.

 

1.2.          General Terms. 
For purposes of this Agreement, the following terms shall have the
following meanings:

 

“Accountants” shall
have the meaning set forth in Section 9.7 hereof.

 

“Advance Rates” shall
have the meaning set forth in Section 2.1(a)(y)(ii).

 

“Advances” shall mean
and include the Revolving Advances and Letters of Credit.

 

“Affiliate” of any Person
shall mean (a) any Person which, directly or indirectly, is in control of,
is controlled by, or is under common control with such Person, or (b) any
Person who is a director, managing member, general partner or officer (i) of
such Person, (ii) of any Subsidiary of such Person or (iii) of any
Person described in clause (a) above. 
For purposes of this definition, control of a Person shall mean the
power, direct or indirect, (x) to vote twenty percent (20%) or more of the
Equity Interests having ordinary voting power for the election of 

 

 

directors
of such Person or other Persons performing similar functions for any such
Person, or (y) to direct or cause the direction of the management and
policies of such Person whether by ownership of Equity Interests, contract or
otherwise.

 

“Agent” shall have
the meaning set forth in the preamble to this Agreement and shall include its
successors and assigns.

 

“Agreement” shall
mean this Revolving Credit and Security Agreement, as the same may be amended,
restated, supplemented or otherwise modified from time to time.

 

“Alternate Base Rate”
shall mean, for any day, a rate per annum equal to the higher of (i) the
Base Rate in effect on such day, (ii) the Federal Funds Open Rate in
effect on such day plus one half of one-percent (1/2 of 1%), and (iii) the
sum of the Daily LIBOR Rate in effect on such day plus one percent (1.0%), so
long as a Daily LIBOR Rate is offered, ascertainable and not unlawful.

 

“Anti-Terrorism Laws”
shall mean any Applicable Laws relating to terrorism or money laundering,
including Executive Order No. 13224, the USA PATRIOT Act, the Applicable
Laws comprising or implementing the Bank Secrecy Act, the Applicable Laws
administered by the United States Treasury Department’s Office of Foreign Asset
Control, and the Proceeds of Crime (Money Laundering) and Terrorist Financing
Act (Canada) (as any of the foregoing Applicable Laws may from time to time be
amended, renewed, extended, or replaced).

 

“Applicable Law”
shall mean all laws, rules and regulations applicable to the Person,
conduct, transaction, covenant, Other Document or contract in question,
including all applicable common law and equitable principles; all provisions of
all applicable state, federal and foreign constitutions, statutes, rules,
regulations, treaties, directives and orders of any Governmental Body, and all
orders, judgments and decrees of all courts and arbitrators.

 

“Appraisal Amounts”
shall have the meaning set forth in Section 3.4(d) hereof.

 

“Authority” shall
have the meaning set forth in Section 4.19(d).

 

“Availability Reserve”
shall mean $2,500,000.

 

“Base Rate” shall
mean the base commercial lending rate of PNC as publicly announced to be in
effect from time to time, such rate to be adjusted automatically, without
notice, on the effective date of any change in such rate.  This rate of interest is determined from time
to time by PNC as a means of pricing some loans to its customers and is neither
tied to any external rate of interest or index nor does it necessarily reflect
the lowest rate of interest actually charged by PNC to any particular class or
category of customers of PNC.

 

“Benefited Lender”
shall have the meaning set forth in Section 2.20(d).

 

“Blocked Accounts”
shall have the meaning set forth in Section 4.15(h).

 

“Blocked Account Bank”
shall have the meaning set forth in Section 4.15(h).

 

2

 

“Blocked Person”
shall have the meaning set forth in Section 5.24(b) hereof.

 

“Borrower” or “Borrowers”
shall have the meaning set forth in the preamble to this Agreement and shall
extend to all permitted successors and assigns of such Persons.

 

“Borrowers on a
Consolidated Basis” shall mean the consolidation in accordance with GAAP of
the accounts or other items of the Borrowers and their respective Subsidiaries.

 

“Borrowers’ Account”
shall have the meaning set forth in Section 2.8.

 

“Borrowing Agent”
shall mean Crocs.

 

“Borrowing Base
Certificate” shall mean a certificate in substantially the form of Exhibit 1.2
duly executed by the President, Chief Financial Officer, Controller or Treasury
Director of the Borrowing Agent and delivered to the Agent, appropriately
completed, by which such officer shall certify to Agent on behalf of Borrowers
the Formula Amount and calculation thereof as of the date of such certificate.

 

“Business Day” shall
mean any day other than Saturday or Sunday or a legal holiday on which
commercial banks are authorized or required by law to be closed for business in
East Brunswick, New Jersey and, if the applicable Business Day relates to any
Eurodollar Rate Loans, such day must also be a day on which dealings are
carried on in the London interbank market.

 

“Capital Expenditures”
shall mean expenditures made or liabilities incurred for the acquisition of any
fixed assets or improvements, replacements, substitutions or additions thereto
which have a useful life of more than one year, including the total principal
portion of Capitalized Lease Obligations, which, in accordance with GAAP, would
be classified as capital expenditures.

 

“Capitalized Lease
Obligation” shall mean any Indebtedness of any Borrower represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.

 

“CERCLA” shall mean
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. §§9601 et seq.

 

“Change of Ownership”
shall mean (a) 100% of the Equity Interests of any direct or indirect
Subsidiary of Crocs is no longer owned directly or indirectly (on a fully
diluted basis) by Crocs, (b) (i) any person or group of persons
(within the meaning of Section 13(d) or 14(a) of the Exchange
Act) shall have acquired beneficial ownership of (within the meaning of Rule 13d-3
promulgated by the SEC under the Exchange Act) 20% or more of the voting Equity
Interest of Crocs; or (ii) from and after the date hereof, individuals who
on the date hereof constitute the Board of Directors of Crocs (together with
any new directors whose election by such Board of Directors or whose nomination
for election by the shareholders of Crocs was approved by a vote of a majority
of the directors then still in office who were either directors on the date
hereof or whose election or nomination for election was previously approved)
cease for any reason to constitute a majority of the board of directors of
Crocs then in office; or (c) any merger,

 

3

 

consolidation
or sale of substantially all of the property or assets of any Borrower or any
direct or indirect Subsidiary of any Borrower except as permitted by Section 7.1.

 

“Charges” shall mean
all taxes, charges, fees, imposts, levies or other assessments, including all
net income, gross income, gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp, occupation
and property taxes, custom duties, fees, assessments, liens, claims and charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts, imposed by any taxing or other authority,
domestic or foreign (including the PBGC or any environmental agency or
superfund), upon the Collateral, any Borrower or any of its Affiliates.

 

“CIP Regulations”
shall have the meaning set forth in Section 14.11.

 

“Closing Date” shall
mean September 25, 2009 or such other date as may be agreed to by the
parties hereto.

 

“Code” shall mean the
Internal Revenue Code of 1986, as the same may be amended or supplemented from
time to time, and any successor statute of similar import, and the rules and
regulations thereunder, as from time to time in effect.

 

“Collateral” shall
mean and include:

 

(a)           all Receivables;

 

(b)           all Equipment;

 

(c)           all General Intangibles;

 

(d)           all Inventory;

 

(e)           all Investment Property;

 

(f)            all Subsidiary Stock;

 

(g)           the Leasehold Interests;

 

(h)           all of each Borrower’s right, title and interest in and
to, whether now owned or hereafter acquired and wherever located:  (i) its respective goods and other
property including, but not limited to, all merchandise returned or rejected by
Customers, relating to or securing any of the Receivables; (ii) all of
each Borrower’s rights as a consignor, a consignee, an unpaid vendor, mechanic,
artisan, or other lienor, including stoppage in transit, setoff, detinue,
replevin, reclamation and repurchase; (iii) all additional amounts due to
any Borrower from any Customer relating to the Receivables; (iv) other
property, including warranty claims, relating to any goods securing the
Obligations; (v) all of each Borrower’s contract rights, rights of payment
which have been earned under a contract right, instruments (including
promissory notes), documents, chattel paper (including electronic chattel
paper), warehouse receipts, deposit accounts, letters of credit and money; (vi) all
commercial tort claims (whether now existing or 

 

4

 

hereafter arising); (vii) if
and when obtained by any Borrower, all real and personal property of third
parties in which such Borrower has been granted a lien or security interest as
security for the payment or enforcement of Receivables; (viii) all letter
of credit rights (whether or not the respective letter of credit is evidenced
by a writing); (ix) all supporting obligations; and (x) any other
goods, personal property or real property now owned or hereafter acquired in
which any Borrower has expressly granted a security interest or may in the
future grant a security interest to Agent hereunder, or in any amendment or
supplement hereto or thereto, or under any other agreement between Agent and any
Borrower;

 

(i)            all of each Borrower’s ledger sheets, ledger cards,
files, correspondence, records, books of account, business papers, computers,
computer software (owned by any Borrower or in which it has an interest),
computer programs, tapes, disks and documents relating to (a), (b), (c), (d),
(e), (f), (g), or (h) of this paragraph; and

 

(j)            all proceeds and products of (a), (b), (c), (d), (e),
(f), (g), (h) and (i) in whatever form, including, but not limited
to:  cash, deposit accounts (whether or
not comprised solely of proceeds), certificates of deposit, insurance proceeds
(including hazard, flood and credit insurance), negotiable instruments and
other instruments for the payment of money, chattel paper, security agreements,
documents, eminent domain proceeds, condemnation proceeds and tort claim
proceeds.

 

“Commitment Percentage”
of any Lender shall mean the percentage set forth below such Lender’s name on
the signature page hereof as same may be adjusted upon any assignment by a
Lender pursuant to Section 16.3(c) or (d) hereof.

 

“Commitment Transfer
Supplement” shall mean a document in the form of Exhibit 16.3 hereto,
properly completed and otherwise in form and substance satisfactory to Agent by
which the Purchasing Lender purchases and assumes a portion of the obligation
of Lenders to make Advances under this Agreement.

 

“Compliance Certificate”
shall mean a compliance certificate to be signed by the Chief Financial
Officer, Controller or Treasury Director of Borrowing Agent on behalf of
Borrowers, which shall state that, based on an examination sufficient to permit
such officer to make an informed statement, no Default or Event of Default
exists, or if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing and the steps
being taken by Borrowers with respect to such default and, such certificate
shall have appended thereto calculations which set forth Borrowers’ compliance
with the requirements or restrictions imposed by Sections 6.5, 7.4, 7.5, 7.6,
7.7, 7.8, 7.10 and 7.11.

 

“Consents” shall mean
all filings and all licenses, permits, consents, approvals, authorizations,
qualifications and orders of Governmental Bodies and other third parties,
domestic or foreign, necessary to carry on any Borrower’s business or necessary
(including to avoid a conflict or breach under any agreement, instrument, other
document, license, permit or other authorization) for the execution, delivery
or performance of this Agreement and the Other Documents, including any
Consents required under all applicable federal, state or other Applicable Law.

 

5

 

“Consigned Inventory”
shall mean Inventory of any Borrower that is in the possession of another
Person on a consignment, sale or return, or other basis that does not
constitute a final sale and acceptance of such Inventory.

 

“Controlled Group”
shall mean, at any time, each Borrower and all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control and all other entities which, together with any Borrower, are
treated as a single employer under Section 414 of the Code.

 

“Customer” shall mean
and include the account debtor with respect to any Receivable and/or the
prospective purchaser of goods, services or both with respect to any contract
or contract right, and/or any party who enters into or proposes to enter into
any contract or other arrangement with any Borrower, pursuant to which such
Borrower is to deliver any personal property or perform any services.

 

“Customs” shall have
the meaning set forth in Section 2.11(b) hereof.

 

“Daily LIBOR Rate”  shall mean, 
for any day, the rate per annum determined by the Agent by dividing (x) the
Published Rate by (y) a number equal to 1.00 minus the Reserve Percentage.

 

“Debt Payments” shall
mean and include (a) all cash actually expended by any Borrower to make
interest payments on any Advances hereunder, plus (b) accrued but
unpaid interest on account of Eurodollar Rate Loans, plus (c) all
cash actually expended by any Borrower to make payments for all fees,
commissions and charges set forth herein and with respect to any Advances, plus
(d) all cash actually expended by any Borrower to make payments on
Capitalized Lease Obligations, plus (e) all cash actually expended
by any Borrower to make payments with respect to any other Indebtedness for
borrowed money.

 

“Default” shall mean
an event, circumstance or condition which, with the giving of notice or passage
of time or both, would constitute an Event of Default.

 

“Default Rate” shall
have the meaning set forth in Section 3.1 hereof.

 

“Defaulting Lender”
shall have the meaning set forth in Section 2.23(a) hereof.

 

“Depository Accounts”
shall have the meaning set forth in Section 4.15(h) hereof.

 

“Designated Lender”
shall have the meaning set forth in Section 16.2(b) hereof.

 

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

 

“Domestic Rate Loan”
shall mean any Advance that bears interest based upon the Alternate Base Rate.

 

“Drawing Date” shall
have the meaning set forth in Section 2.12(b) hereof.

 

“Early Termination Date”
shall have the meaning set forth in Section 13.1 hereof.

 

6

 

“Earnings Before Interest
and Taxes” shall mean for any period the sum of (i) net income (or
loss) of Borrowers on a Consolidated Basis for such period (excluding
extraordinary gains and losses and non-cash share based compensation expenses),
plus (ii) all interest expense of Borrowers on a Consolidated Basis
for such period, plus (iii) all charges against income of Borrowers
on a Consolidated Basis for such period for federal, state and local taxes.

 

“EBITDA” shall mean
for any period the sum of (i) Earnings Before Interest and Taxes for such
period, plus (ii) depreciation expenses for such period, plus
(iii) amortization expenses for such period; provided however that
notwithstanding anything to the contrary contained herein, for purposes of
calculating the Fixed Charge Coverage Ratio for (x) the calendar quarter
ending March 31, 2009, EBITDA shall be deemed to be ($8,787,000) and (y) the
calendar quarter ending June 30, 2009, EBITDA shall be deemed to be
$41,267,000.

 

“Eligible Inventory”
shall mean and include finished goods Inventory, excluding work in process, raw
materials, supplies and packaging materials, with respect to each Borrower,
valued at the lower of cost or market value, determined on a first-in-first-out
basis, which is not, in Agent’s opinion, obsolete, slow moving or
unmerchantable and which Agent, in its Permitted Discretion, shall not deem
ineligible Inventory, based on such considerations as Agent may from time to
time deem appropriate including whether the Inventory is subject to a
perfected, first priority security interest in favor of Agent and no other Lien
(other than a Permitted Encumbrance).  In
addition, Inventory shall not be Eligible Inventory if it: (i) does not
conform to all standards imposed by any Governmental Body which has regulatory
authority over such goods or the use or sale thereof; (ii) is located
outside the continental United States, Canada or at a location that is not
otherwise in compliance with this Agreement; (iii) constitutes Consigned
Inventory; (iv) is the subject of an Intellectual Property Claim; (v) is
subject to a License Agreement or other agreement that limits, conditions or
restricts any Borrower’s or Agent’s right to sell or otherwise dispose of such
Inventory, unless Agent is a party to a Licensor/Agent Agreement with the
Licensor under such License Agreement; (vi) is situated at a location not
owned by a Borrower unless the owner or occupier of such location has executed
in favor of Agent a Lien Waiver Agreement; (vii) is located at a kiosk or
other similar location, or is located at a retail location where the aggregate
amount of all Inventory located as such location is less than $50,000 in the
aggregate; (viii) is in-transit Inventory located in the United States or
Canada; or (ix) or if the sale of such Inventory would result in an
ineligible Receivable.  Eligible
Inventory shall include all Inventory in-transit to the United States or Canada
from a foreign country for which title has passed to a Borrower, which is insured
to the full value thereof and for which Agent shall have in its possession (a) all
negotiable bills of lading properly endorsed and (b) all non-negotiable
bills of lading issued in Agent’s name. 
Agent may, in its sole discretion, include any Inventory which does not
satisfy the condition of clause (vi) above in the Formula Amount; provided
however that Borrowers agree such Inventory shall only be included in the
Formula Amount subject to a rent reserve, to be determined by Agent in its sole
discretion.

 

“Eligible Receivables”
shall mean and include with respect to each Borrower, each Receivable of such
Borrower arising in the Ordinary Course of Business and which Agent, in its
Permitted Discretion, shall deem to be an Eligible Receivable, based on such
considerations as Agent may from time to time deem appropriate.  A Receivable shall not be deemed eligible
unless such Receivable is subject to Agent’s first priority perfected security
interest and no other 

 

7

 

Lien
(other than Permitted Encumbrances), and is evidenced by an invoice or other
documentary evidence satisfactory to Agent. 
In addition, no Receivable shall be an Eligible Receivable if:

 

(a)           it arises out of a sale made by any Borrower to an
Affiliate of any Borrower or to a Person controlled by an Affiliate of any
Borrower;

 

(b)           it is due or unpaid more than sixty (60) days after the
original due date or one hundred twenty (120) days after the original invoice
date;

 

(c)           fifty percent (50%) or more of the Receivables from such
Customer are not deemed Eligible Receivables hereunder.  Such percentage may, in Agent’s sole
discretion, be decreased from time to time;

 

(d)           any covenant, representation or warranty contained in this
Agreement with respect to such Receivable has been breached;

 

(e)           the Customer shall (i) apply for, suffer, or consent
to the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property
or call a meeting of its creditors, (ii) admit in writing its inability,
or be generally unable, to pay its debts as they become due or cease operations
of its present business, (iii) make a general assignment for the benefit
of creditors, (iv) commence a voluntary case or proceeding under any state,
federal, or Canadian bankruptcy laws (as now or hereafter in effect), (v) be
adjudicated a bankrupt or insolvent, (vi) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vii) acquiesce
to, or fail to have dismissed, any petition which is filed against it in any
involuntary case under such bankruptcy laws, or (viii) take any action for
the purpose of effecting any of the foregoing;

 

(f)            the sale is to a Customer outside the continental United
States of America or Canada (other than Quebec), unless the sale is on letter
of credit, guaranty or acceptance terms, in each case acceptable to Agent in
its sole discretion;

 

(g)           the sale to the Customer is on a bill-and-hold, guaranteed
sale, sale-and-return, sale on approval, consignment or any other repurchase or
return basis or is evidenced by chattel paper;

 

(h)           Agent believes, in its Permitted Discretion, that
collection of such Receivable is insecure or that such Receivable may not be
paid by reason of the Customer’s financial inability to pay;

 

(i)            the Customer is the United States of America, any state,
the federal government of Canada, the government of any province or territory
of Canada, or any department, agency or instrumentality of any of them, unless
the applicable Borrower assigns its right to payment of such Receivable to
Agent pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C.
Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15 et seq.), or
the Financial Administration Act (Canada), or has otherwise complied with other
applicable statutes or ordinances;

 

8

 

(j)            (i)            the
goods giving rise to such Receivable have not been delivered to and accepted by
the Customer or the services giving rise to such Receivable have not been
performed by the applicable Borrower and accepted by the Customer or (ii) the
Receivable otherwise does not represent a final sale, except with respect to
returns and refunds in the Ordinary Course of Business;

 

(k)           the aggregate Receivables owing by the Customer exceeds
fifteen percent (15%) of all Receivables then outstanding; provided that any
such Receivables shall only be excluded from Eligible Receivables to the extent
of such excess;

 

(l)            the Receivable is subject to any offset, deduction,
defense, dispute, or counterclaim, the Customer is also a creditor or supplier
of a Borrower or the Receivable is contingent in any respect or for any reason;

 

(m)          the applicable Borrower has made any agreement with any
Customer for any deduction therefrom, except for discounts or allowances made
in the Ordinary Course of Business for prompt payment, all of which discounts
or allowances are reflected in the calculation of the face value of each
respective invoice related thereto subject to returns and refunds in the
Ordinary Course of Business;

 

(n)           any return, rejection or repossession of the merchandise
has occurred or the rendition of services has been disputed;

 

(o)           such Receivable is not payable to a Borrower; or

 

(p)           such Receivable is not otherwise satisfactory to Agent as
determined in good faith by Agent in the exercise of its Permitted Discretion
in a reasonable manner.

 

“Environmental Complaint”
shall have the meaning set forth in Section 4.19(d) hereof.

 

“Environmental Laws”
shall mean all federal, Canadian, state, provincial and local environmental,
land use, zoning, health, chemical use, safety and sanitation laws, statutes,
ordinances and codes relating to the protection of the environment and/or
governing the use, storage, treatment, generation, transportation, processing,
handling, production or disposal of Hazardous Substances and the rules,
regulations, policies, guidelines, interpretations, decisions, orders and
directives of federal, state and local governmental agencies and authorities
with respect thereto.

 

“Equipment” shall
mean and include as to each Borrower all of such Borrower’s goods (other than
Inventory) whether now owned or hereafter acquired and wherever located
including all equipment, machinery, apparatus, motor vehicles, fittings,
furniture, furnishings, fixtures, parts, accessories and all replacements and
substitutions therefor or accessions thereto.

 

“Equity Interests” of
any Person shall mean any and all shares, rights to purchase, options, warrants,
general, limited or limited liability partnership interests, member interests,
participation or other equivalents of or interest in (regardless of how
designated) equity of such Person, whether voting or nonvoting, including
common stock, preferred stock, convertible 

 

9

 

securities
or any other “equity security” (as such term is defined in Rule 3a11-1 of
the General Rules and Regulations promulgated by the SEC under the
Exchange Act).

 

“ERISA” shall mean the
Employee Retirement Income Security Act of 1974, as amended from time to time
and the rules and regulations promulgated thereunder.

 

“Eurodollar Rate”
shall mean for any Eurodollar Rate Loan for the then current Interest Period
relating thereto, the interest rate per annum determined by Agent by dividing
(the resulting quotient rounded upwards, if necessary, to the nearest 1/100th
of 1% per annum) (i) the rate which appears on the Bloomberg Page BBAM1
(or on such other substitute Bloomberg page that displays rates at which
US dollar deposits are offered by leading banks in the London interbank deposit
market), or the rate which is quoted by another source selected by Agent which
has been approved by the British Bankers’ Association as an authorized information
vendor for the purpose of displaying rates at which U.S. dollar deposits are
offered by leading banks in the London interbank deposit market (an “Eurodollar
Rate Alternate Source”), at approximately 11:00 a.m., London time, two (2) Business
Days prior to the commencement of such Interest Period as the London interbank
offered rate for U.S. Dollars for an amount comparable to such Eurodollar Rate
Loan and having a borrowing date and a maturity comparable to such Interest
Period (or if there shall at any time, for any reason, no longer exist a
Bloomberg Page BBAM1 (or any substitute page) or any Eurodollar Rate
Alternate Source, a comparable replacement rate determined by Agent at such
time (which determination shall be conclusive absent manifest error)), by (ii) a
number equal 1.00 minus the Reserve Percentage. The Eurodollar Rate may also be
expressed by the following formula:

 

	
   

  	
   

  	
  Average of London
  interbank offered rates quoted by Bloomberg or appropriate Successor as shown
  on

  
	
   

  	
   

  	
   

  
	
  Eurodollar Rate =

  	
   

  	
  Bloomberg
  Page BBAM1

  
	
   

  	
   

  	
  1.00 - Reserve
  Percentage

  

 

The Eurodollar Rate shall be
adjusted with respect to any Eurodollar Rate Loan that is outstanding on the
effective date of any change in the Reserve Percentage as of such effective
date.  The Agent shall give prompt notice
to the Borrowing Agent of the Eurodollar Rate as determined or adjusted in
accordance herewith, which determination shall be conclusive absent manifest
error.

 

“Eurodollar Rate
Alternate Source” shall have the meaning provided in the definition of “Eurodollar
Rate.”

 

“Eurodollar Rate Loan”
shall mean an Advance at any time that bears interest based on the Eurodollar
Rate.

 

“Event of Default”
shall have the meaning set forth in Article X hereof.

 

“Exchange Act” shall
have the mean the Securities Exchange Act of 1934, as amended.

 

10

 

“Executive Order No. 13224”
shall mean the Executive Order No. 13224 on Terrorist Financing, effective
September 24, 2001, as the same has been, or shall hereafter be, renewed,
extended, amended or replaced.

 

“Federal Funds Effective
Rate” for any day shall mean the rate per annum (based on a year of 360
days and actual days elapsed and rounded upward to the nearest 1/100 of 1%)
announced by the Federal Reserve Bank of New York (or any successor) on such
day as being the weighted average of the rates on overnight federal funds
transactions arranged by federal funds brokers on the previous trading day, as
computed and announced by such Federal Reserve Bank (or any successor) in
substantially the same manner as such Federal Reserve Bank computes and
announces the weighted average it refers to as the Federal Funds Effective Rate
as of the date of this Agreement; provided, if such Federal Reserve Bank (or
its successor) does not announce such rate on any day, the “Federal Funds
Effective Rate” for such day shall be the Federal Funds Effective Rate for the
last day on which such rate was announced.

 

“Federal Funds Open Rate”
for any day shall mean the rate per annum (based on a year of 360 days and
actual days elapsed) which is the daily federal funds open rate as quoted by
ICAP North America, Inc. (or any successor) as set forth on the Bloomberg
Screen BTMM for that day opposite the caption “OPEN” (or on such other substitute
Bloomberg Screen that displays such rate), or as set forth on such other
recognized electronic source used for the purpose of displaying such rate as
selected by PNC (a “Federal Funds Open Rate Alternate Source”) (or if such rate
for such day does not appear on the Bloomberg Screen BTMM (or any substitute
screen) or on any Federal Funds Open Rate Alternate Source, or if there shall
at any time, for any reason, no longer exist a Bloomberg Screen BTMM (or any
substitute screen) or any Federal Funds Open Rate Alternate Source, a
comparable replacement rate determined by the PNC at such time (which
determination shall be conclusive absent manifest error); provided however,
that if such day is not a Business Day, the Federal Funds Open Rate for such
day shall be the “open” rate on the immediately preceding Business Day.  If and when the Federal Funds Open Rate
changes, the rate of interest with respect to any advance to which the Federal
Funds Open Rate applies will change automatically without notice to the Borrowers,
effective on the date of any such change.

 

“Federal Funds Open Rate
Alternate Source” shall have the meaning provided in the definition of “Federal
Funds Open Rate.”

 

“Fee Letter” shall
mean the fee letter dated the Closing Date among Borrowers and PNC.

 

“Fixed Charge Coverage
Ratio” shall mean and include, with respect to any fiscal period, the ratio
of (a) EBITDA, minus Unfunded Capital Expenditures made during such
period, minus distributions (including tax distributions made during
such period) and dividends, minus cash taxes paid during such period to (b) all
Debt Payments made during such period.

 

“Foreign Subsidiary”
of any Person, shall mean any Subsidiary of such Person that is not organized
or incorporated in the United States or any State or territory thereof.

 

“Formula Amount”
shall have the meaning set forth in Section 2.1(a).

 

11

 

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

 

“General Intangibles”
shall mean and include as to each Borrower all of such Borrower’s general
intangibles, whether now owned or hereafter acquired, including all payment
intangibles, all choses in action, causes of action, corporate or other business
records, inventions, designs, patents, patent applications, equipment
formulations, manufacturing procedures, quality control procedures, trademarks,
trademark applications, service marks, trade secrets, goodwill, copyrights,
design rights, software, computer information, source codes, codes, records and
updates, registrations, licenses, franchises, customer lists, tax refunds, tax
refund claims, computer programs, all claims under guaranties, security
interests or other security held by or granted to such Borrower to secure
payment of any of the Receivables by a Customer (other than to the extent
covered by Receivables) all rights of indemnification and all other intangible
property of every kind and nature (other than Receivables).

 

“Governmental Acts”
shall have the meaning set forth in Section 2.17.

 

“Governmental Body”
shall mean any nation or government, any state or other political subdivision
thereof or any entity, authority, agency, division or department exercising the
legislative, judicial, regulatory or administrative functions of or pertaining
to a government.

 

“Gross-Up Payment”
shall have the meaning set forth in Section 3.10.

 

“Guarantor” shall
mean (i) Western Brands Holdings Company, a Colorado corporation, (ii) RA
Footwear, LLC a Colorado limited liability company, and (iii) any other
Person who may hereafter guarantee payment or performance of the whole or any
part of the Obligations and “Guarantors” means collectively all such Persons.

 

“Guarantor Security
Agreement” shall mean any security agreement or pledge agreement executed
by any Guarantor in favor of Agent securing the Obligations or the Guaranty of
such Guarantors, in form and substance satisfactory to Agent.

 

“Guaranty” shall mean
any guaranty of the Obligations executed by a Guarantor in favor of Agent for
its benefit and for the ratable benefit of Lenders, in form and substance
satisfactory to Agent.

 

“Hazardous Discharge”
shall have the meaning set forth in Section 4.19(d) hereof.

 

“Hazardous Substance”
shall mean, without limitation, any flammable explosives, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum products, methane, hazardous materials,
Hazardous Wastes, hazardous or Toxic Substances or related materials as defined
in CERCLA, the Hazardous Materials Transportation Act, as amended (49 U.S.C.
Sections 1801, et seq.), RCRA, Articles 15 and 27 of the New York State
Environmental Conservation Law or any other applicable Environmental Law and in
the regulations adopted pursuant thereto.

 

12

 

“Hazardous Wastes”
shall mean all waste materials subject to regulation under CERCLA, RCRA or
applicable state law, and any other applicable Federal and state laws or
Canadian and provincial laws now in force or hereafter enacted relating to
hazardous waste disposal.

 

“Hedge Liabilities”
shall have the meaning provided in the definition of “Lender-Provided Interest
Rate Hedge”.

 

“Indebtedness” of a
Person at a particular date shall mean all obligations of such Person which in
accordance with GAAP would be classified upon a balance sheet as liabilities
(except capital stock and surplus earned or otherwise) and in any event,
without limitation by reason of enumeration, shall include all indebtedness,
debt and other similar monetary obligations of such Person whether direct or
guaranteed, and all premiums, if any, due at the required prepayment dates of
such indebtedness, and all indebtedness secured by a Lien on assets owned by
such Person, whether or not such indebtedness actually shall have been created,
assumed or incurred by such Person.  Any
indebtedness of such Person resulting from the acquisition by such Person of
any assets subject to any Lien shall be deemed, for the purposes hereof, to be
the equivalent of the creation, assumption and incurring of the indebtedness
secured thereby, whether or not actually so created, assumed or incurred.

 

“Ineligible Security”
shall mean any security which may not be underwritten or dealt in by member
banks of the Federal Reserve System under Section 16 of the Banking Act of
1933 (12 U.S.C. Section 24, Seventh), as amended.

 

“Intellectual Property”
shall mean property constituting under any Applicable Law a patent, patent application,
copyright, trademark, service mark, trade name, mask work, trade secret or
license or other right to use any of the foregoing.

 

“Intellectual Property
Claim” shall mean the assertion by any Person of a claim (whether asserted
in writing, by action, suit or proceeding or otherwise) that any Borrower’s
ownership, use, marketing, sale or distribution of any Inventory, Equipment,
Intellectual Property or other property or asset is violative of any ownership
of or right to use any Intellectual Property of such Person.

 

“Interest Period”
shall mean the period provided for any Eurodollar Rate Loan pursuant to Section 2.2(b).

 

“Interest Rate Hedge”
shall mean an interest rate exchange, collar, cap, swap, adjustable strike cap,
adjustable strike corridor or similar agreements entered into by any Borrower
or its Subsidiaries in order to provide protection to, or minimize the impact
upon, such Borrower, any Guarantor and/or their respective Subsidiaries of
increasing floating rates of interest applicable to Indebtedness.

 

“Inventory” shall
mean and include as to each Borrower all of such Borrower’s now owned or
hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any consignment arrangement, contract of service
or held for sale or lease, all raw materials, work in process, finished goods
and materials and supplies of any kind, nature or description which are or
might be used or consumed in such Borrower’s business or used in

 

13

 

selling
or furnishing such goods, merchandise and other personal property, and all
documents of title or other documents representing them.

 

“Inventory Advance Rate”
shall have the meaning set forth in Section 2.1(a)(y)(ii) hereof.

 

“Investment Property”
shall mean and include as to each Borrower, all of such Borrower’s now owned or
hereafter acquired securities (whether certificated or uncertificated),
securities entitlements, securities accounts, commodities contracts and
commodities accounts.

 

“ISP98 Rules” shall
have the meaning set forth in Section 2.10(b) hereof.

 

“Issuer” shall mean
any Person who issues a Letter of Credit and/or accepts a draft pursuant to the
terms hereof.

 

“Leasehold Interests”
shall mean all of each Borrower’s right, title and interest in and to, and as
lessee, of the premises identified on Schedule 4.19(a) hereto.

 

“Lender” and “Lenders”
shall have the meaning ascribed to such term in the preamble to this Agreement
and shall include each Person which becomes a transferee, successor or assign
of any Lender.

 

“Lender Default”
shall have the meaning set forth in Section 2.23(a).

 

“Lender-Provided Interest
Rate Hedge” shall mean an Interest Rate Hedge which is provided by any
Lender and with respect to which the Agent confirms meets the following
requirements: such Interest Rate Hedge (i) is documented in a standard
International Swap Dealer Association Agreement, (ii) provides for the
method of calculating the reimbursable amount of the provider’s credit exposure
in a reasonable and customary manner, and (iii) is entered into for
hedging (rather than speculative) purposes. 
The liabilities of any Borrower to the provider of any Lender-Provided
Interest Rate Hedge (the “Hedge Liabilities”) shall be Obligations hereunder,
guaranteed obligations under any Guaranty and secured obligations under any
Guarantor Security Agreement and otherwise treated as Obligations for purposes
of each of the Other Documents. The Liens securing the Hedge Liabilities shall
be pari passu with the Liens securing all other Obligations under this
Agreement and the Other Documents.

 

“Letter of Credit
Application” shall have the meaning set forth in Section 2.10(a) hereof.

 

“Letter of Credit Fees”
shall have the meaning set forth in Section 3.2.

 

“Letter of Credit Borrowing”
shall have the meaning set forth in Section 2.12(d).

 

“Letter of Credit
Sublimit” shall mean $4,000,000.

 

“Letters of Credit”
shall have the meaning set forth in Section 2.9.

 

“License Agreement”
shall mean any agreement between any Borrower and a Licensor pursuant to which
such Borrower is authorized to use any Intellectual Property in connection 

 

14

 

with
the manufacturing, marketing, sale or other distribution of any Inventory of
such Borrower or otherwise in connection with such Borrower’s business
operations.

 

“Licensor” shall mean
any Person from whom any Borrower obtains the right to use (whether on an
exclusive or non-exclusive basis) any Intellectual Property in connection with
such Borrower’s manufacture, marketing, sale or other distribution of any
Inventory or otherwise in connection with such Borrower’s business operations.

 

“Licensor/Agent Agreement”
shall mean an agreement between Agent and a Licensor, in form and content
satisfactory to Agent, by which Agent is given the unqualified right, vis-a-vis
such Licensor, to enforce Agent’s Liens with respect to and to dispose of any
Borrower’s Inventory with the benefit of any Intellectual Property applicable
thereto, irrespective of such Borrower’s default under any License Agreement
with such Licensor.

 

“Lien” shall mean any
mortgage, deed of trust, pledge, hypothecation, assignment, security interest,
lien (whether statutory or otherwise), Charge, claim or encumbrance, or
preference, priority or other security agreement or preferential arrangement
held or asserted in respect of any asset of any kind or nature whatsoever
including any conditional sale or other title retention agreement, any lease
having substantially the same economic effect as any of the foregoing, and the
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction.

 

“Lien Waiver Agreement”
shall mean an agreement which is executed in favor of Agent by a Person who
owns or occupies premises at which any Collateral may be located from time to
time and by which such Person shall waive any Lien that such Person may ever
have with respect to any of the Collateral (as a result of owning or occupying
such premises) and shall authorize Agent from time to time to enter upon the
premises to inspect or remove the Collateral from such premises or to use such
premises to store or dispose of such Inventory.

 

“Material Adverse Effect”
shall mean a material adverse effect on (a) the condition (financial or
otherwise), results of operations, assets, business or properties of any
Borrower or any Guarantor, (b) any Borrower’s ability to duly and
punctually pay or perform the Obligations in accordance with the terms thereof,
(c) the value of the Collateral, or Agent’s Liens on the Collateral or the
priority of any such Lien or (d) the practical realization of the benefits
of Agent’s and each Lender’s rights and remedies under this Agreement and the
Other Documents.

 

“Maximum Face Amount”
shall mean, with respect to any outstanding Letter of Credit, the face amount
of such Letter of Credit including all automatic increases provided for in such
Letter of Credit, whether or not any such automatic increase has become
effective.

 

“Maximum Revolving
Advance Amount” shall mean $30,000,000.

 

“Maximum Undrawn Amount”
shall mean with respect to any outstanding Letter of Credit, the amount of such
Letter of Credit that is or may become available to be drawn, including all
automatic increases provided for in such Letter of Credit, whether or not any
such automatic increase has become effective.

 

15

 

“Modified Commitment
Transfer Supplement” shall have the meaning set forth in Section 16.3(d).

 

“Multiemployer Plan”
shall mean a “multiemployer plan” as defined in Sections 3(37) and 4001(a)(3) of
ERISA to which contributions are required by any Borrower or any member of the
Controlled Group.

 

“Multiple Employer Plan”
shall mean a Plan which has two or more contributing sponsors (including any
Borrower or any member of the Controlled Group) at least two of whom are not
under common control, as such a plan is described in Section 4064 of
ERISA.

 

“Non-Defaulting Lender”
shall have the meaning set forth in Section 2.23(b) hereof.

 

“Note” shall mean
collectively, the Revolving Credit Notes.

 

“Obligations” shall
mean and include any and all loans (including without limitation, all
Advances), advances, debts, liabilities, obligations, covenants and duties owing
by any Borrower to Lenders or Agent or to any other direct or indirect
subsidiary or affiliate of Agent or any Lender of any kind or nature, present
or future (including any interest or other amounts accruing thereon, and any
costs and expenses of any Person payable by Borrower and any indemnification
obligations payable by Borrower arising or payable after maturity, or after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding relating to any Borrower, whether or not a
claim for post-filing or post-petition interest or other amounts is allowable
or allowed in such proceeding), whether or not evidenced by any note, guaranty
or other instrument, whether arising under any agreement, instrument or
document (including this Agreement and the Other Documents), whether or not for
the payment of money, whether arising by reason of an extension of credit,
opening of a letter of credit, loan, equipment lease or guarantee, under any
interest or currency swap, future, option or other similar agreement, or in any
other manner, whether arising out of overdrafts or deposit or other accounts or
electronic funds transfers (whether through automated clearing houses or
otherwise) or out of the Agent’s or any Lenders non-receipt of or inability to
collect funds or otherwise not being made whole in connection with depository
transfer check or other similar arrangements, whether direct or indirect
(including those acquired by assignment or participation), absolute or contingent,
joint or several, due or to become due, now existing or hereafter arising,
contractual or tortious, liquidated or unliquidated, regardless of how such
indebtedness or liabilities arise or by what agreement or instrument they may
be evidenced or whether evidenced by any agreement or instrument, including,
but not limited to, any and all of any Borrower’s Indebtedness and/or
liabilities under this Agreement, the Other Documents or under any other
agreement between Agent or Lenders and any Borrower and any amendments,
extensions, renewals or increases and all costs and expenses of Agent and any
Lender incurred in the documentation, negotiation, modification, enforcement,
collection or otherwise in connection with any of the foregoing, including but
not limited to reasonable attorneys’ fees and expenses and all obligations of
any Borrower to Agent or Lenders to perform acts or refrain from taking any
action.

 

“Order” shall have
the meaning set forth in Section 2.18(b) hereof.

 

16

 

“Ordinary Course of
Business” shall mean with respect to any Borrower, the ordinary course of
such Borrower’s business as conducted on the Closing Date.

 

“Other Documents”
shall mean the Note, the Fee Letter, the Perfection Certificates, the Guaranty,
any Guarantor Security Agreement, the Pledge Agreement, any Lender-Provided
Interest Rate Hedge, any and all other agreements, instruments and documents,
and any intercreditor agreements, guaranties, pledges, powers of attorney, consents,
interest or currency swap agreements or other similar agreements and all other
writings heretofore, now or hereafter executed by any Borrower or any Guarantor
and/or delivered to Agent or any Lender in respect of the transactions
contemplated by this Agreement.

 

“Out-of-Formula Loans”
shall have the meaning set forth in Section 16.2(b).

 

“Parent” of any
Person shall mean a corporation or other entity owning, directly or indirectly
at least 50% of the shares of stock or other ownership interests having
ordinary voting power to elect a majority of the directors of the Person, or
other Persons performing similar functions for any such Person.

 

“Participant” shall
mean each Person who shall be granted the right by any Lender to participate in
any of the Advances and who shall have entered into a participation agreement
in form and substance satisfactory to such Lender.

 

“Participation Advance”
shall have the meaning set forth in Section 2.12(d).

 

“Participation Commitment”
shall mean each Lender’s obligation to buy a participation of the Letters of
Credit issued hereunder.

 

“Payee” shall have
the meaning set forth in Section 3.10.

 

“Payment Office”
shall mean initially Two Tower Center Boulevard, East Brunswick, New Jersey
08816; thereafter, such other office of Agent, if any, which it may designate
by notice to Borrowing Agent and to each Lender to be the Payment Office.

 

“PBGC” shall mean the
Pension Benefit Guaranty Corporation established pursuant to Subtitle A of
Title IV of ERISA or any successor.

 

“Perfection Certificates”
shall mean collectively, the Perfection Certificates and the responses thereto
provided by each Borrower and delivered to Agent.

 

“Pension Benefit Plan”
shall mean at any time any employee pension benefit plan (including a Multiple
Employer Plan, but not a Multiemployer Plan) which is covered by Title IV of
ERISA or is subject to the minimum funding standards under Section 412 of
the Code or is a pension benefit plan within the meaning of the Pension
Benefits Act (Ontario) and either (i) is maintained or to which
contributions are required by any member of the Controlled Group for employees
of any member of the Controlled Group or (ii) has at any time within the
preceding five years been maintained or to which contributions have been required
by any entity which was at such time a member of the Controlled Group for
employees of any entity which was at such time a member of the Controlled
Group.

 

17

 

“Permitted Acquisitions”
shall mean acquisitions of the assets or Equity Interests of another Person so
long as: (a) after giving effect to such acquisition, Borrowers have
Undrawn Availability of $5,000,000; (b) the total costs and liabilities
(including without limitation, all assumed liabilities, all earn-out payments,
deferred payments and the value of any other stock or assets transferred,
assigned or encumbered with respect to such acquisitions) of all such
acquisitions do not exceed $5,000,000 for any single acquisition or $10,000,000
in any fiscal year commencing with the fiscal year ending December 31,
2010; (c) with respect to the acquisition of Equity Interests, such
acquired company shall (i) have a positive EBITDA and tangible net worth,
calculated in accordance with GAAP immediately prior to such acquisition, (ii) such
acquired company shall be added as a Borrower to this Agreement and be jointly
and severally liable for all Obligations, and (iii) Agent shall be granted
a first priority lien in all assets of such acquired company; (d) the
acquired company or property is used or useful in the same or a similar line of
business as the Borrowers were engaged in on the Closing Date (or any
reasonable extensions or expansions thereof); (e) Agent shall have
received a first-priority security interest in all acquired assets or Equity
Interests, subject to documentation satisfactory to Agent; (f) the board
of directors (or other comparable governing body) of such company shall have
duly approved the transaction; (g) the Borrowers shall have delivered to
Agent (i) a pro forma balance sheet and pro forma financial statements and
a Compliance Certificate demonstrating that, upon giving effect to such
acquisition on a pro forma basis, the Borrowers would be in compliance with the
financial covenants set forth in Section 6.5 as of the most recent fiscal
quarter end and (ii) audited financial statements of the acquired entity
for the two most recent fiscal years then ended, in form and substance
reasonably acceptable to Agent, audited in accordance with GAAP; (h) if
such acquisition includes general partnership interests or any other Equity
Interest that does not have a corporate (or similar) limitation on liability of
the owners thereof, then such acquisition shall be effected by having such
Equity Interests acquired by a corporate holding company directly or indirectly
wholly-owned by a Borrower and newly formed for the sole purpose of effecting
such acquisition; (i) no assets acquired in any such transaction(s) shall
be included in the Formula Amount until Agent has received an audit of such
assets, in form and substance acceptable to Agent; and (j) no Default or
Event of Default shall have occurred or will occur after giving pro forma
effect to such acquisition. For the purposes of calculating Undrawn Availability
under this definition, any assets being acquired in the proposed acquisition
shall be included in the Formula Amount on the date of closing so long as Agent
has received an audit of such assets as set forth in clause (i) above and
so long as such assets satisfy the applicable eligibility criteria.

 

“Permitted Discretion”
means a determination made in good faith and in the exercise of commercially
reasonable (from the perspective of a secured asset-based lender) business
judgment.

 

“Permitted Encumbrances”
shall mean (a) Liens in favor of Agent for the benefit of Agent and
Lenders; (b) Liens for taxes, assessments or other governmental charges
not delinquent or being Properly Contested; (c) Liens disclosed in the
financial statements referred to in Section 5.5, the existence of which
Agent has consented to in writing; (d) deposits or pledges to secure
obligations under worker’s compensation, social security or similar laws, or
under unemployment insurance; (e) deposits or pledges to secure bids, tenders,
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the Ordinary Course of Business; (f) Liens arising by virtue of
the rendition, entry or issuance against Borrower or any Subsidiary, or any
property of 

 

18

 

Borrower
or any Subsidiary, of any judgment, writ, order, or decree for so long as each
such Lien (I) is in existence for less than twenty (20) consecutive days
after it first arises or is being Properly Contested and (II) is at all
times junior in priority to any Liens in favor of Agent; (g) mechanics’,
workers’, materialmen’s or other like Liens arising in the Ordinary Course of
Business with respect to obligations which are not due or which are being
Properly Contested; (h) Liens placed upon fixed assets hereafter acquired
to secure a portion of the purchase price thereof, provided that (I) any
such lien shall not encumber any other property of Borrower and (II) the
aggregate amount of Indebtedness secured by such Liens incurred as a result of
such purchases during any fiscal year shall not exceed the amount provided for
in Section 7.6; and (i) Liens disclosed on Schedule 1.2; provided
that such Liens shall secure only those obligations which they secure on the
Closing Date and shall not subsequently apply to any other property or assets
of any Borrower other than the property and assets to which they apply as of
the Closing Date.

 

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

 

“Plan” shall mean any
employee benefit plan within the meaning of Section 3(3) of ERISA or
within the meaning of the Pension Benefits Act (Ontario) (including a Pension
Benefit Plan and a Multiemployer Plan), maintained for employees of any
Borrower or any member of the Controlled Group or any such Plan to which any
Borrower or any member of the Controlled Group is required to contribute.

 

“Pledge Agreement”
shall mean that certain Collateral Pledge Agreement executed by Borrowing Agent
and Western Brands Holding Company, a Colorado corporation, in favor of Agent
dated as of the Closing Date and any other pledge agreements executed
subsequent to the Closing Date by any other Person to secure the Obligations.

 

“PNC” shall have the
meaning set forth in the preamble to this Agreement and shall extend to all of
its successors and assigns.

 

“Pro Forma Balance Sheet”
shall have the meaning set forth in Section 5.5(a) hereof.

 

“Pro Forma Financial
Statements” shall have the meaning set forth in Section 5.5(b) hereof.

 

“Properly Contested”
shall mean, in the case of any Indebtedness or Lien, as applicable, of any
Person (including any taxes) that is not paid as and when due or payable by
reason of such Person’s bona fide dispute concerning its liability to pay same
or concerning the amount thereof, (i) such Indebtedness or Lien, as applicable,
is being properly contested in good faith by appropriate proceedings promptly
instituted and diligently conducted; (ii) such Person has established
appropriate reserves as shall be required in conformity with GAAP; (iii) the
non-payment of such Indebtedness will not have a Material Adverse Effect and
will not result in the forfeiture of any assets of such Person; (iv) no
Lien is imposed upon any of such Person’s assets 

 

19

 

with
respect to such Indebtedness unless such Lien is at all times junior and
subordinate in priority to the Liens in favor of the Agent (except only with
respect to property taxes that have priority as a matter of applicable state
law) and enforcement of such Lien is stayed during the period prior to the
final resolution or disposition of such dispute; (v) if such Indebtedness
or Lien, as applicable, results from, or is determined by the entry, rendition
or issuance against a Person or any of its assets of a judgment, writ, order or
decree, enforcement of such judgment, writ, order or decree is stayed pending a
timely appeal or other judicial review; and (vi) if such contest is
abandoned, settled or determined adversely (in whole or in part) to such
Person, such Person forthwith pays such Indebtedness and all penalties,
interest and other amounts due in connection therewith.

 

“Projections” shall
have the meaning set forth in Section 5.5(b) hereof.

 

“Published  Rate” 
shall mean the rate of interest published each Business Day in the Wall
Street Journal “Money Rates” listing under the 
caption  “London Interbank Offered
Rates” for a one month period (or, if no such rate is published therein for any
reason, then the Published Rate shall be the Eurodollar Rate for a one month
period as published in another publication selected by the Agent).

 

“Purchasing CLO”
shall have the meaning set forth in Section 16.3(d) hereof.

 

“Purchasing Lender”
shall have the meaning set forth in Section 16.3(c) hereof.

 

“RCRA” shall mean the
Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq., as same may
be amended from time to time.

 

“Real Property” shall
mean all of each Borrower’s right, title and interest in and to the owned and
leased premises identified on Schedule 4.19 hereto or which is hereafter owned
or leased by any Borrower.

 

“Receivables” shall
mean and include, as to each Borrower, all of such Borrower’s accounts,
contract rights, instruments (including those evidencing indebtedness owed to
such Borrower by its Affiliates), documents, chattel paper (including
electronic chattel paper), general intangibles relating to accounts, drafts and
acceptances, credit card receivables and all other forms of obligations owing
to such Borrower arising out of or in connection with the sale or lease of
Inventory or the rendition of services, all supporting obligations, guarantees
and other security therefor, whether secured or unsecured, now existing or
hereafter created, and whether or not specifically sold or assigned to Agent
hereunder.

 

“Receivables Advance Rate”
shall have the meaning set forth in Section 2.1(a)(y)(i) hereof.

 

“Register” shall have
the meaning set forth in Section 16.3(e).

 

“Regulations” shall
have the meaning set forth in Section 3.11(a).

 

“Reimbursement Obligation”
shall have the meaning set forth in Section 2.12(b)hereof.

 

20

 

“Release” shall have
the meaning set forth in Section 5.7(c)(i) hereof.

 

 “Reportable Event” shall mean a
reportable event described in Section 4043(c) of ERISA or the
regulations promulgated thereunder.

 

“Required Lenders”
shall mean Lenders holding at least sixty six and two-thirds of one percent
(66-2/3%) of the Advances and, if no Advances are outstanding, shall mean
Lenders holding sixty six and two-thirds of one percent (66-2/3%) of the
Commitment Percentages; provided, however, if there are fewer than three (3) Lenders,
Required Lenders shall mean all Lenders.

 

“Reserve Percentage”
shall mean as of any day the maximum percentage in effect on such day as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the reserve requirements (including supplemental,
marginal and emergency reserve requirements) with respect to eurocurrency
funding (currently referred to as “Eurocurrency Liabilities”).

 

“Revolving Advances”
shall mean Advances made other than Letters of Credit.

 

“Revolving Credit Note”
shall mean, collectively, the promissory notes referred to in Section 2.1(a) hereof.

 

“Revolving Interest Rate”
shall mean an interest rate per annum equal to (a) the sum of the
Alternate Base Rate plus two percent (2.0%) with respect to Domestic Rate Loans
and (b) the sum of (i) three and one-half of one percent (3.50%) plus
(ii) the greater of (A) the Eurodollar Rate, and (B) one and
one-half of one percent (1.50%) with respect to Eurodollar Rate Loans, as
applicable.

 

“SEC” shall mean the
Securities and Exchange Commission or any successor thereto.

 

“Section 20
Subsidiary” shall mean the Subsidiary of the bank holding company
controlling PNC, which Subsidiary has been granted authority by the Federal
Reserve Board to underwrite and deal in certain Ineligible Securities.

 

“Securities Act”
shall mean the Securities Act of 1933, as amended.

 

“Settlement Date”
shall mean the Closing Date and thereafter Wednesday or Thursday of each week
or more frequently if Agent deems appropriate unless such day is not a Business
Day in which case it shall be the next succeeding Business Day.

 

“Subsidiary” of any
Person shall mean a corporation or other entity of whose Equity Interests
having ordinary voting power (other than Equity Interests having such power
only by reason of the happening of a contingency) to elect a majority of the
directors of such corporation, or other Persons performing similar functions
for such entity, are owned, directly or indirectly, by such Person.

 

“Subsidiary Stock”
shall mean all of the issued and outstanding Equity Interests of any Subsidiary
owned, directly or indirectly, by any Borrower.

 

21

 

“Tangible Net Worth”
shall mean, at a particular date, (a) the aggregate amount of all assets
of Borrowers on a Consolidated Basis as may be properly classified as such in
accordance with GAAP consistently applied excluding such other assets as are
properly classified as intangible assets under GAAP, less (b) the
aggregate amount of all liabilities of Borrowers on a Consolidated Basis as may
be properly classified as such in accordance with GAAP consistently applied.

 

“Term” shall have the
meaning set forth in Section 13.1 hereof.

 

“Termination Event”
shall mean (i) a Reportable Event with respect to any Plan; (ii) the
withdrawal of any Borrower or any member of the Controlled Group from a Plan
during a plan year in which such entity was a “substantial employer” as defined
in Section 4001(a)(2) of ERISA; (iii) the providing of notice of
intent to terminate a Plan in a distress termination described in Section 4041(c) of
ERISA; (iv) the institution by the PBGC of proceedings to terminate a
Plan; (v) any event or condition (a) which could reasonably be
expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or (b) that
may result in termination of a Multiemployer Plan pursuant to Section 4041A
of ERISA; or (vi) the partial or complete withdrawal within the meaning of
Section 4203 or 4205 of ERISA, of any Borrower or any member of the
Controlled Group from a Multiemployer Plan.

 

“Toxic Substance” shall
mean and include any material present on the Real Property or the Leasehold
Interests which has been shown to have significant adverse effect on human
health or which is subject to regulation under the Toxic Substances Control Act
(TSCA), 15 U.S.C. §§ 2601 et seq., applicable state law, or any other
applicable Federal or state laws or Canadian or provincial laws now in force or
hereafter enacted relating to toxic substances. 
“Toxic Substance” includes but is not limited to asbestos,
polychlorinated biphenyls (PCBs) and lead-based paints.

 

“Trading with the Enemy
Act” shall mean the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any
enabling legislation or executive order relating thereto.

 

“Transactions” shall
have the meaning set forth in Section 5.5 hereof.

 

“Transferee” shall
have the meaning set forth in Section 16.3(d) hereof.

 

“UCP” shall have the
meaning set forth in Section 2.10(b) hereof.

 

“Undrawn Availability”
at a particular date shall mean an amount equal to: (a) the lesser of (i) the
Formula Amount or (ii) the Maximum Revolving Advance Amount, minus
the Maximum Undrawn Amount of all outstanding Letters of Credit; minus (b) the
sum of (i) the outstanding amount of Advances, plus (ii) all
amounts due and owing to any Borrower’s trade creditors which are outstanding
beyond sixty (60) days; plus (iii) fees and expenses for which
Borrowers are liable but which have not been paid or charged to Borrowers’
Account.

 

“Unfunded Capital
Expenditures” shall mean Capital Expenditures made through Revolving
Advances or out of Borrowers’ own funds other than through equity contributed 

 

22

 

subsequent
to the Closing Date or purchase money or other financing or lease transactions
permitted hereunder.

 

“Uniform Commercial Code”
shall have the meaning set forth in Section 1.3 hereof.

 

“USA PATRIOT Act”
shall mean the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as
the same has been, or shall hereafter be, renewed, extended, amended or
replaced.

 

“Website Posting”
shall have the meaning set forth in Section 16.6 hereof.

 

“Week” shall mean the
time period commencing with the opening of business on a Wednesday and ending
on the end of business the following Tuesday.

 

“Withholding Certificate”
shall have the meaning set forth in Section 3.11(a) hereof.

 

1.3.          Uniform Commercial Code Terms.  All terms used herein and defined in the
Uniform Commercial Code as adopted in the State of New York from time to time
(the “Uniform Commercial Code”) shall have the meaning given therein unless
otherwise defined herein.  Without
limiting the foregoing, the terms “accounts”, “chattel paper”, “commercial tort
claims”, “instruments”, “general intangibles”, “goods”, “payment intangibles”, “proceeds”,
“supporting obligations”, “securities”, “investment property”, “documents”, “deposit
accounts”, “software”, “letter of credit rights”, “inventory”, “equipment” and “fixtures”,
as and when used in the description of Collateral shall have the meanings given
to such terms in Articles 8 or 9 of the Uniform Commercial Code.  To the extent the definition of any category
or type of collateral is expanded by any amendment, modification or revision to
the Uniform Commercial Code, such expanded definition will apply automatically
as of the date of such amendment, modification or revision.

 

1.4.          Certain Matters of Construction.

 

(a)           The terms “herein”, “hereof” and “hereunder” and other
words of similar import refer to this Agreement as a whole and not to any
particular section, paragraph or subdivision. 
All references herein to Articles, Sections, Exhibits and Schedules
shall be construed to refer to Articles and Sections of, and Exhibits and
Schedules to, this Agreement.  Any
pronoun used shall be deemed to cover all genders.  Wherever appropriate in the context, terms
used herein in the singular also include the plural and vice versa.  All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations.  Unless otherwise provided,
all references to any instruments or agreements to which Agent is a party,
including references to any of the Other Documents, shall include any and all
modifications, supplements or amendments thereto, any and all restatements or
replacements thereof and any and all extensions or renewals thereof.  All references herein to the time of day
shall mean the time in New York, New York. 
Unless otherwise provided, all financial calculations shall be performed
with Inventory valued on a first-in, first-out basis.  Whenever the words “including” or “include”
shall be used, such words shall be understood to mean “including, without
limitation” or “include, without limitation”. 
A Default or Event of Default shall be deemed to exist at all times
during the period commencing on the date that such Default or Event of Default
occurs to the date on which such Default or Event of Default is waived in

 

23

 

writing pursuant to this Agreement or, in the
case of a Default, is cured within any period of cure expressly provided for in
this Agreement; and an Event of Default shall “continue” or be “continuing”
until such Event of Default has been waived in writing by the Required Lenders
or all Lenders, as applicable.  Any Lien
referred to in this Agreement or any of the Other Documents as having been
created in favor of Agent, any agreement entered into by Agent pursuant to this
Agreement or any of the Other Documents, any payment made by or to or funds
received by Agent pursuant to or as contemplated by this Agreement or any of
the Other Documents, or any act taken or omitted to be taken by Agent, shall,
unless otherwise expressly provided, be created, entered into, made or
received, or taken or omitted, for the benefit or account of Agent and Lenders.
Wherever the phrase “to the best of Borrowers’ knowledge” or words of similar
import relating to the knowledge or the awareness of any Borrower are used in
this Agreement or Other Documents, such phrase shall mean and refer to (i) the
actual knowledge of a senior officer of any Borrower or (ii) the knowledge that
a senior officer would have obtained if he had engaged in good faith and
diligent performance of his duties, including the making of such reasonably
specific inquiries as may be necessary of the employees or agents of such
Borrower and a good faith attempt to ascertain the existence or accuracy of the
matter to which such phrase relates.  All
covenants hereunder shall be given independent effect so that if a particular
action or condition is not permitted by any of such covenants, the fact that it
would be permitted by an exception to, or otherwise within the limitations of,
another covenant shall not avoid the occurrence of a default if such action is
taken or condition exists.  In addition,
all representations and warranties hereunder shall be given independent effect
so that if a particular representation or warranty proves to be incorrect or is
breached, the fact that another representation or warranty concerning the same
or similar subject matter is correct or is not breached will not affect the
incorrectness of a breach of a representation or warranty hereunder.

 

(b)                                 In this
Agreement, (i) any term defined in this Agreement by reference to the “Uniform
Commercial Code” shall also have any extended, alternative or analogous meaning
given to such term in applicable Canadian personal property security and other
laws (including, without limitation, the Personal Property Security Act
(Ontario), the Bills of Exchange Act (Canada) and the Depository Bills and
Notes Act (Canada)), in all cases for the extension, preservation or betterment
of the security and rights of the Agent, (ii) all references in this Agreement
to “Article 8 of the Code” or “Article 8 of the Uniform Commercial Code” shall
be deemed to refer also to applicable Canadian securities transfer laws
(including, without limitation, the Securities Transfer Act, 2006 (Ontario)), (iii)
all references in this Agreement to the United States Copyright Office or the
United States Patent and Trademark Office shall be deemed to refer also to the
Canadian Intellectual Property Office, (iv) all references in this Agreement to
a financing statement, continuation statement, amendment or termination
statement shall be deemed to refer also to the analogous documents used under
applicable Canadian personal property security laws, (v) all references to the
United States of America, or to any subdivision, department, agency or
instrumentality thereof shall be deemed to refer also to Canada, or to any
subdivision, department, agency or instrumentality thereof, (vi) all references
to federal or state securities law of the United States shall be deemed to
refer also to analogous federal and provincial securities laws in Canada, (vii)
all references to “state or federal bankruptcy laws” shall be deemed to refer
also to any insolvency proceeding occurring in Canada or under Canadian law,
and (viii) all calculations of Dollar amounts which utilize amounts expressed
in Canadian Dollars shall be made using the Dollar equivalent of such Canadian
Dollar amounts in a manner reasonably calculated by the Agent.

 

24

 

II.                                     ADVANCES, PAYMENTS.

 

2.1.                              Revolving
Advances.

 

(a)                                  Amount of
Revolving Advances.  Subject to
the terms and conditions set forth in this Agreement including Sections 2.1(b) and
(c), each Lender, severally and not jointly, will make Revolving Advances to
Borrowers in aggregate amounts outstanding at any time equal to such Lender’s
Commitment Percentage of the lesser of (x) the Maximum Revolving Advance Amount
less the aggregate Maximum Undrawn Amount of all outstanding Letters of Credit
or (y) an amount equal to the sum of:

 

(i)                                     up to
eighty-five percent (85%), subject to the provisions of Section 2.1(b) hereof
(the “Receivables Advance Rate”), of Eligible Receivables, plus

 

(ii)                                  up to the
lesser of (A) sixty percent (60%), subject to the provisions of Section 2.1(b) and
(c) hereof, of the value of the Eligible Inventory or (B) eighty-five percent
(85%) of the appraised net orderly liquidation value of Eligible Inventory (as
evidenced by an Inventory appraisal satisfactory to Agent in its sole
discretion exercised in good faith) (each such rate of advance, as applicable,
the “Inventory Advance Rate” and together with the Receivables Advance
Rate collectively, the “Advance Rates”), minus

 

(iii)                               the aggregate
Maximum Undrawn Amount of all outstanding Letters of Credit, minus

 

(iv)                              the
Availability Reserve; minus

 

(v)                                 such reserves
as Agent may reasonably deem proper and necessary from time to time in its
Permitted Discretion.

 

The amount derived from the
sum of (x) Sections 2.1(a)(y)(i) and (ii) minus (y) Section 2.1
(a)(y)(iii), (iv) and (v) at any time and from time to time shall be referred
to as the “Formula Amount”.  The
Revolving Advances shall be evidenced by one or more secured promissory notes
(collectively, the “Revolving Credit Note”) substantially in the form
attached hereto as Exhibit 2.1(a).

 

(b)                                 Discretionary
Rights.  The Advance Rates may be
increased or decreased by Agent at any time and from time to time in the
exercise of its Permitted Discretion based on Agent’s review of updated
Inventory appraisals, field examinations or other Collateral evaluations.  Each Borrower consents to any such increases
or decreases and acknowledges that decreasing the Advance Rates or increasing
or imposing reserves may limit or restrict Advances requested by Borrowing
Agent.  The rights of Agent under this
subsection are subject to the provisions of Section 16.2(b).

 

(c)                                  Sublimit for
Revolving Advances made against Eligible Inventory.  The aggregate amount of Revolving Advances
made to Borrower against (i) Eligible Inventory shall not exceed in the
aggregate, at any time outstanding $17,500,000, and (ii) Eligible Inventory
in-transit shall not exceed in the aggregate, at any time outstanding
$2,000,000.

 

25

 

2.2.                              Procedure for
Revolving Advances Borrowing.

 

(a)                                  Borrowing Agent
on behalf of any Borrower may notify Agent prior to 1:00 p.m. (New York time)
on a Business Day of a Borrower’s request to incur, on that day, a Revolving
Advance hereunder.  Should any amount
required to be paid as interest hereunder, or as fees or other charges under
this Agreement or any other agreement with Agent or Lenders, or with respect to
any other Obligation, become due, same shall be deemed a request for a
Revolving Advance maintained as a Domestic Rate Loan as of the date such
payment is due, in the amount required to pay in full such interest, fee,
charge or Obligation under this Agreement or any other agreement with Agent or
Lenders, and such request shall be irrevocable.

 

(b)                                 Notwithstanding
the provisions of subsection (a) above, in the event any Borrower desires to
obtain a Eurodollar Rate Loan, Borrowing Agent shall give Agent written notice
by no later than 1:00 p.m. (New York time) on the day which is three (3) Business
Days prior to the date such Eurodollar Rate Loan is to be borrowed, specifying (i)
the date of the proposed borrowing (which shall be a Business Day), (ii) the
type of borrowing and the amount on the date of such Advance to be borrowed,
which amount shall be in a minimum amount of $1,000,000 and in integral
multiples of $500,000 thereafter, and (iii) the duration of the first Interest
Period therefor.  Interest Periods for
Eurodollar Rate Loans shall be for one, two or three months; provided, if an
Interest Period would end on a day that is not a Business Day, it shall end on
the next succeeding Business Day unless such day falls in the next succeeding
calendar month in which case the Interest Period shall end on the next
preceding Business Day.  No Eurodollar
Rate Loan shall be made available to any Borrower during the continuance of a
Default or an Event of Default.  After
giving effect to each requested Eurodollar Rate Loan, including those which are
converted from a Domestic Rate Loan under Section 2.2(d), there shall not be
outstanding more than three (3) Eurodollar Rate Loans, in the aggregate.

 

(c)                                  Each Interest
Period of a Eurodollar Rate Loan shall commence on the date such Eurodollar
Rate Loan is made and shall end on such date as Borrowing Agent may elect as
set forth in subsection (b)(iii) above provided that the exact length of each
Interest Period shall be determined in accordance with the practice of the
interbank market for offshore Dollar deposits and no Interest Period shall end
after the last day of the Term. 
Borrowing Agent shall elect the initial Interest Period applicable to a
Eurodollar Rate Loan by its notice of borrowing given to Agent pursuant to Section
2.2(b) or by its notice of conversion given to Agent pursuant to Section 2.2(d),
as the case may be.  Borrowing Agent
shall elect the duration of each succeeding Interest Period by giving
irrevocable written notice to Agent of such duration not later than 1:00 p.m.
(New York time) on the day which is three (3) Business Days prior to the last
day of the then current Interest Period applicable to such Eurodollar Rate
Loan.  If Agent does not receive timely
notice of the Interest Period elected by Borrowing Agent, Borrowing Agent shall
be deemed to have elected to convert to a Domestic Rate Loan subject to Section
2.2(d) hereinbelow.

 

(d)                                 Provided that
no Event of Default shall have occurred and be continuing, Borrowing Agent may,
on the last Business Day of the then current Interest Period applicable to any
outstanding Eurodollar Rate Loan, or on any Business Day with respect to
Domestic Rate Loans, convert any such loan into a loan of another type in the
same aggregate principal amount provided that any conversion of a Eurodollar
Rate Loan shall be made only on the last Business 

 

26

 

Day of the then current Interest Period
applicable to such Eurodollar Rate Loan. 
If Borrowing Agent desires to convert a loan, Borrowing Agent shall give
Agent written notice by no later than 1:00 p.m. (New York time) (i) on the day
which is three (3) Business Days’ prior to the date on which such conversion is
to occur with respect to a conversion from a Domestic Rate Loan to a Eurodollar
Rate Loan, or (ii) on the day which is one (1) Business Day prior to the date
on which such conversion is to occur with respect to a conversion from a
Eurodollar Rate Loan to a Domestic Rate Loan, specifying, in each case, the
date of such conversion, the loans to be converted and if the conversion is
from a Domestic Rate Loan to any other type of loan, the duration of the first
Interest Period therefor.

 

(e)                                  At its option
and upon written notice given prior to 1:00 p.m. (New York time) at least three
(3) Business Days’ prior to the date of such prepayment, any Borrower may
prepay the Eurodollar Rate Loans in whole at any time or in part from time to
time with accrued interest on the principal being prepaid to the date of such
repayment.  Such Borrower shall specify
the date of prepayment of Advances which are Eurodollar Rate Loans and the
amount of such prepayment.  In the event
that any prepayment of a Eurodollar Rate Loan is required or permitted on a
date other than the last Business Day of the then current Interest Period with
respect thereto, such Borrower shall indemnify Agent and Lenders therefor in
accordance with Section 2.2(f) hereof.

 

(f)                                    Each Borrower
shall indemnify Agent and Lenders and hold Agent and Lenders harmless from and
against any and all losses or expenses that Agent and Lenders may sustain or
incur as a consequence of any prepayment, conversion of or any default by any
Borrower in the payment of the principal of or interest on any Eurodollar Rate
Loan or failure by any Borrower to complete a borrowing of, a prepayment of or
conversion of or to a Eurodollar Rate Loan after notice thereof has been given,
including, but not limited to, any interest payable by Agent or Lenders to
lenders of funds obtained by it in order to make or maintain its Eurodollar
Rate Loans hereunder.  A certificate as
to any additional amounts payable pursuant to the foregoing sentence submitted
by Agent or any Lender to Borrowing Agent shall be conclusive absent manifest
error.

 

(g)                                 Notwithstanding
any other provision hereof, if any Applicable Law, treaty, regulation or
directive, or any change therein or in the interpretation or application
thereof, shall make it unlawful for any Lender (for purposes of this subsection
(g), the term “Lender” shall include any Lender and the office or branch where
any Lender or any corporation or bank controlling such Lender makes or maintains
any Eurodollar Rate Loans) to make or maintain its Eurodollar Rate Loans, the
obligation of Lenders to make Eurodollar Rate Loans hereunder shall forthwith
be cancelled and Borrowers shall, if any affected Eurodollar Rate Loans are
then outstanding, promptly upon request from Agent, either pay all such
affected Eurodollar Rate Loans or convert such affected Eurodollar Rate Loans
into loans of another type.  If any such
payment or conversion of any Eurodollar Rate Loan is made on a day that is not
the last day of the Interest Period applicable to such Eurodollar Rate Loan,
Borrowers shall pay Agent, upon Agent’s request, such amount or amounts as may
be necessary to compensate Lenders for any loss or expense sustained or
incurred by Lenders in respect of such Eurodollar Rate Loan as a result of such
payment or conversion, including (but not limited to) any interest or other
amounts payable by Lenders to lenders of funds obtained by Lenders in order to
make or maintain such Eurodollar Rate Loan. 
A certificate as to any additional amounts payable pursuant to the 

 

27

 

foregoing sentence submitted by Lenders to
Borrowing Agent shall be conclusive absent manifest error.

 

2.3.                              Disbursement of
Advance Proceeds.  All
Advances shall be disbursed from whichever office or other place Agent may
designate from time to time and, together with any and all other Obligations of
Borrowers to Agent or Lenders, shall be charged to Borrowers’ Account on Agent’s
books.  During the Term, Borrowers may
use the Revolving Advances by borrowing, prepaying and reborrowing, all in
accordance with the terms and conditions hereof.  The proceeds of each Revolving Advance
requested by Borrowing Agent on behalf of any Borrower or deemed to have been
requested by any Borrower under Section 2.2(a) hereof shall, with respect to
requested Revolving Advances to the extent Lenders make such Revolving
Advances, be made available to the applicable Borrower on the day so requested
by way of credit to such Borrower’s operating account at PNC, or such other
bank as Borrowing Agent may designate following notification to Agent, in
immediately available federal funds or other immediately available funds or,
with respect to Revolving Advances deemed to have been requested by any
Borrower, be disbursed to Agent to be applied to the outstanding Obligations
giving rise to such deemed request.

 

2.4.                              Reserved.

 

2.5.                              Maximum
Advances.  The
aggregate balance of Advances outstanding at any time shall not exceed the lesser
of (a) the Maximum Revolving Advance Amount less the Maximum Undrawn Amount of
all issued and outstanding Letters of Credit or (b) the Formula Amount.

 

2.6.                              Repayment of
Advances.

 

(a)                                  The Advances
shall be due and payable in full on the last day of the Term subject to earlier
prepayment as herein provided.

 

(b)                                 Each Borrower
recognizes that the amounts evidenced by checks, notes, drafts or any other
items of payment relating to and/or proceeds of Collateral may not be
collectible by Agent on the date received. 
In consideration of Agent’s agreement to conditionally credit Borrowers’
Account as of the next Business Day following Agent’s receipt of those items of
payment, each Borrower agrees that, in computing the charges under this
Agreement, all items of payment shall be deemed applied by Agent on account of
the Obligations one (1) Business Day after (i) the Business Day following Agent’s
receipt of such payments via wire transfer or electronic depository check or (ii)
in the case of payments received by Agent in any other form, the Business Day
such payment constitutes good funds in Agent’s account.  Agent is not, however, required to credit
Borrowers’ Account for the amount of any item of payment which is
unsatisfactory to Agent and Agent may charge Borrowers’ Account for the amount
of any item of payment which is returned to Agent unpaid.

 

(c)                                  All payments of
principal, interest and other amounts payable hereunder, or under any of the
Other Documents shall be made to Agent at the Payment Office not later than
1:00 p.m. (New York time) on the due date therefor in lawful money of the
United States of America in federal funds or other funds immediately available
to Agent.  Agent shall have the 

 

28

 

right to effectuate payment on any and all
Obligations due and owing hereunder by charging Borrowers’ Account or by making
Advances as provided in Section 2.2 hereof.

 

(d)                                 Borrowers shall
pay principal, interest, and all other amounts payable hereunder, or under any
related agreement, without any deduction whatsoever, including, but not limited
to, any deduction for any setoff or counterclaim.

 

2.7.                              Repayment of
Excess Advances.  The
aggregate balance of Advances outstanding at any time in excess of the maximum
amount of Advances permitted hereunder shall be immediately due and payable
without the necessity of any demand, at the Payment Office, whether or not a
Default or Event of Default has occurred.

 

2.8.                              Statement of
Account.  Agent shall maintain, in
accordance with its customary procedures, a loan account (“Borrowers’
Account”) in the name of Borrowers in which shall be recorded the date and
amount of each Advance made by Agent and the date and amount of each payment in
respect thereof; provided, however, the failure by Agent to record the date and
amount of any Advance shall not adversely affect Agent or any Lender.  Each month, Agent shall send to Borrowing
Agent a statement showing the accounting for the Advances made, payments made
or credited in respect thereof, and other transactions between Agent and
Borrowers during such month.  The monthly
statements shall be deemed correct and binding upon Borrowers in the absence of
manifest error and shall constitute an account stated between Lenders and
Borrowers unless Agent receives a written statement of Borrowers’ specific
exceptions thereto within thirty (30) days after such statement is received by
Borrowing Agent.  The records of Agent
with respect to the loan account shall be conclusive evidence absent manifest
error of the amounts of Advances and other charges thereto and of payments
applicable thereto.

 

2.9.                              Letters of
Credit.  Subject to the terms and
conditions hereof, Agent shall issue or cause the issuance of standby and/or
trade letters of credit (“Letters of Credit”) for the account of any
Borrower; provided, however, that Agent will not be required to issue or cause
to be issued any Letters of Credit to the extent that the issuance thereof
would then cause the sum of (i) the outstanding Revolving Advances, plus
(ii) the Maximum Undrawn Amount of all outstanding Letters of Credit to exceed
the lesser of (x) the Maximum Revolving Advance Amount or (y) the Formula
Amount.  The Maximum Undrawn Amount of
outstanding Letters of Credit shall not exceed in the aggregate at any time the
Letter of Credit Sublimit.  All
disbursements or payments related to Letters of Credit shall be deemed to be
Domestic Rate Loans consisting of Revolving Advances and shall bear interest at
the Revolving Interest Rate; Letters of Credit that have not been drawn upon
shall not bear interest.

 

2.10.                        Issuance of
Letters of Credit.

 

(a)                                  Borrowing
Agent, on behalf of Borrowers, may request Agent to issue or cause the issuance
of a Letter of Credit by delivering to Agent at the Payment Office, prior to
1:00 p.m. (New York time), at least five (5)  Business Days’ prior to the proposed date of
issuance, Agent’s form of Letter of Credit Application (the “Letter of
Credit Application”) completed to the satisfaction of Agent; and, such
other certificates, documents and other papers and information as Agent may
reasonably request.  Borrowing Agent, on
behalf of Borrowers, 

 

29

 

also has the right to give instructions and
make agreements with respect to any application, any applicable letter of
credit and security agreement, any applicable letter of credit reimbursement
agreement and/or any other applicable agreement, any letter of credit and the
disposition of documents, disposition of any unutilized funds, and to agree
with Agent upon any amendment, extension or renewal of any Letter of Credit.

 

(b)                                 Each Letter of
Credit shall, among other things, (i) provide for the payment of sight drafts,
other written demands for payment, or acceptances of usance drafts when
presented for honor thereunder in accordance with the terms thereof and when
accompanied by the documents described therein and (ii) have an expiry date not
later than twelve (12) months after such Letter of Credit’s date of issuance
and in no event later than the last day of the Term.  Each standby Letter of Credit shall be
subject either to the Uniform Customs and Practice for Documentary Credits as
most recently published by the International Chamber of Commerce at the time a
Letter of Credit is issued (the “UCP”) or the International Standby
Practices (ISP98-International Chamber of Commerce Publication Number 590) (the
“ISP98 Rules”), and any subsequent revision thereof at the time a
standby Letter of Credit is issued, as determined by Agent, and each trade
Letter of Credit shall be subject to the UCP.

 

(c)                                  Agent shall use
its reasonable efforts to notify Lenders of the request by Borrowing Agent for
a Letter of Credit hereunder.

 

2.11.                        Requirements
For Issuance of Letters of Credit.

 

(a)                                  Borrowing Agent
shall authorize and direct any Issuer to name the applicable Borrower as the “Applicant”
or “Account Party” of each Letter of Credit. 
If Agent is not the Issuer of any Letter of Credit, Borrowing Agent
shall authorize and direct the Issuer to deliver to Agent all instruments,
documents, and other writings and property received by the Issuer pursuant to
the Letter of Credit and to accept and rely upon Agent’s instructions and
agreements with respect to all matters arising in connection with the Letter of
Credit or the application therefor.

 

(b)                                 In connection
with all Letters of Credit issued or caused to be issued by Agent under this
Agreement, each Borrower hereby appoints Agent, or its designee, as its
attorney, with full power and authority if an Event of Default shall have
occurred, (i) to sign and/or endorse such Borrower’s name upon any warehouse or
other receipts, letter of credit applications and acceptances, (ii) to sign
such Borrower’s name on bills of lading; (iii) to clear Inventory through the
United States of America Customs Department (“Customs”) in the name of
such Borrower or Agent or Agent’s designee, and to sign and deliver to Customs
officials powers of attorney in the name of such Borrower for such purpose; and
(iv) to complete in such Borrower’s name or Agent’s, or in the name of Agent’s
designee, any order, sale or transaction, obtain the necessary documents in
connection therewith, and collect the proceeds thereof.  Neither Agent nor its attorneys will be
liable for any acts or omissions nor for any error of judgment or mistakes of
fact or law, except for Agent’s or its attorney’s willful misconduct.  This power, being coupled with an interest,
is irrevocable as long as any Letters of Credit remain outstanding.

 

30

 

2.12.                        Disbursements,
Reimbursement.

 

(a)                                  Immediately
upon the issuance of each Letter of Credit, each Lender shall be deemed to, and
hereby irrevocably and unconditionally agrees to, purchase from Agent a
participation in such Letter of Credit and each drawing thereunder in an amount
equal to such Lender’s Commitment Percentage of the Maximum Face Amount of such
Letter of Credit and the amount of such drawing, respectively.

 

(b)                                 In the event of
any request for a drawing under a Letter of Credit by the beneficiary or
transferee thereof, Agent will promptly notify Borrowing Agent.  Provided that Borrowing Agent shall have
received such notice, the Borrowers shall reimburse (such obligation to
reimburse Agent shall sometimes be referred to as a “Reimbursement
Obligation”) Agent prior to 1:00 p.m. (New York time) on each date that an
amount is paid by Agent under any Letter of Credit (each such date, a “Drawing
Date”) in an amount equal to the amount so paid by Agent.  In the event Borrowers fail to reimburse
Agent for the full amount of any drawing under any Letter of Credit by 1:00 p.m.
(New York time), on the Drawing Date, Agent will promptly notify each Lender
thereof, and Borrowers shall be deemed to have requested that a Revolving
Advance maintained as a Domestic Rate Loan be made by the Lenders to be
disbursed on the Drawing Date under such Letter of Credit, subject to the
amount of the unutilized portion of the lesser of (i) the Maximum Revolving
Advance Amount, less the Maximum Undrawn Amount of all outstanding
Letters of Credit, or (ii) the Formula Amount and, in each case, subject to Section
8.2 hereof.  Any notice given by Agent
pursuant to this Section 2.12(b) may be oral if immediately confirmed in
writing; provided that the lack of such an immediate confirmation shall not
affect the conclusiveness or binding effect of such notice.

 

(c)                                  Each Lender
shall upon any notice pursuant to Section 2.12(b) make available to Agent an
amount in immediately available funds equal to its Commitment Percentage of the
amount of the drawing, whereupon the participating Lenders shall (subject to Section
2.12(d)) each be deemed to have made a Revolving Advance maintained as a
Domestic Rate Loan to Borrowers in that amount. 
If any Lender so notified fails to make available to Agent the amount of
such Lender’s Commitment Percentage of such amount by no later than 2:00 p.m.,
New York time on the Drawing Date, then interest shall accrue on such Lender’s
obligation to make such payment, from the Drawing Date to the date on which
such Lender makes such payment (i) at a rate per annum equal to the Federal
Funds Effective Rate during the first three days following the Drawing Date and
(ii) at a rate per annum equal to the rate applicable to Revolving Advances
maintained as a Domestic Rate Loans on and after the fourth day following the
Drawing Date.  Agent will promptly give
notice of the occurrence of the Drawing Date, but failure of Agent to give any such
notice on the Drawing Date or in sufficient time to enable any Lender to effect
such payment on such date shall not relieve such Lender from its obligation
under this Section 2.12(c), provided that such Lender shall not be obligated to
pay interest as provided in Section 2.12(c) (i) and (ii) until and commencing
from the date of receipt of notice from Agent of a drawing.

 

(d)                                 With respect to
any unreimbursed drawing that is not converted into a Revolving Advance
maintained as a Domestic Rate Loan to Borrowers in whole or in part as
contemplated by Section 2.12(b), because of Borrowers’ failure to satisfy the
conditions set forth in Section 8.2 (other than any notice requirements) or for
any other reason, Borrowers shall be deemed to have incurred from Agent a
borrowing (each a “Letter of Credit Borrowing”) in the amount of such
drawing. Such Letter of Credit Borrowing shall be due and payable on demand 

 

31

 

(together with interest) and shall bear
interest at the rate per annum applicable to a Revolving Advance maintained as
a Domestic Rate Loan.  Each Lender’s
payment to Agent pursuant to Section 2.12(c) shall be deemed to be a payment in
respect of its participation in such Letter of Credit Borrowing and shall
constitute a “Participation Advance” from such Lender in satisfaction of its
Participation Commitment under this Section 2.12.

 

(e)                                  Each Lender’s
Participation Commitment shall continue until the last to occur of any of the
following events:  (x) Agent ceases to be
obligated to issue or cause to be issued Letters of Credit hereunder; (y) no
Letter of Credit issued or created hereunder remains outstanding and
uncancelled; and (z) all Persons (other than the Borrowers) have been fully
reimbursed for all payments made under or relating to Letters of Credit.

 

2.13.                        Repayment of
Participation Advances.

 

(a)                                  Upon (and only
upon) receipt by Agent for its account of immediately available funds from
Borrowers (i) in reimbursement of any payment made by the Agent under the
Letter of Credit with respect to which any Lender has made a Participation
Advance to Agent, or (ii) in payment of interest on such a payment made by
Agent under such a Letter of Credit, Agent will pay to each Lender, in the same
funds as those received by Agent, the amount of such Lender’s Commitment
Percentage of such funds, except Agent shall retain the amount of the
Commitment Percentage of such funds of any Lender that did not make a
Participation Advance in respect of such payment by Agent.

 

(b)                                 If Agent is
required at any time to return to any Borrower, or to a trustee, receiver,
liquidator, custodian, or any official in any insolvency proceeding, any
portion of the payments made by Borrowers to Agent pursuant to Section 2.13(a) in
reimbursement of a payment made under the Letter of Credit or interest or fee
thereon, each Lender shall, on demand of Agent, forthwith return to Agent the
amount of its Commitment Percentage of any amounts so returned by Agent plus
interest at the Federal Funds Effective Rate.

 

2.14.                        Documentation.  Each Borrower agrees to be bound by the terms
of the Letter of Credit Application and by Agent’s interpretations of any
Letter of Credit issued on behalf of such Borrower and by Agent’s written
regulations and customary practices relating to letters of credit, though Agent’s
interpretations may be different from such Borrower’s own.  In the event of a conflict between the Letter
of Credit Application and this Agreement, this Agreement shall govern.  It is understood and agreed that, except in
the case of gross negligence or willful misconduct (as determined by a court of
competent jurisdiction in a final non-appealable judgment), Agent shall not be
liable for any error, negligence and/or mistakes, whether of omission or
commission, in following the Borrowing Agent’s or any Borrower’s instructions
or those contained in the Letters of Credit or any modifications, amendments or
supplements thereto.

 

2.15.                        Determination
to Honor Drawing Request.  In
determining whether to honor any request for drawing under any Letter of Credit
by the beneficiary thereof, Agent shall be responsible only to determine that
the documents and certificates required to be delivered under such Letter of
Credit have been delivered and that they comply on their face with the 

 

32

 

requirements of such Letter of Credit and
that any other drawing condition appearing on the face of such Letter of Credit
has been satisfied in the manner so set forth.

 

2.16.                        Nature of
Participation and Reimbursement Obligations.  Each Lender’s obligation in accordance with
this Agreement to make the Revolving Advances or Participation Advances as a
result of a drawing under a Letter of Credit, and the obligations of Borrowers
to reimburse Agent upon a draw under a Letter of Credit, shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Section 2.16 under all circumstances, including the
following circumstances:

 

(i)                                     any set-off,
counterclaim, recoupment, defense or other right which such Lender may have
against Agent, any Borrower or any other Person for any reason whatsoever;

 

(ii)                                  the failure of
any Borrower or any other Person to comply, in connection with a Letter of
Credit Borrowing, with the conditions set forth in this Agreement for the
making of a Revolving Advance, it being acknowledged that such conditions are
not required for the making of a Letter of Credit Borrowing and the obligation
of the Lenders to make Participation Advances under Section 2.12;

 

(iii)                               any lack of
validity or enforceability of any Letter of Credit;

 

(iv)                              any claim of
breach of warranty that might be made by Borrower or any Lender against the
beneficiary of a Letter of Credit, or the existence of any claim, set-off,
recoupment, counterclaim, cross-claim, defense or other right which any
Borrower or any Lender may have at any time against a beneficiary, any
successor beneficiary or any transferee of any Letter of Credit or the proceeds
thereof (or any Persons for whom any such transferee may be acting), Agent or
any Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction (including any
underlying transaction between any Borrower or any Subsidiaries of such
Borrower and the beneficiary for which any Letter of Credit was procured);

 

(v)                                 the lack of
power or authority of any signer of (or any defect in or forgery of any
signature or endorsement on) or the form of or lack of validity, sufficiency,
accuracy, enforceability or genuineness of any draft, demand, instrument,
certificate or other document presented under or in connection with any Letter
of Credit, or any fraud or alleged fraud in connection with any Letter of
Credit, or the transport of any property or provisions of services relating to
a Letter of Credit, in each case even if Agent or any of Agent’s Affiliates has
been notified thereof;

 

(vi)                              payment by
Agent under any Letter of Credit against presentation of a demand, draft or
certificate or other document which does not comply with the terms of such
Letter of Credit;

 

(vii)                           the solvency
of, or any acts or omissions by, any beneficiary of any Letter of Credit, or
any other Person having a role in any transaction or obligation relating to a
Letter of Credit, or the existence, nature, quality, quantity, condition, value
or other characteristic of any property or services relating to a Letter of
Credit;

 

33

 

(viii)        any failure by the Agent or
any of Agent’s Affiliates to issue any Letter of Credit in the form requested
by Borrowing Agent, unless the Agent has received written notice from Borrowing
Agent of such failure within three (3) Business Days after the Agent shall have
furnished Borrowing Agent a copy of such Letter of Credit and such error is
material and no drawing has been made thereon prior to receipt of such notice;

 

(ix)           any Material Adverse Effect;

 

(x)            any breach of this Agreement
or any Other Document by any party thereto;

 

(xi)           the occurrence or
continuance of an insolvency proceeding with respect to any Borrower or any
Guarantor;

 

(xii)          the fact that a Default or
Event of Default shall have occurred and be continuing;

 

(xiii)         the fact that the Term shall
have expired or this Agreement or the Obligations hereunder shall have been
terminated; and

 

(xiv)        any other circumstance or
happening whatsoever, whether or not similar to any of the foregoing.

 

2.17.        Indemnity.  In addition to amounts payable as provided in
Section 16.5, each Borrower hereby agrees to protect, indemnify, pay and save
harmless Agent and any of Agent’s Affiliates that have issued a Letter of
Credit from and against any and all claims, demands, liabilities, damages,
taxes, penalties, interest, judgments, losses, costs, charges and expenses
(including reasonable fees, expenses and disbursements of counsel and allocated
costs of internal counsel) which the Agent or any of Agent’s Affiliates may
incur or be subject to as a consequence, direct or indirect, of the issuance of
any Letter of Credit, other than as a result of (a) the gross negligence or
willful misconduct of the Agent as determined by a final and non-appealable
judgment of a court of competent jurisdiction or (b) the wrongful dishonor by
the Agent or any of Agent’s Affiliates of a proper demand for payment made
under any Letter of Credit, except if such dishonor resulted from any act or
omission, whether rightful or wrongful, of any present or future de jure or de
facto Governmental Body (all such acts or omissions herein called “Governmental
Acts”).

 

2.18.        Liability for Acts and
Omissions.

 

(a)           As between Borrowers and
Agent and Lenders, each Borrower assumes all risks of the acts and omissions
of, or misuse of the Letters of Credit by, the respective beneficiaries of such
Letters of Credit.  In furtherance and
not in limitation of the respective foregoing, Agent shall not be responsible
for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any party in connection with the application for
an issuance of any such Letter of Credit, even if it should in fact prove to be
in any or all respects invalid, insufficient, inaccurate, fraudulent or forged
(even if Agent shall have been notified thereof); (ii) the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any such Letter of Credit or the rights or benefits
thereunder or 

 

34

 

proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason; (iii) the failure of the
beneficiary of any such Letter of Credit, or any other party to which such
Letter of Credit may be transferred, to comply fully with any conditions
required in order to draw upon such Letter of Credit or any other claim of any
Borrower against any beneficiary of such Letter of Credit, or any such
transferee, or any dispute between or among any Borrower and any beneficiary of
any Letter of Credit or any such transferee; (iv) errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, facsimile, telex or otherwise, whether or not they be in cipher; (v) errors
in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; or (viii) any consequences arising
from causes beyond the control of Agent, including any governmental acts, and
none of the above shall affect or impair, or prevent the vesting of, any of
Agent’s rights or powers hereunder. Nothing in the preceding sentence shall
relieve Agent from liability for Agent’s gross negligence or willful misconduct
(as determined by a court of competent jurisdiction in a final non-appealable
judgment) in connection with actions or omissions described in such clauses (i)
through (viii) of such sentence.  In no
event shall Agent or Agent’s Affiliates be liable to any Borrower for any
indirect, consequential, incidental, punitive, exemplary or special damages or
expenses (including without limitation attorneys’ fees), or for any damages
resulting from any change in the value of any property relating to a Letter of
Credit.

 

(b)           Without limiting the
generality of the foregoing, Agent and each of its Affiliates (i) may rely on
any oral or other communication believed in good faith by Agent or such
Affiliate to have been authorized or given by or on behalf of the applicant for
a Letter of Credit; (ii) may honor any presentation if the documents presented
appear on their face substantially to comply with the terms and conditions of
the relevant Letter of Credit; (iii) may honor a previously dishonored
presentation under a Letter of Credit, whether such dishonor was pursuant to a
court order, to settle or compromise any claim of wrongful dishonor, or
otherwise, and shall be entitled to reimbursement to the same extent as if such
presentation had initially been honored, together with any interest paid by
Agent or its Affiliates; (iv) may honor any drawing that is payable upon
presentation of a statement advising negotiation or payment, upon receipt of
such statement (even if such statement indicates that a draft or other document
is being delivered separately), and shall not be liable for any failure of any
such draft or other document to arrive, or to conform in any way with the
relevant Letter of Credit; (v) may pay any paying or negotiating bank claiming
that it rightfully honored under the laws or practices of the place where such
bank is located; and (vi) may settle or adjust any claim or demand made on
Agent or its Affiliate in any way related to any order issued at the applicant’s
request to an air carrier, a letter of guarantee or of indemnity issued to a
carrier or any similar document (each an “Order”) and honor any drawing
in connection with any Letter of Credit that is the subject of such Order,
notwithstanding that any drafts or other documents presented in connection with
such Letter of Credit fail to conform in any way with such Letter of Credit.

 

(c)           In furtherance and extension
and not in limitation of the specific provisions set forth above, any action
taken or omitted by Agent under or in connection with the Letters of Credit
issued by it or any documents and certificates delivered thereunder, if taken
or omitted in good faith and without gross negligence (as determined by a court
of competent 

 

35

 

jurisdiction in a final non-appealable
judgment), shall not put Agent under any resulting liability to any Borrower or
any Lender.

 

2.19.        Additional Payments.  Any sums expended by Agent or any Lender due
to any Borrower’s failure to perform or comply with its obligations under this
Agreement or any Other Document including any Borrower’s obligations under
Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be charged to Borrowers’
Account as a Revolving Advance and added to the Obligations.

 

2.20.        Manner of Borrowing and
Payment.

 

(a)           Each borrowing of Revolving
Advances shall be advanced according to the applicable Commitment Percentages
of Lenders.

 

(b)           Each payment (including each
prepayment) by any Borrower on account of the principal of and interest on the
Revolving Advances, shall be applied to the Revolving Advances pro rata
according to the applicable Commitment Percentages of Lenders.  Except as expressly provided herein, all
payments (including prepayments) to be made by any Borrower on account of
principal, interest and fees shall be made without set off or counterclaim and
shall be made to Agent on behalf of the Lenders to the Payment Office, in each
case on or prior to 1:00 1:00 p.m. (New York time), in Dollars and in
immediately available funds.

 

(c)           (i)            Notwithstanding anything to
the contrary contained in Sections 2.20(a) and (b) hereof, commencing with the
first Business Day following the Closing Date, each borrowing of Revolving
Advances shall be advanced by Agent and each payment by any Borrower on account
of Revolving Advances shall be applied first to those Revolving Advances
advanced by Agent.  On or before 1:00 p.m.
(New York time), on each Settlement Date commencing with the first Settlement
Date following the Closing Date, Agent and Lenders shall make certain payments
as follows: (I) if the aggregate amount of new Revolving Advances made by Agent
during the preceding Week (if any) exceeds the aggregate amount of repayments
applied to outstanding Revolving Advances during such preceding Week, then each
Lender shall provide Agent with funds in an amount equal to its applicable
Commitment Percentage of the difference between (w) such Revolving Advances and
(x) such repayments and (II) if the aggregate amount of repayments applied to
outstanding Revolving Advances during such Week exceeds the aggregate amount of
new Revolving Advances made during such Week, then Agent shall provide each
Lender with funds in an amount equal to its applicable Commitment Percentage of
the difference between (y) such repayments and (z) such Revolving Advances.

 

(ii)           Each Lender shall be
entitled to earn interest at the applicable Revolving Interest Rate on
outstanding Advances which it has funded.

 

(iii)          Promptly following each
Settlement Date, Agent shall submit to each Lender a certificate with respect
to payments received and Advances made during the Week immediately preceding
such Settlement Date.  Such certificate
of Agent shall be conclusive in the absence of manifest error.

 

(d)           If any Lender or Participant
(a “Benefited Lender”) shall at any time receive any payment of all or
part of its Advances, or interest thereon, or receive any Collateral 

 

36

 

in respect thereof (whether voluntarily or
involuntarily or by set-off) in a greater proportion than any such payment to
and Collateral received by any other Lender, if any, in respect of such other
Lender’s Advances, or interest thereon, and such greater proportionate payment
or receipt of Collateral is not expressly permitted hereunder, such Benefited
Lender shall purchase for cash from the other Lenders a participation in such
portion of each such other Lender’s Advances, or shall provide such other
Lender with the benefits of any such Collateral, or the proceeds thereof, as
shall be necessary to cause such Benefited Lender to share the excess payment
or benefits of such Collateral or proceeds ratably with each of the other
Lenders; provided, however, that if all or any portion of such excess payment
or benefits is thereafter recovered from such Benefited Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest. 
Each Lender so purchasing a portion of another Lender’s Advances may
exercise all rights of payment (including rights of set-off) with respect to
such portion as fully as if such Lender were the direct holder of such portion.

 

(e)           Unless Agent shall have been
notified by telephone, confirmed in writing, by any Lender that such Lender
will not make the amount which would constitute its applicable Commitment
Percentage of the Advances available to Agent, Agent may (but shall not be
obligated to) assume that such Lender shall make such amount available to Agent
on the next Settlement Date and, in reliance upon such assumption, make
available to Borrowers a corresponding amount. 
Agent will promptly notify Borrowing Agent of its receipt of any such
notice from a Lender.  If such amount is
made available to Agent on a date after such next Settlement Date, such Lender
shall pay to Agent on demand an amount equal to the product of (i) the daily
average Federal Funds Effective Rate (computed on the basis of a year of 360
days) during such period as quoted by Agent, times (ii) such amount, times (iii)
the number of days from and including such Settlement Date to the date on which
such amount becomes immediately available to Agent.  A certificate of Agent submitted to any
Lender with respect to any amounts owing under this paragraph (e) shall be
conclusive, in the absence of manifest error. 
If such amount is not in fact made available to Agent by such Lender
within three (3) Business Days after such Settlement Date, Agent shall be
entitled to recover such an amount, with interest thereon at the rate per annum
then applicable to such Revolving Advances hereunder, on demand from Borrowers;
provided, however, that Agent’s right to such recovery shall not prejudice or
otherwise adversely affect Borrowers’ rights (if any) against such Lender.

 

2.21.        Mandatory Prepayments.  Subject to Section 4.3 hereof, when any
Borrower sells or otherwise disposes of any Collateral other than Inventory in
the Ordinary Course of Business, Borrowers shall repay the Advances in an
amount equal to the net proceeds of such sale (i.e., gross proceeds less the
reasonable costs of such sales or other dispositions), such repayments to be
made promptly but in no event more than one (1) Business Day following receipt
of such net proceeds, and until the date of payment, such proceeds shall be
held in trust for Agent.  The foregoing
shall not be deemed to be implied consent to any such sale otherwise prohibited
by the terms and conditions hereof.  Such
repayments shall be applied to the Obligations in such order as Agent may
determine, subject to Borrowers’ ability to reborrow Revolving Advances in
accordance with the terms hereof.

 

37

 

2.22.        Use of Proceeds.

 

(a)           Borrowers shall apply the
proceeds of Advances to (i) pay fees and expenses relating to this transaction,
and (ii) provide for its working capital needs and reimburse drawings under
Letters of Credit.

 

(b)           Without limiting the
generality of Section 2.22(a) above, neither the Borrowers, any Guarantor nor
any other Person which may in the future become party to this Agreement or the
Other Documents as a Borrower or Guarantor, intends to use nor shall they use
any portion of the proceeds of the Advances, directly or indirectly, for any
purpose in violation of the Trading with the Enemy Act.

 

2.23.        Defaulting Lender.

 

(a)           Notwithstanding anything to
the contrary contained herein, in the event any Lender (x) has refused (which
refusal constitutes a breach by such Lender of its obligations under this
Agreement) to make available its portion of any Advance or (y) notifies either
Agent or Borrowing Agent that it does not intend to make available its portion
of any Advance (if the actual refusal would constitute a breach by such Lender
of its obligations under this Agreement) (each, a “Lender Default”), all
rights and obligations hereunder of such Lender (a “Defaulting Lender”)
as to which a Lender Default is in effect and of the other parties hereto shall
be modified to the extent of the express provisions of this Section 2.23 while
such Lender Default remains in effect.

 

(b)           Advances shall be incurred
pro rata from Lenders (the “Non-Defaulting Lenders”) which are not
Defaulting Lenders based on their respective Commitment Percentages, and no
Commitment Percentage of any Lender or any pro rata share of any Advances
required to be advanced by any Lender shall be increased as a result of such
Lender Default.  Amounts received in
respect of principal of any type of Advances shall be applied to reduce the
applicable Advances of each Lender (other than any Defaulting Lender) pro rata
based on the aggregate of the outstanding Advances of that type of all Lenders
at the time of such application; provided, that Agent shall not be obligated to
transfer to a Defaulting Lender any payments received by Agent for the
Defaulting Lender’s benefit, nor shall a Defaulting Lender be entitled to the
sharing of any payments hereunder (including any principal, interest or
fees).  Amounts payable to a Defaulting
Lender shall instead be paid to or retained by Agent.  Agent may hold and, in its discretion,
re-lend to a Borrower the amount of such payments received or retained by it
for the account of such Defaulting Lender.

 

(c)           A Defaulting Lender shall
not be entitled to give instructions to Agent or to approve, disapprove,
consent to or vote on any matters relating to this Agreement and the Other
Documents.  All amendments, waivers and
other modifications of this Agreement and the Other Documents may be made
without regard to a Defaulting Lender and, for purposes of the definition of “Required
Lenders”, a Defaulting Lender shall be deemed not to be a Lender and not to
have either Advances outstanding or a Commitment Percentage.

 

(d)           Other than as expressly set
forth in this Section 2.23, the rights and obligations of a Defaulting Lender
(including the obligation to indemnify Agent) and the other parties hereto
shall remain unchanged.  Nothing in this Section
2.23 shall be deemed to release any Defaulting Lender from its obligations
under this Agreement and the Other Documents, shall 

 

38

 

alter such obligations, shall operate as a
waiver of any default by such Defaulting Lender hereunder, or shall prejudice
any rights which any Borrower, Agent or any Lender may have against any
Defaulting Lender as a result of any default by such Defaulting Lender
hereunder.

 

(e)           In the event a Defaulting
Lender retroactively cures to the satisfaction of Agent the breach which caused
a Lender to become a Defaulting Lender, such Defaulting Lender shall no longer
be a Defaulting Lender and shall be treated as a Lender under this Agreement.

 

III.           INTEREST AND FEES.

 

3.1.          Interest.  Interest on Advances shall be payable in
arrears on the first day of each month with respect to Domestic Rate Loans and,
with respect to Eurodollar Rate Loans, at the end of each Interest Period.  Interest charges shall be computed on the actual
principal amount of Advances outstanding during the month at a rate per annum
equal to the applicable Revolving Interest Rate.  Whenever, subsequent to the date of this
Agreement, the Alternate Base Rate is increased or decreased, the Revolving
Interest Rate for Domestic Rate Loans shall be similarly changed without notice
or demand of any kind by an amount equal to the amount of such change in the
Alternate Base Rate during the time such change or changes remain in effect.  The Eurodollar Rate shall be adjusted with
respect to Eurodollar Rate Loans without notice or demand of any kind on the
effective date of any change in the Reserve Percentage as of such effective
date.  Upon and after the occurrence of
an Event of Default, and during the continuation thereof, at the option of
Agent or at the direction of Required Lenders, the Obligations shall bear
interest at the Revolving Interest Rate for Domestic Loans plus two (2%)
percent per annum (the “Default Rate”). 
Agent will provide notice to Borrowing Agent subsequent to the
implementation of the Default Rate.

 

3.2.          Letter of Credit Fees.

 

(a)           Borrowers shall pay (x) to
Agent, for the ratable benefit of Lenders, fees for each Letter of Credit for
the period from and excluding the date of issuance of same to and including the
date of expiration or termination, equal to the average daily face amount of
each outstanding Letter of Credit multiplied by three and one-half of one
percent (3.50%) per annum, such fees to be calculated on the basis of a 360-day
year for the actual number of days elapsed and to be payable quarterly in
arrears on the first day of each quarter and on the last day of the Term, and (y)
to the Issuer, a fronting fee of one quarter of one percent (0.25%) per annum,
together with any and all administrative, issuance, amendment, payment and
negotiation charges with respect to Letters of Credit and all fees and expenses
as agreed upon by the Issuer and the Borrowing Agent in connection with any
Letter of Credit, including in connection with the opening, amendment or
renewal of any such Letter of Credit and any acceptances created thereunder and
shall reimburse Agent for any and all fees and expenses, if any, paid by Agent
to the Issuer (all of the foregoing fees, the “Letter of Credit Fees”).  All such charges shall be deemed earned in
full on the date when the same are due and payable hereunder and shall not be
subject to rebate or pro-ration upon the termination of this Agreement for any
reason.  Any such charge in effect at the
time of a particular transaction shall be the charge for that transaction,
notwithstanding any subsequent change in the Issuer’s prevailing charges for
that type of transaction.  All Letter of
Credit Fees payable hereunder shall be deemed earned in full on the date when
the same are due and payable hereunder and shall not be subject to rebate or
pro-ration

 

39

 

upon the termination of this Agreement for
any reason.  Upon and after the
occurrence of an Event of Default, and during the continuation thereof, at the
option of Agent or at the direction of Required Lenders, the Letter of Credit
Fees described in clause (x) of this Section 3.2(a) shall be increased by an
additional two percent (2.0%) per annum.

 

(b)           Upon demand by Agent after
the occurrence of an Event of Default and during the continuance thereof,
Borrowers will cause cash to be deposited and maintained in an account with
Agent, as cash collateral, in an amount equal to one hundred and five percent
(105%) of the Maximum Undrawn Amount of all outstanding Letters of Credit, and
each Borrower hereby irrevocably authorizes Agent, in its discretion, on such
Borrower’s behalf and in such Borrower’s name, to open such an account and to
make and maintain deposits therein, or in an account opened by such Borrower,
in the amounts required to be made by such Borrower, out of the proceeds of
Receivables or other Collateral or out of any other funds of such Borrower
coming into any Lender’s possession at any time.  Agent will invest such cash collateral (less
applicable reserves) in such short-term money-market items as to which Agent
and such Borrower mutually agree and the net return on such investments shall
be credited to such account and constitute additional cash collateral.  No Borrower may withdraw amounts credited to
any such account except upon the occurrence of all of the following: (x) payment
and performance in full of all Obligations, (y) expiration of all Letters of
Credit and (z) termination of this Agreement.

 

3.3.          Facility Fee.           If, for any calendar quarter
during the Term, the average daily unpaid balance of the Advances, plus
the Maximum Undrawn Amount of all outstanding Letters of Credit for each day of
such calendar quarter does not equal the Maximum Revolving Advance Amount, then
Borrowers shall pay to Agent for the ratable benefit of Lenders a fee at a rate
equal to one half of one percent (.50%) per annum on the amount by which the
Maximum Revolving Advance Amount exceeds such average daily unpaid balance.  Such fee shall be payable to Agent in arrears
on the first day of each calendar quarter with respect to the previous calendar
quarter.

 

3.4.          Collateral Evaluation Fee
Collateral Monitoring Fee and Fee Letter.

 

(a)           Borrowers shall pay Agent a
collateral monitoring fee equal to $2,000 per month commencing on the first day
of the month following the Closing Date and on the first day of each month
thereafter during the Term.  The
collateral monitoring fee shall be deemed earned in full on the date when same
is due and payable hereunder and shall not be subject to rebate or proration
upon termination of this Agreement for any reason.

 

(b)           Borrowers shall pay to Agent
on the first day of each month following any month in which Agent performs any
collateral evaluation - namely any field examination, collateral analysis or
other business analysis, the need for which is to be determined by Agent and
which evaluation is undertaken by Agent or for Agent’s benefit - a collateral
evaluation fee in an amount equal to $850 per day for each person employed to
perform such evaluation, plus all reasonable costs and disbursements incurred
by Agent in the performance of such examination or analysis; provided, however,
that so long as no Default or Event of Default has occurred, Borrowers shall
not be obligated to pay for more than one (1) collateral evaluation fee in any
calendar quarter.

 

40

 

(c)           Borrowers shall pay the
amounts required to be paid in the Fee Letter in the manner and at the times
required by the Fee Letter.

 

(d)           Agent may, in its sole
discretion, exercised in a commercially reasonable manner, at any time after
the Closing Date, engage the services of an independent appraisal firm or firms
of reputable standing, satisfactory to Agent, for the purpose of appraising the
then current values of Borrowers’ Inventory. Absent the occurrence and
continuance of an Event of Default at such time, Agent shall consult with
Borrowers as to the identity of any such firm. 
All of the reasonable fees and out-of-pocket costs and reasonable
expense of any such firm (collectively, “Appraisal Amounts”) shall be paid for
when due, in full and without off-set, by Borrowers.  In the event the value of Borrowers’
Inventory, as so determined pursuant to such appraisal, is less than
anticipated by Agent or Lenders, such that the Advances against Eligible
Inventory, are in fact in excess of such Advances permitted hereunder, then,
promptly upon Agent’s demand for same, Borrowers shall make mandatory prepayments
of the then outstanding Advances made against such Eligible Inventory so as to
eliminate the excess Advances, provided that, so long as no Default or Event of
Default has occurred hereunder, Agent shall not charge Borrowers for more than
one (1) full appraisal and three (3) desktop appraisals in any calendar year.

 

3.5.          Computation of Interest and
Fees.  Interest and fees hereunder
shall be computed on the basis of a year of 360 days and for the actual number
of days elapsed.  If any payment to be
made 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 the Revolving Interest Rate for Domestic
Rate Loans during such extension.

 

3.6.          Maximum Charges.  In no event whatsoever shall interest and
other charges charged hereunder exceed the highest rate permissible under law.
In the event interest and other charges as computed hereunder would otherwise
exceed the highest rate permitted under law, such excess amount shall be first
applied to any unpaid principal balance owed by Borrowers, and if the then
remaining excess amount is greater than the previously unpaid principal
balance, Lenders shall promptly refund such excess amount to Borrowers and the
provisions hereof shall be deemed amended to provide for such permissible rate.

 

3.7.          Increased Costs.  In the event that any Applicable Law, treaty
or governmental regulation, or any change therein or in the interpretation or application
thereof, or compliance by any Lender (for purposes of this Section 3.7, the
term “Lender” shall include Agent or any Lender and any corporation or bank
controlling Agent or any Lender and the office or branch where Agent or any
Lender (as so defined) makes or maintains any Eurodollar Rate Loans) with any
request or directive (whether or not having the force of law) from any central
bank or other financial, monetary or other authority, shall:

 

(a)           subject Agent or any Lender
to any tax of any kind whatsoever with respect to this Agreement or any Other
Document or change the basis of taxation of payments to Agent or any Lender of
principal, fees, interest or any other amount payable hereunder or under any
Other Documents (except for changes in the rate of tax on the overall net
income of Agent or any Lender by the jurisdiction in which it maintains its
principal office);

 

41

 

(b)           impose, modify or hold
applicable any reserve, special deposit, assessment or similar requirement
against assets held by, or deposits in or for the account of, advances or loans
by, or other credit extended by, any office of Agent or any Lender, including
pursuant to Regulation D of the Board of Governors of the Federal Reserve System;
or

 

(c)           impose on Agent or any Lender or the
London interbank Eurodollar market any other condition with respect to this
Agreement or any Other Document; and the result of any of the foregoing is to
increase the cost to Agent or any Lender of making, renewing or maintaining its
Advances hereunder by an amount that Agent or such Lender deems to be material
or to reduce the amount of any payment (whether of principal, interest or
otherwise) in respect of any of the Advances by an amount that Agent or such
Lender deems to be material, then, in any case Borrowers shall promptly pay
Agent or such Lender, upon its demand, such additional amount as will
compensate Agent or such Lender for such additional cost or such reduction, as
the case may be.  Agent or such Lender
shall certify the amount of such additional cost or reduced amount to Borrowing
Agent, and such certification shall be conclusive absent manifest error.

 

3.8.          Basis For Determining
Interest Rate Inadequate or Unfair.  In the event that Agent or any Lender shall
have determined that:

 

(a)           reasonable means do not
exist for ascertaining the Eurodollar Rate applicable pursuant to Section 2.2
hereof for any Interest Period; or

 

(b)           Dollar deposits in the relevant amount
and for the relevant maturity are not available in the London interbank
Eurodollar market with respect to an outstanding Eurodollar Rate Loan, a
proposed Eurodollar Rate Loan, or a proposed conversion of a Domestic Rate Loan
into a Eurodollar Rate Loan, then Agent shall give Borrowing Agent prompt
written or telephonic notice of such determination.  If such notice is given, (i) any such
requested Eurodollar Rate Loan shall be made as a Domestic Rate Loan, unless
Borrowing Agent shall notify Agent no later than 1:00 p.m. (New York time), two
(2) Business Days prior to the date of such proposed borrowing, that its
request for such borrowing shall be cancelled or made as an unaffected type of
Eurodollar Rate Loan, (ii) any Domestic Rate Loan or Eurodollar Rate Loan which
was to have been converted to an affected type of Eurodollar Rate Loan shall be
continued as or converted into a Domestic Rate Loan, or, if Borrowing Agent
shall notify Agent, no later than 1:00 p.m. (New York time), two (2) Business
Days prior to the proposed conversion, shall be maintained as an unaffected
type of Eurodollar Rate Loan, and (iii) any outstanding affected Eurodollar
Rate Loans shall be converted into a Domestic Rate Loan, or, if Borrowing Agent
shall notify Agent, no later than 1:00 p.m. (New York time), two (2) Business
Days prior to the last Business Day of the then current Interest Period
applicable to such affected Eurodollar Rate Loan, shall be converted into an
unaffected type of Eurodollar Rate Loan, on the last Business Day of the then
current Interest Period for such affected Eurodollar Rate Loans; provided, in
each case, that if Agent shall not have given its notice to Borrowing Agent by
5:00 p.m. (New York time) on the Business Day two (2) Business Days prior to
such proposed Eurodollar Rate Loan or Domestic Rate Loan conversion, Borrowing
Agent may give its notice anytime within twenty four (24)

 

42

 

hours
of its receipt of Agent’s notice.  Until
such notice has been withdrawn, Lenders shall have no obligation to make an
affected type of Eurodollar Rate Loan or maintain outstanding affected
Eurodollar Rate Loans and no Borrower shall have the right to convert a
Domestic Rate Loan or an unaffected type of Eurodollar Rate Loan into an
affected type of Eurodollar Rate Loan.

 

3.9.          Capital Adequacy.

 

(a)           In the event that Agent or
any Lender shall have determined that any Applicable Law, rule, regulation or
guideline regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any Governmental Body, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Agent or any Lender (for purposes of this Section 3.9,
the term “Lender” shall include Agent or any Lender and any corporation or bank
controlling Agent or any Lender and the office or branch where Agent or any
Lender (as so defined) makes or maintains any Eurodollar Rate Loans) with any
request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on Agent or any Lender’s
capital as a consequence of its obligations hereunder to a level below that
which Agent or such Lender could have achieved but for such adoption, change or
compliance (taking into consideration Agent’s and each Lender’s policies with
respect to capital adequacy) by an amount deemed by Agent or any Lender to be
material, then, from time to time, Borrowers shall pay upon demand to Agent or
such Lender such additional amount or amounts as will compensate Agent or such
Lender for such reduction.  In
determining such amount or amounts, Agent or such Lender may use any reasonable
averaging or attribution methods.  The
protection of this Section 3.9 shall be available to Agent and each Lender
regardless of any possible contention of invalidity or inapplicability with
respect to the Applicable Law, regulation or condition.

 

(b)           A certificate of Agent or
such Lender setting forth such amount or amounts as shall be necessary to
compensate Agent or such Lender with respect to Section 3.9(a) hereof when delivered
to Borrowing Agent shall be conclusive absent manifest error.

 

3.10.        Gross Up for Taxes.  If any Borrower shall be required by
Applicable Law to withhold or deduct any taxes from or in respect of any sum
payable under this Agreement or any of the Other Documents to Agent, or any
Lender, assignee of any Lender, or Participant (each, individually, a “Payee”
and collectively, the “Payees”), (a) the sum payable to such Payee or
Payees, as the case may be, shall be increased as may be necessary so that, after
making all required withholding or deductions, the applicable Payee or Payees
receives an amount equal to the sum it would have received had no such
withholding or deductions been made (the “Gross-Up Payment”), (b) such
Borrower shall make such withholding or deductions, and (c) such Borrower shall
pay the full amount withheld or deducted to the relevant taxation authority or
other authority in accordance with Applicable Law.  Notwithstanding the foregoing, no Borrower
shall be obligated to make any portion of the Gross-Up Payment that is
attributable to any withholding or deductions that would not have been paid or
claimed had the applicable Payee or Payees properly claimed a complete
exemption with respect thereto pursuant to Section 3.11 hereof.

 

43

 

3.11.        Withholding Tax Exemption.

 

(a)           Each Payee that is not
incorporated under the Laws of the United States of America or a state thereof
(and, upon the written request of Agent, each other Payee) agrees that it will
deliver to Borrowing Agent and Agent two (2) duly completed appropriate valid
Withholding Certificates (as defined under §1.1441-1(c)(16) of the Income Tax
Regulations (“Regulations”)) certifying its status (i.e., U.S. or
foreign person) and, if appropriate, making a claim of reduced, or exemption
from, U.S. withholding tax on the basis of an income tax treaty or an exemption
provided by the Code.  The term “Withholding
Certificate” means a Form W-9; a Form W-8BEN; a Form W-8ECI; a Form W-8IMY and
the related statements and certifications as required under §1.1441-1(e)(2) and/or
(3) of the Regulations; a statement described in §1.871-14(c)(2)(v) of the
Regulations; or any other certificates under the Code or Regulations that
certify or establish the status of a payee or beneficial owner as a U.S. or
foreign person.

 

(b)           Each Payee required to
deliver to Borrowing Agent and Agent a valid Withholding Certificate pursuant
to Section 3.11(a) hereof shall deliver such valid Withholding Certificate as
follows:  (i) each Payee which is a party
hereto on the Closing Date shall deliver such valid Withholding Certificate at
least five (5) Business Days prior to the first date on which any interest or
fees are payable by any Borrower hereunder for the account of such Payee; (ii) each
Payee shall deliver such valid Withholding Certificate at least five (5) Business
Days before the effective date of such assignment or participation (unless
Agent in its sole discretion shall permit such Payee to deliver such Withholding
Certificate less than five (5) Business Days before such date in which case it
shall be due on the date specified by Agent). 
Each Payee which so delivers a valid Withholding Certificate further
undertakes to deliver to Borrowing Agent and Agent two (2) additional copies of
such Withholding Certificate (or a successor form) on or before the date that
such Withholding Certificate expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent Withholding Certificate
so delivered by it, and such amendments thereto or extensions or renewals
thereof as may be reasonably requested by Borrowing Agent or Agent.

 

(c)           Notwithstanding the
submission of a Withholding Certificate claiming a reduced rate of or exemption
from U.S. withholding tax required under Section 3.11(b) hereof, Agent shall be
entitled to withhold United States federal income taxes at the full thirty
percent (30%) withholding rate if in its reasonable judgment it is required to
do so under the due diligence requirements imposed upon a withholding agent
under §1.1441-7(b) of the Regulations. 
Further, Agent is indemnified under §1.1461-1(e) of the Regulations
against any claims and demands of any Payee for the amount of any tax it
deducts and withholds in accordance with regulations under §1441 of the Code.

 

IV.           COLLATERAL:  
GENERAL TERMS

 

4.1.          Security Interest in the
Collateral.  To secure
the prompt payment and performance to Agent and each Lender of the Obligations,
each Borrower hereby assigns, pledges and grants to Agent for its benefit and
for the ratable benefit of each Lender a continuing security interest in and to
and Lien on all of its Collateral, whether now owned or existing or hereafter
acquired or arising and wheresoever located. 
Each Borrower shall mark its books and records as may be necessary or
appropriate to evidence, protect and perfect Agent’s security interest and
shall cause its financial statements to reflect such security interest.  Each Borrower 

 

44

 

shall promptly provide Agent with written
notice of all commercial tort claims, such notice to contain the case title
together with the applicable court and a brief description of the
claim(s).  Upon delivery of each such
notice, such Borrower shall be deemed to hereby grant to Agent a security
interest and lien in and to such commercial tort claims and all proceeds
thereof.

 

4.2.          Perfection of Security
Interest.  Each
Borrower shall take all action that may be necessary or desirable, or that
Agent may request, so as at all times to maintain the validity, perfection,
enforceability and priority of Agent’s security interest in and Lien on the
Collateral or to enable Agent to protect, exercise or enforce its rights
hereunder and in the Collateral, including, but not limited to, (i) immediately
discharging all Liens other than Permitted Encumbrances, (ii) obtaining Lien
Waiver Agreements, (iii) delivering to Agent, endorsed or accompanied by such
instruments of assignment as Agent may specify, and stamping or marking, in
such manner as Agent may specify, any and all chattel paper, instruments,
letters of credits and advices thereof and documents evidencing or forming a
part of the Collateral, (iv) entering into warehousing, lockbox and other
custodial arrangements satisfactory to Agent, and (v) executing and delivering
financing statements, control agreements, instruments of pledge, mortgages,
notices and assignments, in each case in form and substance satisfactory to
Agent, relating to the creation, validity, perfection, maintenance or
continuation of Agent’s security interest and Lien under the Uniform Commercial
Code or other Applicable Law.  By its
signature hereto, each Borrower hereby authorizes Agent to file against such
Borrower, one or more financing, continuation or amendment statements pursuant
to the Uniform Commercial Code in form and substance satisfactory to Agent
(which statements may have a description of collateral which is broader than
that set forth herein).  All charges, expenses
and fees Agent may incur in doing any of the foregoing, and any local taxes
relating thereto, shall be charged to Borrowers’ Account as a Revolving Advance
of a Domestic Rate Loan and added to the Obligations, or, at Agent’s option,
shall be paid to Agent for its benefit and for the ratable benefit of Lenders
immediately upon demand.

 

4.3.          Disposition of Collateral.  Each Borrower will safeguard and protect all
Collateral for Agent’s general account and make no disposition thereof whether
by sale, lease or otherwise except: (a) the sale or other disposition of
Inventory in the Ordinary Course of Business (including the sale or other
disposition of slow-moving, discontinued and obsolete Inventory); (b) the
disposition or transfer of obsolete and worn-out Equipment in the Ordinary
Course of Business during any fiscal year having an aggregate fair market value
of not more than $500,000 and only to the extent that (i) the proceeds of any
such disposition are used to acquire replacement Equipment which is subject to
Agent’s first priority security interest or (ii) the proceeds of which are
remitted to Agent to be applied pursuant to Section 2.21; (c) the donation of
Inventory included in the Formula Amount to charity during any fiscal year in
an aggregate amount of $25,000; and (d) as otherwise permitted by this
Agreement, including Section 7.1.

 

4.4.          Preservation of Collateral.  Following the occurrence of a Default or
Event of Default in addition to the rights and remedies set forth in Section 11.1
hereof, Agent: (a) may at any time take such steps as Agent deems necessary to
protect Agent’s interest in and to preserve the Collateral, including the
hiring of such security guards or the placing of other security protection
measures as Agent may deem appropriate; (b) may employ and maintain at any of
any Borrower’s premises a custodian who shall have full authority to do all
acts necessary to protect Agent’s interests in the Collateral; (c) may lease
warehouse facilities to which Agent may move 

 

45

 

all or part of the Collateral; (d) may use
any Borrower’s owned or leased lifts, hoists, trucks and other facilities or
equipment for handling or removing the Collateral; and (e) shall have, and is
hereby granted, a right of ingress and egress to the places where the
Collateral is located, and may proceed over and through any of Borrowers’ owned
or leased property.  Each Borrower shall
cooperate fully with all of Agent’s efforts to preserve the Collateral and will
take such actions to preserve the Collateral as Agent may direct.  All of Agent’s expenses of preserving the
Collateral, including any expenses relating to the bonding of a custodian,
shall be charged to Borrowers’ Account as a Revolving Advance maintained as a
Domestic Rate Loan and added to the Obligations.

 

4.5.          Ownership of Collateral.

 

(a)           With respect to the
Collateral, at the time the Collateral becomes subject to Agent’s security
interest:  (i) each Borrower shall be the
sole owner of and fully authorized and able to sell, transfer, pledge and/or
grant a first priority security interest in each and every item of the its
respective Collateral to Agent; and, except for Permitted Encumbrances the
Collateral shall be free and clear of all Liens and encumbrances whatsoever; (ii)
each document and agreement executed by each Borrower or delivered to Agent or
any Lender in connection with this Agreement shall be true and correct in all
respects; (iii) all signatures and endorsements of each Borrower that appear on
such documents and agreements shall be genuine and each Borrower shall have
full capacity to execute same; and (iv) each Borrower’s Equipment and Inventory
shall be located as set forth on Schedule 4.5 and shall not be removed from
such location(s) without the prior written consent of Agent except with respect
to the sale of Inventory and Equipment to the extent permitted in Section 4.3
hereof.

 

(b)           (i)            There is no location at
which any Borrower has any Inventory (except for Inventory in transit) other than
those locations listed on Schedule 4.5; (ii) Schedule 4.5 hereto contains a
correct and complete list, as of the Closing Date, of the legal names and
addresses of each warehouse at which Inventory of any Borrower is stored; none
of the receipts received by any Borrower from any warehouse states that the
goods covered thereby are to be delivered to bearer or to the order of a named
Person or to a named Person and such named Person’s assigns;  (iii) Schedule 4.5 hereto sets forth a
correct and complete list as of the Closing Date of (A) each place of business
of each Borrower and (B) the chief executive office of each Borrower; and (iv) Schedule
4.5 hereto sets forth a correct and complete list as of the Closing Date of the
location, by state and street address, of all Real Property owned or leased by
each Borrower, together with the names and addresses of any landlords.

 

(c)           Borrowers, Agent and Lenders
acknowledge and agree that Schedule 4.5 shall be deemed to be updated to
include any additional locations that Agent is notified of in accordance with Section
9.11.

 

4.6.          Defense of Agent’s and
Lenders’ Interests.  Until (a) payment
and performance in full of all of the Obligations and (b) termination of this
Agreement, Agent’s interests in the Collateral shall continue in full force and
effect.  Except as otherwise provided in
this Agreement, during such period no Borrower shall, without Agent’s prior
written consent, pledge, sell (except Inventory and Equipment to the extent
permitted in Section 4.3 hereof), assign, transfer, create or suffer to exist a
Lien upon or encumber or allow or suffer to be encumbered in 

 

46

 

any way except for Permitted Encumbrances,
any part of the Collateral.  Each
Borrower shall defend Agent’s interests in the Collateral against any and all
Persons whatsoever.  At any time
following demand by Agent for payment of all Obligations in accordance with the
terms hereof, Agent shall have the right to take possession of the indicia of
the Collateral and the Collateral in whatever physical form contained,
including:  labels, stationery,
documents, instruments and advertising materials.  If Agent exercises this right to take
possession of the Collateral, Borrowers shall, upon demand, assemble it in the
best manner possible and make it available to Agent at a place reasonably
convenient to Agent.  In addition, with
respect to all Collateral, Agent and Lenders shall be entitled to all of the
rights and remedies set forth herein and further provided by the Uniform
Commercial Code or other Applicable Law. 
Each Borrower shall, and Agent may, at its option, instruct all
suppliers, carriers, forwarders, warehousers or others receiving or holding
cash, checks, Inventory, documents or instruments in which Agent holds a
security interest to deliver same to Agent and/or subject to Agent’s order and
if they shall come into any Borrower’s possession, they, and each of them,
shall be held by such Borrower in trust as Agent’s trustee, and such Borrower
will immediately deliver them to Agent in their original form together with any
necessary endorsement.

 

4.7.          Books and Records.  Each Borrower shall (a) keep proper books of
record and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on its books accruals with respect to all taxes, assessments, charges,
levies and claims; and (c) on a reasonably current basis set up on its books,
from its earnings, allowances against doubtful Receivables, advances and
investments and all other proper accruals (including by reason of enumeration,
accruals for premiums, if any, due on required payments and accruals for
depreciation, obsolescence, or amortization of properties), which should be set
aside from such earnings in connection with its business.  All determinations pursuant to this
subsection shall be made in accordance with, or as required by, GAAP
consistently applied in the opinion of such independent public accountant as
shall then be regularly engaged by Borrowers.

 

4.8.          Financial Disclosure.  Each Borrower hereby irrevocably authorizes
and directs all accountants and auditors employed by such Borrower at any time
during the Term to exhibit and deliver to Agent and each Lender copies of any
of such Borrower’s financial statements, trial balances or other accounting
records of any sort in the accountant’s or auditor’s possession, and to
disclose to Agent and each Lender any information such accountants may have
concerning such Borrower’s financial status and business operations.  Each Borrower hereby authorizes all
Governmental Bodies to furnish to Agent and each Lender copies of reports or
examinations relating to such Borrower, whether made by such Borrower or
otherwise; however, Agent and each Lender will attempt to obtain such
information or materials directly from such Borrower prior to obtaining such
information or materials from such accountants or Governmental Bodies.

 

4.9.          Compliance with Laws.  Each Borrower shall comply with all
Applicable Laws with respect to the Collateral or any part thereof or to the
operation of such Borrower’s business the non-compliance with which could
reasonably be expected to have a Material Adverse Effect.

 

4.10.        Inspection of Premises.  At all reasonable times Agent and each Lender
shall have full access to and the right to audit, check, inspect and make
abstracts and copies from each Borrower’s books, records, audits,
correspondence and all other papers relating to the Collateral 

 

47

 

and the operation of each Borrower’s
business.  Agent, any Lender and their
agents may enter upon any premises of any Borrower at any time during business
hours and at any other reasonable time, and from time to time, for the purpose
of inspecting the Collateral and any and all records pertaining thereto and the
operation of such Borrower’s business.

 

4.11.        Insurance.  The assets and properties of each Borrower at
all times shall be maintained in accordance with the requirements of all
insurance carriers which provide insurance with respect to the assets and
properties of such Borrower so that such insurance shall remain in full force
and effect.  Each Borrower shall bear the
full risk of any loss of any nature whatsoever with respect to the
Collateral.  At each Borrower’s own cost
and expense in amounts and with carriers acceptable to Agent, each Borrower
shall: (a) keep all its insurable properties and properties in which such
Borrower has an interest insured against the hazards of fire, flood, sprinkler
leakage, those hazards covered by extended coverage insurance and such other
hazards, and for such amounts, as is customary in the case of companies engaged
in businesses similar to such Borrower’s including business interruption
insurance; (b) maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to such Borrower insuring against
larceny, embezzlement or other criminal misappropriation of insured’s officers
and employees who may either singly or jointly with others at any time have
access to the assets or funds of such Borrower either directly or through
authority to draw upon such funds or to direct generally the disposition of
such assets; (c) maintain public and product liability insurance against claims
for personal injury, death or property damage suffered by others; (d) maintain
all such worker’s compensation or similar insurance as may be required under
the laws of any state or jurisdiction in which such Borrower is engaged in
business; (e) furnish Agent with (i) copies of all policies and evidence of the
maintenance of such policies by the renewal thereof at least thirty (30) days
before any expiration date, and (ii) appropriate loss payable endorsements in form
and substance satisfactory to Agent, naming Agent as a co-insured and loss
payee as its interests may appear with respect to all insurance coverage
referred to in clauses (a) and (c) above, and providing (A) that all proceeds
thereunder shall be payable to Agent, (B) no such insurance shall be affected
by any act or neglect of the insured or owner of the property described in such
policy, and (C) that such policy and loss payable clauses may not be cancelled,
amended or terminated unless at least thirty (30) days’ prior written notice is
given to Agent.  In the event of any loss
thereunder, the carriers named therein hereby are directed by Agent and the
applicable Borrower to make payment for such loss to Agent and not to such
Borrower and Agent jointly.  If any
insurance losses are paid by check, draft or other instrument payable to any
Borrower and Agent jointly, Agent may endorse such Borrower’s name thereon and
do such other things as Agent may deem advisable to reduce the same to
cash.  Agent is hereby authorized to
adjust and compromise claims under insurance coverage referred to in clauses
(a), and (b) above.  All loss recoveries
received by Agent upon any such insurance may be applied to the Obligations, in
such order as Agent in its sole discretion shall determine.  Any surplus shall be paid by Agent to
Borrowers or applied as may be otherwise required by law.  Any deficiency thereon shall be paid by
Borrowers to Agent, on demand.

 

4.12.        Failure to Pay Insurance.  If any Borrower fails to obtain insurance as
hereinabove provided, or to keep the same in force, Agent, if Agent so elects,
may obtain such insurance and pay the premium therefor on behalf of such
Borrower, and charge Borrowers’ Account therefor as a Revolving Advance of a
Domestic Rate Loan and such expenses so paid shall be part of the Obligations.

 

48

 

4.13.        Payment of Taxes.  Each Borrower will pay, when due, all taxes,
assessments and other Charges lawfully levied or assessed upon such Borrower or
any of the Collateral including real and personal property taxes, assessments
and charges and all franchise, income, employment, social security benefits,
withholding, and sales taxes.  If any tax
by any Governmental Body is or may be imposed on or as a result of any
transaction between any Borrower and Agent or any Lender which Agent or any
Lender may be required to withhold or pay or if any taxes, assessments, or
other Charges remain unpaid after the date fixed for their payment, or if any
claim shall be made which, in Agent’s or any Lender’s opinion, may possibly
create a valid Lien on the Collateral, Agent may without notice to Borrowers
pay the taxes, assessments or other Charges and each Borrower hereby
indemnifies and holds Agent and each Lender harmless in respect thereof.  Agent will not pay any taxes, assessments or
Charges to the extent that any applicable Borrower has Properly Contested those
taxes, assessments or Charges.  The
amount of any payment by Agent under this Section 4.13 shall be charged to
Borrowers’ Account as a Revolving Advance maintained as a Domestic Rate Loan
and added to the Obligations and, until Borrowers shall furnish Agent with an
indemnity therefor (or supply Agent with evidence satisfactory to Agent that
due provision for the payment thereof has been made), Agent may hold without
interest any balance standing to Borrowers’ credit and Agent shall retain its
security interest in and Lien on any and all Collateral held by Agent.

 

4.14.        Payment of Leasehold
Obligations.  Each
Borrower shall at all times pay, when and as due, its rental obligations under
all leases under which it is a tenant, and shall otherwise comply, in all
material respects, with all other terms of such leases and keep them in full
force and effect and, at Agent’s request will provide evidence of payment.

 

4.15.        Receivables.

 

(a)           Nature of Receivables.  Each of the Receivables shall be a bona fide
and valid account representing a bona fide indebtedness incurred by the
Customer therein named, for a fixed sum as set forth in the invoice relating
thereto (provided immaterial or unintentional invoice errors shall not be
deemed to be a breach hereof) with respect to an absolute sale or lease and
delivery of goods upon stated terms of a Borrower, or work, labor or services
theretofore rendered by a Borrower as of the date each Receivable is
created.  Same shall be due and owing in
accordance with the applicable Borrower’s standard terms of sale without
dispute, setoff or counterclaim except as may be stated on the accounts
receivable schedules delivered by Borrowers to Agent, subject to returns,
refunds, discounts and allowances in the Ordinary Course of Business.

 

(b)           Solvency of Customers.  Each Customer, to the best of each Borrower’s
knowledge, as of the date each Receivable is created, is and will be solvent
and able to pay all Receivables on which the Customer is obligated in full when
due or with respect to such Customers of any Borrower who are not solvent such
Borrower has set up on its books and in its financial records bad debt reserves
adequate to cover such Receivables.

 

(c)           Location of Borrowers.  Each Borrower’s chief executive office is
located at 6328 Monarch Park Place, Niwot, CO 80503.  Until written notice is given to Agent by
Borrowing Agent of any other office at which any Borrower keeps its records
pertaining to Receivables, all such records shall be kept at such executive
office.

 

49

 

(d)           Collection of Receivables.  Borrowers shall instruct their Customers to
deliver all remittances upon Receivables to such lockbox account or Blocked
Account as Agent shall designate from time to time as contemplated by Section 4.15(h)
or as otherwise agreed to from time to time by Agent.   Notwithstanding the foregoing, to the extent
any Borrower directly receives any remittances upon Receivables, such Borrower
will, at such Borrower’s sole cost and expense, but on Agent’s behalf and for
Agent’s account, collect as Agent’s property and in trust for Agent all amounts
received on Receivables, and shall not commingle such collections with any
Borrower’s funds or use the same except to pay Obligations.  Each Borrower shall deposit in the Blocked
Account or, upon request by Agent, deliver to Agent, in original form and on
the date of receipt thereof, all checks, drafts, notes, money orders,
acceptances, cash and other evidences of Indebtedness.

 

(e)           Notification of Assignment
of Receivables.  Upon the
occurrence and during the continuance of a Default or Event of Default or at
any time Agent reasonably believes using its Permitted Discretion it is
necessary to protect its rights in the Collateral, Agent shall have the right
to send notice of the assignment of, and Agent’s security interest in and Lien
on, the Receivables to any and all Customers or any third party holding or
otherwise concerned with any of the Collateral. 
At any time after the occurrence and during the continuance of an Event
of Default, Agent shall have the sole right to collect the Receivables, take
possession of the Collateral, or both. 
Agent’s actual collection expenses, including, but not limited to,
stationery and postage, telephone and telegraph, secretarial and clerical
expenses and the salaries of any collection personnel used for collection, may
be charged to Borrowers’ Account and added to the Obligations.

 

(f)            Power of Agent to Act on
Borrowers’ Behalf.  Agent shall
have the right to receive, endorse, assign and/or deliver in the name of Agent
or any Borrower any and all checks, drafts and other instruments for the
payment of money relating to the Receivables, and each Borrower hereby waives
notice of presentment, protest and non-payment of any instrument so
endorsed.  Each Borrower hereby
constitutes Agent or Agent’s designee as such Borrower’s attorney with power (i)
at any time unless otherwise specified:  (A)
to endorse such Borrower’s name upon any notes, acceptances, checks, drafts,
money orders or other evidences of payment or Collateral; (B) after the
occurrence and during the continuance of an Event of Default, to sign such
Borrower’s name on any invoice or bill of lading relating to any of the
Receivables, drafts against Customers, assignments and verifications of
Receivables; (C) to send verifications of Receivables to any Customer; (D) to
sign such Borrower’s name on all financing statements or any other documents or
instruments deemed necessary or appropriate by Agent to preserve, protect, or
perfect Agent’s interest in the Collateral and to file same; and (E) to
receive, open and dispose of all mail addressed to any Borrower; and (ii) at
any time following the occurrence of a Default or Event of Default: (A) to
demand payment of the Receivables; (B) to enforce payment of the Receivables by
legal proceedings or otherwise; (C) to exercise all of such Borrower’s rights
and remedies with respect to the collection of the Receivables and any other
Collateral; (D) to settle, adjust, compromise, extend or renew the Receivables;
(E) to settle, adjust or compromise any legal proceedings brought to collect
Receivables; (F) to prepare, file and sign such Borrower’s name on a proof of
claim in bankruptcy or similar document against any Customer; (G) to prepare,
file and sign such Borrower’s name on any notice of Lien, assignment or
satisfaction of Lien or similar document in connection with the Receivables;
and (H) to do all other acts and things necessary to carry out this
Agreement.  All acts of said attorney or
designee 

 

50

 

are hereby ratified and approved, and said
attorney or designee shall not be liable for any acts of omission or commission
nor for any error of judgment or mistake of fact or of law, unless done
maliciously or with gross (not mere) negligence (as determined by a court of
competent jurisdiction in a final non-appealable judgment); this power being
coupled with an interest is irrevocable while any of the Obligations remain
unpaid.  Each Borrower hereby constitutes
Agent or Agent’s designee as such Borrower’s attorney with power at any time
following the occurrence of an Event of Default and acceleration of the
Obligations to change the address for delivery of mail addressed to any
Borrower to such address as Agent may designate.

 

(g)           No Liability.  Absent Agent’s or Lender’s gross negligence
or willful misconduct, neither Agent nor any Lender shall, under any
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the settlement, collection or
payment of any of the Receivables or any instrument received in payment
thereof, or for any damage resulting therefrom. 
Following the occurrence of an Event of Default or Default Agent may,
without notice or consent from any Borrower, sue upon or otherwise collect,
extend the time of payment of, compromise or settle for cash, credit or upon
any terms any of the Receivables or any other securities, instruments or
insurance applicable thereto and/or release any obligor thereof.  Agent is authorized and empowered to accept
following the occurrence of an Event of Default or Default the return of the
goods represented by any of the Receivables, without notice to or consent by
any Borrower, all without discharging or in any way affecting any Borrower’s
liability hereunder.

 

(h)           Establishment of a Lockbox
Account, Dominion Account.  All
proceeds of Collateral shall be deposited by Borrowers into either (i) a
lockbox account, dominion account or such other “blocked account” (“Blocked
Accounts”) established at a bank or banks (each such bank, a “Blocked
Account Bank”) pursuant to an arrangement with such Blocked Account Bank as
may be selected by Borrowing Agent and be acceptable to Agent or (ii) depository
accounts (“Depository Accounts”) established at the Agent for the
deposit of such proceeds.  Each
applicable Borrower, Agent and each Blocked Account Bank shall enter into a
deposit account control agreement in form and substance satisfactory to Agent
directing such Blocked Account Bank to transfer such funds so deposited to
Agent, either to any account maintained by Agent at said Blocked Account Bank
or by wire transfer to appropriate account(s) of Agent.  All funds deposited in such Blocked Accounts
shall immediately become the property of Agent and Borrowing Agent shall obtain
the agreement by such Blocked Account Bank to waive any offset rights against
the funds so deposited.  Neither Agent
nor any Lender assumes any responsibility for such blocked account arrangement,
including any claim of accord and satisfaction or release with respect to
deposits accepted by any Blocked Account Bank thereunder.  All deposit accounts and investment accounts
of each Borrower and its Subsidiaries are set forth on Schedule 4.15(h).

 

(i)            Adjustments.  No Borrower will, without Agent’s consent,
compromise or adjust any material amount of the Receivables (or extend the time
for payment thereof) or accept any material returns of merchandise or grant any
additional discounts, allowances or credits thereon except for those
compromises, adjustments, returns, discounts, credits and allowances as have
been heretofore customary in the business of such Borrower.

 

51

 

4.16.        Inventory.  To the extent Inventory held for sale or
lease has been produced by any Borrower, it has been and will be produced by
such Borrower in accordance with the Federal Fair Labor Standards Act of 1938,
as amended, and all rules, regulations and orders thereunder.

 

4.17.        Maintenance of Equipment.  The Equipment shall be maintained in good
operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and
preserved.  No Borrower shall use or
operate the Equipment in violation of any law, statute, ordinance, code, rule or
regulation in any material respect.

 

4.18.        Exculpation of Liability.  Nothing herein contained shall be construed
to constitute Agent or any Lender as any Borrower’s agent for any purpose
whatsoever, nor shall Agent or any Lender be responsible or liable absent Agent’s
or such Lender’s gross negligence or willful misconduct, for any shortage,
discrepancy, damage, loss or destruction of any part of the Collateral wherever
the same may be located and regardless of the cause thereof.  Neither Agent nor any Lender, whether by
anything herein or in any assignment or otherwise, assume any of any Borrower’s
obligations under any contract or agreement assigned to Agent or such Lender,
and neither Agent nor any Lender shall be responsible in any way for the
performance by any Borrower of any of the terms and conditions thereof.

 

4.19.        Environmental Matters.

 

(a)           Borrowers shall ensure that
the Real Property and all operations and businesses conducted thereon remains
in compliance with all Environmental Laws in all material respects and they
shall not place or permit to be placed any Hazardous Substances on any Real
Property except as permitted by Applicable Law or appropriate governmental
authorities.

 

(b)           Borrowers shall establish
and maintain a system to assure and monitor continued compliance with all
applicable Environmental Laws which system shall include periodic reviews of
such compliance.

 

(c)           Borrowers shall (i) employ
in connection with the use of the Real Property appropriate technology
necessary to maintain compliance in all material respects with any applicable
Environmental Laws and (ii) dispose of any and all Hazardous Waste generated at
the Real Property only at facilities and with carriers that maintain valid
permits under RCRA and any other applicable Environmental Laws.  Borrowers shall use their commercially
reasonable efforts to obtain certificates of disposal, such as hazardous waste
manifest receipts, from all treatment, transport, storage or disposal
facilities or operators employed by Borrowers in connection with the transport
or disposal of any Hazardous Waste generated at the Real Property.

 

(d)           In the event any Borrower
obtains, gives or receives notice of any Release or threat of Release of a
reportable quantity of any Hazardous Substances at the Real Property (any such
event being hereinafter referred to as a “Hazardous Discharge”) or
receives any notice of a material violation, request for information or
notification that it is potentially responsible for investigation or cleanup of
environmental conditions at the Real Property, demand letter or complaint,
order, citation, or other written notice with regard to any Hazardous Discharge
or

 

52

 

material violation of Environmental Laws
affecting the Real Property or any Borrower’s interest therein (any of the
foregoing is referred to herein as an “Environmental Complaint”) from
any Person, including any state agency responsible in whole or in part for
environmental matters in the state in which the Real Property is located or the
United States Environmental Protection Agency (any such person or entity
hereinafter the “Authority”), then Borrowing Agent shall, within five (5)
Business Days, give written notice of same to Agent detailing facts and
circumstances of which any Borrower is aware giving rise to the Hazardous
Discharge or Environmental Complaint. 
Such information is to be provided to allow Agent to protect its
security interest in and Lien on the Real Property and the Collateral and is
not intended to create nor shall it create any obligation upon Agent or any
Lender with respect thereto.  If
reasonably requested by Borrowing Agent, Agent will in good faith consider
entering into a joint defense or similar agreement with Borrowing Agent prior
to Borrowing Agent providing such notice.

 

(e)           Borrowing Agent shall
promptly forward to Agent copies of any request for information, notification
of potential liability, demand letter relating to potential responsibility with
respect to the investigation or cleanup of Hazardous Substances at any other
site owned, operated or used by any Borrower to dispose of Hazardous Substances
and shall continue to forward copies of correspondence between any Borrower and
the Authority regarding such claims to Agent until the claim is settled.  Borrowing Agent shall promptly forward to
Agent copies of all documents and reports concerning a Hazardous Discharge at
the Real Property that any Borrower is required to file under any Environmental
Laws.  Such information is to be provided
solely to allow Agent to protect Agent’s security interest in and Lien on the
Real Property and the Collateral.

 

(f)            Borrowers shall respond
promptly to any Hazardous Discharge or Environmental Complaint and take all
commercially reasonable actions necessary in order to safeguard the health of
any Person and to avoid subjecting the Collateral or Real Property to any
Lien.  If any Borrower shall fail to respond
promptly to any Hazardous Discharge or Environmental Complaint or any Borrower
shall fail to comply with any of the requirements of any Environmental Laws,
Agent on behalf of Lenders may, but without the obligation to do so, for the
sole purpose of protecting Agent’s interest in the Collateral:  (i) give such notices or (ii) enter onto the
Real Property (or authorize third parties to enter onto the Real Property) and
take such actions as Agent (or such third parties as directed by Agent) deem
reasonably necessary or advisable, to clean up, remove, mitigate or otherwise
deal with any such Hazardous Discharge or Environmental Complaint.  All reasonable costs and expenses incurred by
Agent and Lenders (or such third parties) in the exercise of any such rights,
including any sums paid in connection with any judicial or administrative
investigation or proceedings, fines and penalties, together with interest
thereon from the date expended at the Default Rate for Domestic Rate Loans
constituting Revolving Advances shall be paid upon demand by Borrowers, and
until paid shall be added to and become a part of the Obligations secured by
the Liens created by the terms of this Agreement or any other agreement between
Agent, any Lender and any Borrower.

 

(g)           Promptly upon the written
request of Agent from time to time, Borrowers shall provide Agent, at Borrowers’
expense, with an environmental site assessment or environmental audit report
prepared by an environmental engineering firm acceptable in the reasonable
opinion of Agent, to assess with a reasonable degree of certainty the existence
of a Hazardous Discharge and the potential costs in connection with abatement,
cleanup and removal 

 

53

 

of any Hazardous Substances found on, under,
at or within the Real Property, provided that so long as no Default or Event of
Default has occurred Borrowers shall not be obligated to pay for more than one (1)
environmental site assessment or environmental audit report in any calendar
year.  Any report or investigation of
such Hazardous Discharge proposed and acceptable to an appropriate Authority
that is charged to oversee the clean-up of such Hazardous Discharge shall be
acceptable to Agent.  If such estimates,
individually or in the aggregate, exceed $100,000, Agent shall have the right
to require Borrowers to post a bond, letter of credit or other security
reasonably satisfactory to Agent to secure payment of these costs and expenses.

 

(h)           Borrowers shall defend and
indemnify Agent and Lenders and hold Agent, Lenders and their respective
employees, agents, directors and officers harmless from and against all loss,
liability, damage and expense, claims, costs, fines and penalties, including
attorney’s fees, suffered or incurred by Agent or Lenders under or on account
of any Environmental Laws, including the assertion of any Lien thereunder, with
respect to any Hazardous Discharge, the presence of any Hazardous Substances
affecting the Real Property, whether or not the same originates or emerges from
the Real Property or any contiguous real estate, including any loss of value of
the Real Property as a result of the foregoing except to the extent such loss,
liability, damage and expense is attributable to any Hazardous Discharge
resulting from actions on the part of Agent or any Lender.  Borrowers’ obligations under this Section 4.19
shall arise upon the discovery of the presence of any Hazardous Substances at
the Real Property, whether or not any federal, state, or local environmental
agency has taken or threatened any action in connection with the presence of
any Hazardous Substances.  Borrowers’
obligation and the indemnifications hereunder shall survive the termination of
this Agreement.

 

(i)            For purposes of Section 4.19
and 5.7, all references to Real Property shall be deemed to include all of each
Borrower’s right, title and interest in and to its owned and leased premises.

 

4.20.        Financing Statements.  Except as respects the financing statements
filed by Agent and the financing statements described on Schedule 1.2, no financing
statement covering any of the Collateral or any proceeds thereof is on file in
any public office.

 

V.            REPRESENTATIONS
AND WARRANTIES.

 

Each Borrower represents and
warrants as follows:

 

5.1.          Authority.  Each Borrower has full power, authority and legal
right to enter into this Agreement and the Other Documents to which it is a
party and to perform all its respective Obligations hereunder and
thereunder.  This Agreement and the Other
Documents to which it is a party have been duly executed and delivered by each
Borrower, and this Agreement and the Other Documents to which it is a party
constitute the legal, valid and binding obligation of such Borrower enforceable
in accordance with their terms, except as such enforceability may be limited by
any applicable bankruptcy, insolvency, moratorium or similar laws affecting
creditors’ rights generally.  The
execution, delivery and performance of this Agreement and of the Other
Documents to which it is a party (a) are within such Borrower’s corporate
powers, have been duly authorized by all necessary corporate action, are not in
contravention of law or the terms of such Borrower’s by-laws, certificate of
incorporation or other applicable documents 

 

54

 

relating to such Borrower’s formation or to
the conduct of such Borrower’s business or of any material agreement or
undertaking to which such Borrower is a party or by which such Borrower is
bound, (b) will not conflict with or violate any law or regulation, or any
judgment, order or decree of any Governmental Body, (c) except for filing
financing statements under the Uniform Commercial Code and other security
documents to evidence and perfect the Liens granted to the Agent and Lenders
hereunder and compliance with applicable federal and state securities laws in
connection with the disposition of any Collateral constituting securities, will
not require the Consent of any Governmental Body or any other Person, except
those Consents set forth on Schedule 5.1 hereto and except where the failure to
have obtained, made or complied with such Consent would not have a Material
Adverse Effect, all of which will have been duly obtained, made or compiled
prior to the Closing Date and which are in full force and effect and (d) will
not conflict with, nor result in any breach in any of the provisions of or
constitute a default under or result in the creation of any Lien except
Permitted Encumbrances upon any asset of such Borrower under the provisions of
any agreement, charter document, instrument, by-law or other instrument to
which such Borrower is a party or by which it or its property is a party or by
which it may be bound.

 

5.2.          Formation and Qualification.

 

(a)           Each Borrower is duly
incorporated and in good standing under the laws of the state listed on
Schedule 5.2(a) and is qualified to do business and is in good standing in the
states listed on Schedule 5.2(a) which constitute all states in which
qualification and good standing are necessary for such Borrower to conduct its business
and own its property and where the failure to so qualify could reasonably be
expected to have a Material Adverse Effect on such Borrower.  Each Borrower has delivered to Agent true and
complete copies of its certificate of incorporation and by-laws and will
promptly notify Agent of any amendment or changes thereto.

 

(b)           The only Subsidiaries of
each Borrower are listed on Schedule 5.2(b).

 

5.3.          Survival of Representations
and Warranties.  All
representations and warranties of such Borrower contained in this Agreement and
the Other Documents to which it is a party shall be true at the time of such
Borrower’s execution of this Agreement and the Other Documents to which it is a
party, and shall survive the execution, delivery and acceptance thereof by the
parties thereto and the closing of the transactions described therein or
related thereto.

 

5.4.          Tax Returns.  Each Borrower’s federal tax identification
number is set forth on Schedule 5.4. 
Each Borrower has filed all federal, state and local tax returns and
other reports each is required by law to file and has paid all taxes,
assessments, fees and other governmental charges that are due and payable.  Except as set forth on Schedule 5.4, Federal,
state and local income tax returns of each Borrower have been examined and
reported upon by the appropriate taxing authority or closed by applicable
statute and satisfied for all fiscal years prior to and including the fiscal
year ending December 31, 2008.  The
provision for taxes on the books of each Borrower is adequate for all years not
closed by applicable statutes, and for its current fiscal year, and no Borrower
has any knowledge of any deficiency or additional assessment in connection
therewith not provided for on its books.

 

55

 

5.5.          Financial Statements.

 

(a)           The pro forma balance sheet
of Borrowers on a Consolidated Basis (the “Pro Forma Balance Sheet”)
furnished to Agent on the Closing Date reflects the consummation of the
transactions contemplated under this Agreement (collectively, the “Transactions”)
and is accurate, complete and correct and fairly reflects, in all material
aspects, the financial position of Borrowers on a Consolidated Basis as of the
Closing Date after giving effect to the Transactions, and has been prepared in
accordance with GAAP, consistently applied, except for period adjustments and
the absence of footnotes.  The Pro Forma
Balance Sheet has been certified on behalf of Borrowers as accurate, complete
and correct in all material respects by the President or Chief Financial
Officer of Borrowing Agent.  Subject to
period adjustments and the absence of footnotes, all financial statements
referred to in this subsection 5.5(a), including the related schedules and
notes thereto, have been prepared, in accordance with GAAP, except as may be
disclosed in such financial statements.

 

(b)           The twelve-month cash flow
projections of Borrowers on a Consolidated Basis and their projected balance
sheets as of the Closing Date, copies of which are annexed hereto as Exhibit 5.5(b)
(the “Projections”) were prepared by the Chief Financial Officer of
Borrowing Agent on behalf of Borrowers, are based on underlying assumptions
which provide a reasonable basis for the projections contained therein and
reflect Borrowers’ judgment based on present circumstances of the most likely
set of conditions and course of action for the projected period.  The cash flow Projections together with the
Pro Forma Balance Sheet, are referred to as the “Pro Forma Financial
Statements”.

 

(c)           The consolidated and
consolidating balance sheets of Borrowers, their Subsidiaries and such other
Persons described therein (including the accounts of all Subsidiaries for the
respective periods during which a subsidiary relationship existed) as of December
31, 2008, and the related statements of income, changes in stockholder’s
equity, and changes in cash flow for the period ended on such date, all
accompanied by reports thereon containing opinions by independent certified
public accountants, copies of which have been delivered to Agent, have been
prepared in accordance with GAAP, consistently applied (except for changes in
application in which such accountants concur and present fairly, in all
material respects, the financial position of Borrowers and their Subsidiaries
at such date and the results of their operations for such period.  Since December 31, 2008, there has been no
change in the condition, financial or otherwise, of Borrowers or their
Subsidiaries as shown on the consolidated balance sheet as of such date and no
change in the aggregate value of machinery, and equipment owned by Borrowers
and their respective Subsidiaries, except changes in the Ordinary Course of
Business, none of which individually or in the aggregate has been materially
adverse.

 

5.6.          Entity Names.  Except as set forth on Schedule 5.6, no
Borrower has been known by any other corporate name in the past five (5) years
and does not sell Inventory under any other name nor has any Borrower been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person during the preceding five (5) years.

 

56

 

5.7.          O.S.H.A. and Environmental
Compliance.

 

(a)           Each Borrower has duly complied
with in all material respects, and its facilities, business, assets, property,
leaseholds, Real Property and Equipment are in compliance in all material
respects with, the provisions of the Federal Occupational Safety and Health
Act, the Environmental Protection Act, RCRA and all other Environmental Laws;
there have been no outstanding citations, notices or orders of non-compliance
issued to any Borrower or relating to its business, assets, property,
leaseholds or Equipment under any such laws, rules or regulations which could
reasonably be expected to result in a Material Adverse Effect.

 

(b)           Each Borrower has been
issued all required federal, state, Canadian, provincial and local licenses,
certificates or permits relating to all applicable Environmental Laws, except
where such failure could not reasonably be expected to result in a Material
Adverse Effect.

 

(c)           To the best of Borrower’s
knowledge, (i) there are no visible signs of releases, spills, discharges,
leaks or disposal (collectively referred to as “Releases”) of Hazardous
Substances at, upon, under or within any Real Property; (ii) there are no
underground storage tanks or polychlorinated biphenyls on the Real Property; (iii)
the Real Property has never been used as a treatment, storage or disposal
facility of Hazardous Waste; and (iv) no Hazardous Substances are present on
the Real Property including any premises leased by any Borrower which would
result in a Material Adverse Effect, excepting such quantities as are handled
in accordance with all applicable manufacturer’s instructions and governmental
regulations and in proper storage containers and as are necessary for the
operation of the commercial business of any Borrower or of its tenants.

 

5.8.          Solvency; No Litigation,
Violation, Indebtedness or Default; ERISA Compliance.

 

(a)           Each Borrower is solvent,
able to pay its debts as they mature, has capital sufficient to carry on its
business and all businesses in which it is about to engage, and (i) as of the
Closing Date, the fair present saleable value of its assets, calculated on a
going concern basis, is in excess of the amount of its liabilities and (ii) subsequent
to the Closing Date, the fair saleable value of its assets (calculated on a
going concern basis) will be in excess of the amount of its liabilities.

 

(b)           Except as disclosed in
Schedule 5.8(b), no Borrower has (i) any pending or threatened litigation,
arbitration, actions or proceedings which could reasonably be expected to
result in a Material Adverse Effect, and (ii) any liabilities or indebtedness
for borrowed money other than the Obligations.

 

(c)           No Borrower is in violation
of any applicable statute, law, rule, regulation or ordinance in any respect
which could reasonably be expected to have a Material Adverse Effect, nor is any
Borrower in violation of any order of any court, Governmental Body or
arbitration board or tribunal.

 

(d)           No Borrower nor any member
of the Controlled Group maintains or is required to contribute to any Plan
other than those listed on Schedule 5.8(d) hereto.  (i) No Plan has incurred any “accumulated
funding deficiency,” as defined in Section 302(a)(2) of ERISA and Section 412(a)
of the Code, whether or not waived, each Borrower and each member of the 

 

57

 

Controlled Group has met all applicable
minimum funding requirements under Section 302 of ERISA and Section 412 of the
Code in respect of each Plan, and each Plan is in compliance with Sections 412,
430 and 436 of the Code and Sections 206(g), 302 and 303 of ERISA, without
regard to waivers and variances; (ii) each Plan which is intended to be a
qualified plan under Section 401(a) of the Code as currently in effect has been
determined by the Internal Revenue Service to be qualified under Section 401(a)
of the Code and the trust related thereto is exempt from federal income tax
under Section 501(a) of the Code; (iii) neither any Borrower nor any member of
the Controlled Group has incurred any liability to the PBGC other than for the
payment of premiums, and there are no premium payments which have become due
which are unpaid; (iv) no Plan has been terminated by the plan administrator
thereof nor by the PBGC, and there is no occurrence which would cause the PBGC
to institute proceedings under Title IV of ERISA to terminate any Plan; (v) at
this time, the current value of the assets of each Plan exceeds the present
value of the accrued benefits and other liabilities of such Plan and neither
any Borrower nor any member of the Controlled Group knows of any facts or
circumstances which would materially change the value of such assets and
accrued benefits and other liabilities; (vi) neither any Borrower nor any
member of the Controlled Group has breached any of the responsibilities,
obligations or duties imposed on it by ERISA with respect to any Plan; (vii) neither
any Borrower nor any member of a Controlled Group has incurred any liability
for any excise tax arising under Section 4971, 4972 or 4980B of the Code, and
no fact exists which could give rise to any such liability; (viii) neither any
Borrower nor any member of the Controlled Group nor any fiduciary of, nor any
trustee to, any Plan, has engaged in a “prohibited transaction” described in Section
406 of the ERISA or Section 4975 of the Code nor taken any action which would
constitute or result in a Termination Event with respect to any such Plan which
is subject to ERISA; (ix) each Borrower and each member of the Controlled Group
has made all contributions due and payable with respect to each Plan; (x) there
exists no event described in Section 4043(b) of ERISA, for which the thirty
(30) day notice period has not been waived; (xi) neither any Borrower nor any
member of the Controlled Group has any fiduciary responsibility for investments
with respect to any plan existing for the benefit of persons other than
employees or former employees of any Borrower or any member of the Controlled
Group; (xii) neither any Borrower nor any member of the Controlled Group
maintains or is required to contribute to any Plan which provides health,
accident or life insurance benefits to former employees, their spouses or
dependents, other than in accordance with Section 4980B of the Code; (xiii)
neither any Borrower nor any member of the Controlled Group has withdrawn,
completely or partially, within the meaning of Section 4203 or 4205 of ERISA,
from any Multiemployer Plan so as to incur liability under the Multiemployer
Pension Plan Amendments Act of 1980 and there exists no fact which would
reasonably be expected to result in any such liability; and (xiv) no Plan
fiduciary (as defined in Section 3(21) of ERISA) has any liability for breach
of fiduciary duty or for any failure in connection with the administration or
investment of the assets of a Plan.

 

5.9.          Patents, Trademarks, Copyrights
and Licenses.  All patent
registrations, patent applications, trademark registrations, trademark
applications, service mark registrations, service mark applications, copyright
registrations, copyright applications, design right registrations, trade name
registrations, assumed name registrations, and material Intellectual Property
licenses owned or utilized by any Borrower are set forth on Schedule 5.9, are
in full force and effect, all applications and registrations set forth in
Schedule 5.9 have been duly registered or filed with all appropriate
Governmental Bodies and, to the knowledge of each Borrower, all licenses and 

 

58

 

registration constitute all of the registered
intellectual property rights which are necessary for the operation of its
business; except as set forth in Schedule 5.9 hereto, to the knowledge of each
Borrower, there is no objection to any such intellectual property rights listed
on Schedule 5.9 hereto or pending challenge to the validity of any such
intellectual property right or license and no Borrower is aware of any grounds
for any challenge.  To the knowledge of
each Borrower, except as set forth in Schedule 5.9 hereto, each material patent
registration, patent, patent application, patent license, trademark
registration, trademark, trademark application, trademark license, service
mark, service mark application, service mark license, design right
registration, copyright registration, copyright application and copyright
license owned or held by any Borrower consists of original material or property
developed by such Borrower or was lawfully acquired by such Borrower from the
proper and lawful owner thereof.  Each of
such material items has been maintained so as to preserve the value thereof
from the date of creation or acquisition thereof.  With respect to all material software used by
any Borrower (other than “off the shelf” software), such Borrower is in
possession of all source and object codes related to each piece of software or is
the beneficiary of a source code escrow agreement, each such source code escrow
agreement being listed on Schedule 5.9 hereto.

 

5.10.        Licenses and Permits.  Except as set forth in Schedule 5.10, each
Borrower (a) is in compliance in all material respects with and (b) has
procured and is now in possession of, all material licenses or permits required
by any applicable federal, state, provincial or local law, rule or regulation
for the operation of its business in each jurisdiction wherein it is now conducting
or proposes to conduct business and where the failure to procure such licenses
or permits could have a Material Adverse Effect.

 

5.11.        Default of Indebtedness.  No Borrower is in default in the payment of
the principal of or interest on any Indebtedness (excluding trade debt) or
under any instrument or agreement under or subject to which any Indebtedness
has been issued and no event has occurred under the provisions of any such
instrument or agreement which with or without the lapse of time or the giving
of notice, or both, constitutes or would constitute an event of default
thereunder.

 

5.12.        No Default.  No Borrower is in default in the payment or
performance of any of its material contractual obligations and no Default has
occurred.

 

5.13.        No Burdensome Restrictions.  No Borrower is party to any contract or
agreement the performance of which could have a Material Adverse Effect.  Each Borrower has heretofore delivered to
Agent true and complete copies of all material contracts to which it is a party
or to which it or any of its properties is subject.  No Borrower has agreed or consented to cause
or permit in the future (upon the happening of a contingency or otherwise) any
of its property, whether now owned or hereafter acquired, to be subject to a
Lien which is not a Permitted Encumbrance.

 

5.14.        No Labor Disputes.  No Borrower is involved in any labor dispute;
there are no strikes or walkouts or union organization of any Borrower’s
employees threatened or in existence and no labor contract is scheduled to
expire during the Term other than as set forth on Schedule 5.14 hereto.

 

59

 

5.15.        Margin Regulations.  No Borrower 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 each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect.  No part of the
proceeds of any Advance will be used for “purchasing” or “carrying” “margin
stock” as defined in Regulation U of such Board of Governors.

 

5.16.        Investment Company Act.  No Borrower is an “investment company” registered
or required to be registered under the Investment Company Act of 1940, as
amended, nor is it controlled by such a company.

 

5.17.        Disclosure.  No representation or warranty made by any
Borrower in this Agreement or in any financial statement, report, certificate
or any other document furnished in connection herewith, when taken as a whole,
contains any untrue statement of fact or omits to state any fact necessary to
make the statements herein or therein not misleading.  There is no fact known to any Borrower or
which reasonably should be known to such Borrower which such Borrower has not
disclosed to Agent in writing with respect to the transactions contemplated by
this Agreement which could reasonably be expected to have a Material Adverse
Effect.

 

5.18.        Reserved.

 

5.19.        Swaps.  No Borrower is a party to, nor will it be a
party to, any swap agreement whereby such Borrower has agreed or will agree to
swap interest rates or currencies unless same provides that damages upon
termination following an event of default thereunder are payable on an
unlimited “two-way basis” without regard to fault on the part of either party.

 

5.20.        Conflicting Agreements.  No provision of any mortgage, indenture,
contract, agreement, judgment, decree or order binding on any Borrower or
affecting the Collateral conflicts with, or requires any Consent which has not
already been obtained to, or would in any way prevent the execution, delivery
or performance of, the terms of this Agreement or the Other Documents, except
where the failure to obtain, make or comply with any such Consent could not
reasonably be expected to result in a Material Adverse Effect.

 

5.21.        Application of Certain Laws
and Regulations.  Neither any
Borrower nor any Subsidiary of any Borrower is subject to any law, statute, rule
or regulation which regulates the incurrence of any Indebtedness, including
laws, statutes, rules or regulations relative to common or interstate carriers
or to the sale of electricity, gas, steam, water, telephone, telegraph or other
public utility services.

 

5.22.        Business and Property of
Borrowers.  Upon and
after the Closing Date, Borrowers do not propose to engage in any business
other than designing, manufacturing, distributing and marketing footwear for
men, women and children, apparel, accessories, bags and backpacks, and other
products utilizing Croslite, and activities necessary to conduct the
foregoing.  On the Closing Date, each
Borrower will own all the property and possess all of the rights and Consents
necessary for the conduct of the business of such Borrower, except where the
failure to obtain, 

 

60

 

make or comply with any such Consent could
not reasonably be expected to result in a Material Adverse Effect.

 

5.23.        Section 20 Subsidiaries.  Borrowers do not intend to use and shall not
use any portion of the proceeds of the Advances, directly or indirectly, to
purchase during the underwriting period, or for 30 days thereafter, Ineligible
Securities being underwritten by a Section 20 Subsidiary.

 

5.24.        Anti-Terrorism Laws.

 

(a)           General.  Neither any Borrower nor any Affiliate of any
Borrower is in violation of any Anti-Terrorism Law or engages in or conspires
to engage in any transaction that evades or avoids, or has the purpose of evading
or avoiding, or attempts to violate, any of the prohibitions set forth in any
Anti-Terrorism Law.

 

(b)           Executive Order No. 13224.  Neither any Borrower nor any Affiliate of any
Borrower or their respective agents acting or benefiting in any capacity in
connection with the Advances or other transactions hereunder, is any of the
following (each a “Blocked Person”):

 

(i)            a Person that is listed in
the annex to, or is otherwise subject to the provisions of, the Executive Order
No. 13224;

 

(ii)           a Person owned or controlled
by, or acting for or on behalf of,  any
Person that is listed in the annex to, or is otherwise subject to the
provisions of, the Executive Order No. 13224;

 

(iii)          a Person or entity with
which any Lender is prohibited from dealing or otherwise engaging in any
transaction by any Anti-Terrorism Law;

 

(iv)          a Person or entity that
commits, threatens or conspires to commit or supports “terrorism” as defined in
the Executive Order No. 13224;

 

(v)           a Person or entity that is
named as a “specially designated national” on the most current list published
by the U.S. Treasury Department Office of Foreign Asset Control at its official
website or any replacement website or other replacement official publication of
such list, or

 

(vi)          a Person or entity who is
affiliated or associated with a Person or entity listed above.

 

Neither any Borrower nor to
the knowledge of any Borrower, any of its agents acting in any capacity in
connection with the Advances or other transactions hereunder (i) conducts any
business or engages in making or receiving any contribution of funds, goods or
services to or for the benefit of any Blocked Person, or (ii) deals in, or
otherwise engages in any transaction relating to, any property or interests in
property blocked pursuant to the Executive Order No. 13224.

 

61

 

5.25.        Trading with the Enemy.  No Borrower has engaged, nor does it intend
to engage, in any business or activity prohibited by the Trading with the Enemy
Act.

 

5.26.        Federal Securities Laws.  Neither any Borrower (other than Crocs) nor
any of its Subsidiaries (i) is required to file periodic reports under the
Exchange Act, (ii) has any securities registered under the Exchange Act or (iii)
has filed a registration statement that has not yet become effective under the
Securities Act.

 

5.27.        Equity Interests. The
authorized and outstanding Equity Interests of each Borrower is as shown on
Schedule 5.27 hereto.  All of the Equity
Interests of each Borrower (other than Crocs) has been duly and validly
authorized and issued and is fully paid and non-assessable and has been sold
and delivered to the holders hereof in compliance with, or under valid
exemption from, all federal and state laws and the rules and regulations of
each Governmental Body governing the sale and delivery of securities.  Except for the rights and obligations shown
on Schedule 5.27, there are no subscriptions, warrants, options, calls,
commitments, rights or agreement by which any Borrower or any of its Subsidiaries
is bound relating to the issuance, transfer, voting or redemption of shares of
its Equity Interests or any pre-emptive rights held by any Person with respect
to the Equity Interests of Borrowers. 
Except as shown on Schedule 5.27, Borrowers have not issued any
securities convertible into or exchangeable for shares of its Equity Interests
or any options, warrants or other rights to acquire such shares or securities
convertible into or exchangeable for such shares.

 

VI.           AFFIRMATIVE COVENANTS.

 

Each Borrower shall, until
payment in full of the Obligations and termination of this Agreement:

 

6.1.          Payment of Fees.  Pay to Agent on demand all usual and
customary fees and expenses which Agent incurs in connection with (a) the
forwarding of Advance proceeds and (b) the establishment and maintenance of any
Blocked Accounts or Depository Accounts as provided for in Section 4.15(h).  Agent may, without making demand, charge
Borrowers’ Account for all such fees and expenses.

 

6.2.          Conduct of Business and
Maintenance of Existence and Assets.  (a) Conduct continuously and operate actively
its business according to good business practices and take all commercially
reasonable actions necessary to maintain all of its properties useful or
necessary in its business in good working order and condition (reasonable wear
and tear excepted and except as may be disposed of in accordance with the terms
of this Agreement), including all licenses, patents, copyrights, design rights,
trade names, trade secrets and trademarks and take all actions necessary to
enforce and protect the validity of any intellectual property right or other
right included in the Collateral; (b) keep in full force and effect its
existence and comply in all material respects with the laws and regulations
governing the conduct of its business where the failure to do so could
reasonably be expected to have a Material Adverse Effect; and (c) make all such
reports and pay all such franchise and other taxes and license fees and do all
such other commercially reasonable acts and things as may be lawfully required
to maintain its rights, licenses, leases, powers and franchises under the laws
of the United States or any political subdivision thereof.

 

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6.3.          Violations.  Promptly notify Agent in writing of any
violation of any law, statute, regulation or ordinance of any Governmental
Body, or of any agency thereof, applicable to any Borrower which could
reasonably be expected to have a Material Adverse Effect.

 

6.4.          Government Receivables.  Take all steps necessary to protect Agent’s
interest in the Collateral under the Federal Assignment of Claims Act, the
Financial Administration Act (Canada) the Uniform Commercial Code and all other
applicable state or local statutes or ordinances and deliver to Agent
appropriately endorsed, any instrument or chattel paper connected with any
Receivable arising out of contracts between any Borrower and the United States,
any state, Canada, any province, or any department, agency or instrumentality
of any of them.

 

6.5.          Financial Covenants.

 

(a)           Net Worth.  Maintain at all times a Tangible Net Worth in
an amount not less than $266,000,000, measured at the end of each fiscal
quarter, commencing with the fiscal quarter ending December 31, 2009.

 

(b)           Fixed Charge Coverage Ratio.  Cause to be maintained as of the end of each
fiscal quarter, commencing with the fiscal quarter ending December 31, 2009, a
Fixed Charge Coverage Ratio of not less than 1.1 to 1.0, measured on a trailing
twelve (12) month basis.

 

6.6.          Execution of Supplemental
Instruments.  Execute and
deliver to Agent from time to time, upon demand, such supplemental agreements,
statements, assignments and transfers, or instructions or documents relating to
the Collateral, and such other instruments as Agent may request, in order that
the full intent of this Agreement may be carried into effect.

 

6.7.          Payment of Indebtedness.  Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all its
obligations and liabilities of whatever nature, except when the failure to do
so could not reasonably be expected to have a Material Adverse Effect or when the
amount or validity thereof is currently being contested in good faith by
appropriate proceedings and each Borrower shall have provided for such reserves
as Agent may reasonably deem proper and necessary, subject at all times to any
applicable subordination arrangement in favor of Lenders.

 

6.8.          Standards of Financial
Statements.  Cause all
financial statements referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12,
and 9.13 as to which GAAP is applicable to be complete and correct in all
material respects (subject, in the case of interim financial statements, to
normal year-end audit adjustments and the absence of footnotes) and to be
prepared in reasonable detail and in accordance with GAAP applied consistently
throughout the periods reflected therein (except as concurred in by such
reporting accountants or officer, as the case may be, and disclosed therein).

 

6.9.          Federal Securities Laws.  Promptly notify Agent in writing if any
Borrower (other than Crocs) or any of its Subsidiaries (i) registers any securities
under the Exchange Act or (ii) files a registration statement under the
Securities Act.

 

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6.10.        Post Closing Conditions.

 

(a)           Borrowers shall deliver to
Agent, within 30 days of the Closing Date, a Lien Waiver Agreement, in form and
substance reasonably satisfactory to Agent, for the Collateral located at the
locations set forth on Schedule 4.5, 
each executed by the owner of such property in favor of Agent, provided
however, that failure to obtain such Lien Waiver Agreement shall not be deemed
an Event of Default hereunder, provided further that, Borrowers acknowledge
that Agent shall have the right to impose a reserve under the Formula Amount in
an amount not less than three months rent due under the lease for such
property.

 

(b)           Borrowers shall deliver to
Agent, within 30 days of the Closing Date, a Deposit Account Control Agreement
among Agent, Borrowers and each of (i) American Savings Bank, (b) Bank of
America, (c) JP Morgan Chase, (d) Pittsburgh National Bank, and (e) Wells Fargo
Bank, such agreements to be in form and substance satisfactory to Agent in its
Permitted Discretion.

 

VII.         NEGATIVE
COVENANTS.

 

No Borrower shall, until
satisfaction in full of the Obligations and termination of this Agreement:

 

7.1.          Merger, Consolidation,
Acquisition and Sale of Assets.

 

(a)           Enter into any merger,
consolidation or other reorganization with or into any other Person or acquire
all or a substantial portion of the assets or Equity Interests of any Person or
permit any other Person to consolidate with or merge with it except: (i) any
Borrower may merge or consolidate with or into another Borrower; (ii) any
Borrower may acquire all of the assets or Equity Interests of another Borrower;
and (iii) Permitted Acquisitions.

 

(b)           Sell, lease, transfer or
otherwise dispose of any of its properties or assets, except (i) dispositions
of Inventory and Equipment to the extent expressly permitted by Section 4.3, (ii)
sales or dispositions of assets or Subsidiaries not to exceed $5,000,000 in any
calendar year commencing with the fiscal year ending December 31, 2010 and only
so long as the net proceeds of such sales or disposition are paid to Agent in
accordance with Section 2.21, and (iii) any other sales or dispositions
expressly permitted by this Agreement.

 

7.2.          Creation of Liens.  Create or suffer to exist any Lien or
transfer upon or against any of its property or assets now owned or hereafter
acquired, except Permitted Encumbrances.

 

7.3.          Guarantees.  Become liable upon the obligations or
liabilities of any Person by assumption, endorsement or guaranty thereof or
otherwise (other than to Lenders) except the endorsement of checks in the
Ordinary Course of Business.

 

7.4.          Investments.  Purchase or acquire obligations or Equity
Interests of, or any other interest in, any Person, except (a) as permitted by Section
7.1(a) and contributions of capital to Borrowers for uses not inconsistent with
the terms of this Agreement, (b) obligations issued or guaranteed by the United
States of America or any agency thereof, (c) commercial paper with maturities
of not more than one hundred eighty (180) days and a published rating of not
less than 

 

64

 

A-1 or P-1 (or the equivalent rating), (d) certificates
of time deposit and bankers’ acceptances having maturities of not more than one
hundred eighty (180) days and repurchase agreements backed by United States
government securities of a commercial bank if (i) such bank has a combined
capital and surplus of at least $500,000,000, or (ii) its debt obligations, or
those of a holding company of which it is a Subsidiary, are rated not less than
A (or the equivalent rating) by a nationally recognized investment rating
agency, and (e) U.S. money market funds that invest solely in obligations
issued or guaranteed by the United States of America or an agency thereof.

 

7.5.          Loans.  Make advances, loans or extensions of credit
to any Person, including any Parent, Subsidiary or Affiliate except (i) as otherwise
permitted by this Agreement, (ii) as disclosed on Schedule 7.5, (iii) the
extension of commercial trade credit in connection with the sale of Inventory
in the Ordinary Course of Business, and (iv) intercompany loans to Foreign
Subsidiaries to the extent that (a) such intercompany loans do not exceed
$10,000,000 in the aggregate outstanding at any time during the Term, (b) no
Default or Event of Default has occurred or would occur after giving pro forma
effect to such intercompany loans, and (c) at the time of and after giving pro
forma effect to such intercompany loans, Borrowers would have Undrawn
Availability of not less than $5,000,000.

 

7.6.          Capital Expenditures.  Contract for, purchase or make any
expenditure or commitments for Capital Expenditures: (a) in an aggregate amount
for all Borrowers in excess of $35,000,000 for the fiscal year ending December 31,
2009; (b) in an aggregate amount for all Borrowers in excess of $50,000,000 for
the fiscal year ending December 31, 2010; and (c) in an aggregate amount for
all Borrowers in excess of $50,000,000 for the fiscal year ending December 31,
2011; provided that such amount shall be subject to adjustment in Agent’s
Permitted Discretion upon Agent’s receipt of the projections required to be
delivered pursuant to Section 9.12 hereof for such fiscal year.

 

7.7.          Dividends.  Declare, pay or make any dividend or
distribution on any Equity Interests of any Borrower (other than dividends or
distributions payable in its stock, or split-ups or reclassifications of its
stock) or apply any of its funds, property or assets to the purchase,
redemption or other retirement of any Equity Interest, or of any options to
purchase or acquire any Equity Interest of any Borrower, except (i) dividends
or distributions declared, paid or made in favor of another Borrower, and (ii) any
purchase, redemption or retirement in connection with a transaction permitted
by Section 7.1(a).

 

7.8.          Indebtedness.  Create, incur, assume or suffer to exist any
Indebtedness (exclusive of trade debt, accrued expenses, current and deferred
tax liabilities, and accrued restructuring charges, in each case in accordance
with the past practices of Borrowers existing as of the Closing Date) except in
respect of (i) Indebtedness to Lenders; and (ii) Indebtedness incurred for
Capital Expenditures permitted under Section 7.6 hereof.

 

7.9.          Nature of Business.  Substantially change the nature of the
business in which it is presently engaged, nor except as specifically permitted
hereby, purchase or invest, directly or indirectly, in any assets or property
other than in the Ordinary Course of Business for assets or property which are
useful in, necessary for and are to be used in its business as presently
conducted.

 

65

 

7.10.        Transactions with Affiliates.  Directly or indirectly, purchase, acquire or
lease any property from, or sell, transfer or lease any property to, or
otherwise enter into any transaction or deal with, any Affiliate, except (x)  as permitted by Sections 7.1(a), 7.4(a), 7.5
and 7.7, (y) employment, equity compensation and related agreements among
Borrowers and any officers and directors of Borrowers, and (z) transactions
disclosed to the Agent, which are in the Ordinary Course of Business, on an arm’s-length
basis on terms and conditions no less favorable than terms and conditions which
would have been obtainable from a Person other than an Affiliate;

 

7.11.        Reserved.

 

7.12.        Subsidiaries.

 

(a)           Form any Subsidiary unless (i)
such Subsidiary expressly joins in this Agreement as a borrower and becomes
jointly and severally liable for the obligations of Borrowers hereunder, under
the Notes, and under any other agreement between any Borrower and Lenders and (ii)
Agent shall have received all documents, including legal opinions, it may
reasonably require to establish compliance with each of the foregoing
conditions.

 

(b)           Enter into any partnership,
joint venture or similar arrangement.

 

7.13.        Fiscal Year and Accounting
Changes.  Change its fiscal year from December
31 or make any significant change (i) in accounting treatment and reporting
practices except as required by GAAP or (ii) in tax reporting treatment except
as required by law.

 

7.14.        Pledge of Credit.  Now or hereafter pledge Agent’s or any Lender’s
credit on any purchases or for any purpose whatsoever or use any portion of any
Advance in or for any business other than such Borrower’s business as conducted
on the date of this Agreement.

 

7.15.        Amendment of Articles of
Incorporation or By-Laws. 
Amend, modify or waive any term or material term or provision of its
Articles of Incorporation or By-Laws unless required by law.

 

7.16.        Compliance with ERISA.  (i) (x) Maintain, or permit any member of the
Controlled Group to maintain, or (y) become obligated to contribute, or permit
any member of the Controlled Group to become obligated to contribute, to any
Plan, other than those Plans disclosed on Schedule 5.8(d); (ii) engage, or
permit any member of the Controlled Group to engage, in any non-exempt “prohibited
transaction”, as that term is defined in Section 406 of ERISA or Section 4975
of the Code; (iii) incur, or permit any Plan to incur, any “accumulated funding
deficiency”, as that term is defined in Section 302 of ERISA or Section 412 of
the Code; (iv) terminate, or permit any member of the Controlled Group to
terminate, any Plan where such event could result in any liability of any
Borrower or any member of the Controlled Group or the imposition of a lien on
the property of any Borrower or any member of the Controlled Group pursuant to Section
4068 of ERISA; (v) assume, or permit any member of the Controlled Group to
assume, any obligation to contribute to any Multiemployer Plan not disclosed on
Schedule 5.8(d); (vi) incur, or permit any member of the Controlled Group to
incur, any withdrawal liability to any Multiemployer Plan; (vii) fail promptly
to notify Agent of the occurrence of any Termination Event; (viii) fail to
comply, or permit a member of the Controlled Group to fail to 

 

66

 

comply, with the requirements of ERISA or the
Code or other Applicable Laws in respect of any Plan; (ix) fail to meet, or
permit any member of the Controlled Group to fail to meet, all minimum funding
requirements under ERISA and the Code, without regard to any waivers or
variances, or postpone or delay or allow any member of the Controlled Group to
postpone or delay any funding requirement with respect of any Plan; or (x) cause,
or permit any member of the Controlled Group to cause, a representation or
warranty in Section 5.8(d) to cease to be true and correct.

 

7.17.        Prepayment of Indebtedness.  At any time, directly or indirectly, prepay
any Indebtedness (other than to Lenders), or repurchase, redeem, retire or
otherwise acquire any Indebtedness of any Borrower.

 

7.18.        Anti-Terrorism Laws.  No Borrower shall, until satisfaction in full
of the Obligations and termination of this Agreement, nor shall it permit any
Affiliate or agent to:

 

(a)           Conduct any business or
engage in any transaction or dealing with any Blocked Person, including the
making or receiving any contribution of funds, goods or services to or for the
benefit of any Blocked Person;

 

(b)           Deal in, or otherwise engage
in any transaction relating to, any property or interests in property blocked
pursuant to the Executive Order No. 13224; or

 

(c)           Engage in or conspire to
engage in any transaction that evades or avoids, or has the purpose of evading
or avoiding, or attempts to violate, any of the prohibitions set forth in the
Executive Order No. 13224, the USA PATRIOT Act or any other Anti-Terrorism
Law.  Borrower shall deliver to Lenders
any certification or other evidence reasonably requested from time to time by
any Lender in its sole discretion, confirming Borrower’s compliance with this
Section.

 

7.19.        Membership/Partnership
Interests.  Elect to
treat or permit any of its Subsidiaries to (x) treat its limited liability
company membership interests or partnership interests, as the case may be, as
securities as contemplated by the definition of “security” in Section 8-102(15)
and by Section 8-103 of Article 8 of Uniform Commercial Code or (y) certificate
its limited liability company membership interests or partnership interests, as
the case may be.

 

7.20.        Trading with the Enemy Act.  Engage in any business or activity in
violation of the Trading with the Enemy Act.

 

VIII.       CONDITIONS PRECEDENT.

 

8.1.          Conditions to Initial
Advances.  The
agreement of Lenders to make the initial Advances requested to be made on the
Closing Date is subject to the satisfaction, or waiver by Agent, immediately
prior to or concurrently with the making of such Advances, of the following
conditions precedent:

 

(a)           Note.  Agent shall have received the Notes duly
executed and delivered by an authorized officer of each Borrower;

 

67

 

(b)           Filings, Registrations and
Recordings.  Each
document (including any Uniform Commercial Code financing statement) required
by this Agreement, any related agreement or under law or reasonably requested
by the Agent to be filed, registered or recorded in order to create, in favor
of Agent, a perfected security interest in or lien upon the Collateral shall
have been properly filed, registered or recorded in each jurisdiction in which
the filing, registration or recordation thereof is so required or requested,
and Agent shall have received an acknowledgment copy, or other evidence
satisfactory to it, of each such filing, registration or recordation and
satisfactory evidence of the payment of any necessary fee, tax or expense
relating thereto;

 

(c)           Corporate Proceedings of
Borrowers.  Agent shall
have received a copy of the resolutions in form and substance reasonably
satisfactory to Agent, of the Board of Directors of each Borrower authorizing (i)
the execution, delivery and performance of this Agreement, the Notes and the
Other Documents to which such Borrower is a party and (ii) the granting by each
Borrower of the security interests in and liens upon the Collateral in each case
certified by the Secretary, or an Assistant Secretary, of each Borrower as of
the Closing Date; and, such certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded as of
the date of such certificate;

 

(d)           Incumbency Certificates of
Borrowers.  Agent shall
have received a certificate of the Secretary or an Assistant Secretary of each
Borrower, dated the Closing Date, as to the incumbency and signature of the
officers of each Borrower executing this Agreement, the Other Documents to
which such Borrower is a party, any certificate or other documents to be
delivered by it pursuant hereto, together with evidence of the incumbency of
such Secretary or Assistant Secretary;

 

(e)           Proceedings of Guarantors.  Agent shall have received a copy of the
resolutions in form and substance reasonably satisfactory to Agent, of the
Board of Directors, Managers or Members, as applicable of each Guarantor
authorizing the execution, delivery and performance of the Guaranty and each
Other Document to which it is a party certified by the Secretary, an Assistant
Secretary or Manager, as applicable, of each Guarantor as of the Closing Date;
and, such certificate shall state that the resolutions thereby certified have
not been amended, modified, revoked or rescinded as of the date of such
certificate;

 

(f)            Incumbency Certificates of
Guarantors.  Agent shall
have received a certificate of the Secretary, an Assistant Secretary or
Manager, as applicable of each Guarantor, dated the Closing Date, as to the
incumbency and signature of the officers of each Guarantor executing the
Guaranty, Guaranty Security Agreement, or any certificate or other documents to
be delivered by it pursuant hereto, together with evidence of the incumbency of
such Secretary, Assistant Secretary or Manager;

 

(g)           Certificates.  Agent shall have received a copy of the
Articles of Incorporation or Certificate of Formation, as applicable, of each
Borrower and each Guarantor, and all amendments thereto, certified by the
Secretary of State or other appropriate official of its jurisdiction of
incorporation together with copies of the By-Laws of each Borrower and all
agreements of each Borrower’s shareholders (to which such Borrower is a party)
certified as accurate and complete by the Secretary of each Borrower;

 

68

 

(h)           Good Standing Certificates.  Agent shall have received good standing
certificates for each Borrower and each Guarantor dated not more than fifteen
(15) days prior to the Closing Date, issued by the Secretary of State or other
appropriate official of each Borrower’s and each Guarantor’s jurisdiction of
incorporation and each jurisdiction where the conduct of each Borrower’s and
each Guarantor’s business activities or the ownership of its properties
necessitates qualification;

 

(i)            Legal Opinion.  Agent shall have received the executed legal
opinion of Faegre & Benson LLP in form and substance satisfactory to Agent
which shall cover such matters incident to the transactions contemplated by
this Agreement, the Notes, the Other Documents, and related agreements as Agent
may reasonably require and each Borrower hereby authorizes and directs such
counsel to deliver such opinions to Agent and Lenders;

 

(j)            No Litigation.  (i) No litigation, investigation or
proceeding before or by any arbitrator or Governmental Body shall be continuing
or threatened against any Borrower or against the officers or directors of any
Borrower (A) in connection with this Agreement, the Other Documents or any of
the transactions contemplated thereby and which, in the reasonable opinion of
Agent, is deemed material or (B) which could, in the reasonable opinion of
Agent, have a Material Adverse Effect; and (ii) no injunction, writ, restraining
order or other order of any nature materially adverse to any Borrower or the
conduct of its business or inconsistent with the due consummation of the
Transactions shall have been issued by any Governmental Body;

 

(k)           Financial Condition
Certificates.  Agent shall
have received an executed Financial Condition Certificate in the form of Exhibit
8.1(k);

 

(l)            Collateral Examination.  Agent shall have completed Collateral
examinations and received appraisals, the results of which shall be
satisfactory in form and substance to Lenders, of the Receivables, Inventory,
General Intangibles, and Equipment of each Borrower and all books and records
in connection therewith;

 

(m)          Fees.  Agent shall have received all fees payable to
Agent and Lenders on or prior to the Closing Date hereunder, including pursuant
to Article III hereof;

 

(n)           Pro Forma Financial
Statements.  Agent shall
have received a copy of the Pro Forma Financial Statements which shall be
satisfactory in all respects to Lenders;

 

(o)           Reserved;

 

(p)           Insurance.  Agent shall have received in form and
substance satisfactory to Agent, certified copies of Borrowers’ casualty
insurance policies, together with loss payable endorsements on Agent’s standard
form of loss payee endorsement naming Agent as loss payee, and certified copies
of Borrowers’ liability insurance policies, together with endorsements naming
Agent as a co-insured;

 

(q)           Reserved;

 

69

 

(r)            Payment Instructions.  Agent shall have received written instructions
from Borrowing Agent directing the application of proceeds of the initial
Advances made pursuant to this Agreement;

 

(s)           Blocked Accounts.  Agent shall have received duly executed
agreements establishing the Blocked Accounts or Depository Accounts with
financial institutions acceptable to Agent for the collection or servicing of
the Receivables and proceeds of the Collateral;

 

(t)            Consents.  Agent shall have received any and all
Consents necessary to permit the effectuation of the transactions contemplated
by this Agreement and the Other Documents, except where the failure to obtain,
make or comply with any such Consent could not reasonably be expected to result
in a Material Adverse Effect; and, Agent shall have received such Consents and
waivers of such third parties as could reasonably be expected to assert claims
with respect to the Collateral, as Agent and its counsel shall deem necessary;

 

(u)           No Adverse Material Change.  (i) since June 30, 2009, there shall not have
occurred any event, condition or state of facts which could reasonably be
expected to have a Material Adverse Effect and (ii) no representations made or
information supplied to Agent or Lenders shall have been proven to be
inaccurate or misleading in any material respect;

 

(v)           Leasehold Agreements.  Agent shall have received landlord, mortgagee
or warehouseman agreements satisfactory to Agent with respect to all premises
leased by Borrowers at which Inventory and books and records are located;

 

(w)          Reserved;

 

(x)            Reserved;

 

(y)           Guarantees and Other
Documents.  Agent shall
have received (i) the executed Guarantees, (ii) the executed Guarantor Security
Agreement, and (iii) the executed Other Documents, all in form and substance
satisfactory to Agent;

 

(z)            Reserved;

 

(aa)         Contract Review.  Agent shall have reviewed all material
contracts of Borrowers including leases, union contracts, labor contracts,
vendor supply contracts, license agreements and distributorship agreements and
such contracts and agreements shall be satisfactory in all respects to Agent;

 

(bb)         Closing Certificate.  Agent shall have received a closing
certificate signed by the Chief Financial Officer or other executive officer of
each Borrower dated as of the date hereof, stating on behalf of each Borrower
that (i) all representations and warranties set forth in this Agreement and the
Other Documents are true and correct on and as of such date, (ii) Borrowers are
on such date in compliance with all the terms and provisions set forth in this
Agreement and the Other Documents and (iii) on such date no Default or Event of
Default has occurred or is continuing;

 

70

 

(cc)         Borrowing Base.  Agent shall have received evidence from
Borrowers that the aggregate amount of Eligible Receivables and Eligible
Inventory is sufficient in value and amount to support Advances in the amount
requested by Borrowers on the Closing Date;

 

(dd)         Undrawn Availability.  After giving effect to the initial Advances
hereunder, Borrowers shall have Undrawn Availability of at least $5,000,000;

 

(ee)         Compliance with Laws.  Agent shall be reasonably satisfied that each
Borrower is in compliance with all pertinent federal, state, Canadian,
provincial, local or territorial regulations, including those with respect to
the Federal Occupational Safety and Health Act, the Environmental Protection
Act, ERISA and the Trading with the Enemy Act; and

 

(ff)           Other.  All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
Transactions shall be satisfactory in form and substance to Agent and its
counsel.

 

8.2.          Conditions to Each Advance.  The agreement of Lenders to make any Advance
requested to be made on any date (including the initial Advance), is subject to
the satisfaction of the following conditions precedent as of the date such
Advance is made:

 

(a)           Representations and
Warranties.  Each of the
representations and warranties made by any Borrower in or pursuant to this
Agreement, the Other Documents and any related agreements to which it is a
party, and each of the representations and warranties contained in any
certificate, document or financial or other statement furnished at any time
under or in connection with this Agreement, the Other Documents or any related agreement
shall be true and correct in all material respects on and as of such date as if
made on and as of such date (unless made as of a specified date, in which case
such representation and warranty shall have been true and correct in all
material respects as of such date);

 

(b)           No Default.  No Event of Default or Default shall have
occurred and be continuing on such date, or would exist after giving effect to
the Advances requested to be made, on such date; provided, however that Agent,
in its sole discretion, may continue to make Advances notwithstanding the
existence of an Event of Default or Default and that any Advances so made shall
not be deemed a waiver of any such Event of Default or Default; and

 

(c)           Maximum Advances.  In the case of any type of Advance requested
to be made, after giving effect thereto, the aggregate amount of such type of
Advance shall not exceed the maximum amount of such type of Advance permitted
under this Agreement.

 

Each request for an Advance
by any Borrower hereunder shall constitute a representation and warranty by
each Borrower as of the date of such Advance that the conditions contained in
this subsection shall have been satisfied.

 

IX.           INFORMATION AS TO BORROWERS.

 

Each Borrower shall, or
(except with respect to Section 9.11) shall cause Borrowing Agent on its behalf
to, until satisfaction in full of the Obligations and the termination of this
Agreement:

 

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9.1.          Disclosure of Material
Matters.  Immediately upon learning thereof,
report to Agent all matters materially adversely affecting the value,
enforceability or collectibility of any portion of the Collateral, including
any Borrower’s reclamation or repossession of, or the return to any Borrower
of, a material amount of goods or claims or disputes asserted by any Customer
or other obligor.

 

9.2.          Schedules.  Deliver to Agent on or before the fifteenth
(15th) day of each month as and for the prior month (a) accounts receivable
ageings inclusive of reconciliations to the general ledger, (b) accounts
payable schedules inclusive of reconciliations to the general ledger, (c) Inventory
reports and (d) a Borrowing Base Certificate in form and substance satisfactory
to Agent (which shall be calculated as of the last day of the prior month and
which shall not be binding upon Agent or restrictive of Agent’s rights under
this Agreement).  In addition, each
Borrower will deliver to Agent at such intervals as Agent may reasonably
require:  (i) confirmatory assignment
schedules, (ii) copies of Customer’s invoices, (iii) evidence of shipment or
delivery, and (iv) such further schedules, documents and/or information
regarding the Collateral as Agent may reasonably require including trial
balances and test verifications.  Agent
shall have the right to confirm and verify all Receivables by any manner and
through any medium it considers advisable and do whatever it may deem
reasonably necessary to protect its interests hereunder.  The items to be provided under this Section are
to be in form satisfactory to Agent and executed by each Borrower and delivered
to Agent from time to time solely for Agent’s convenience in maintaining
records of the Collateral, and any Borrower’s failure to deliver any of such
items to Agent shall not affect, terminate, modify or otherwise limit Agent’s
Lien with respect to the Collateral.

 

9.3.          Environmental Reports.  Furnish Agent, concurrently with the delivery
of the financial statements referred to in Sections 9.7 and 9.8, with a
certificate signed by the President of Borrowing Agent stating, on behalf of
each Borrower, to the best of his knowledge, that each Borrower is in
compliance in all material respects with all federal, state and local
Environmental Laws.  To the extent any
Borrower is not in compliance with the foregoing laws, the certificate shall
set forth with specificity all areas of non-compliance and the proposed action
such Borrower will implement in order to achieve full compliance.

 

9.4.          Litigation.  Promptly notify Agent in writing of any
claim, litigation, suit or administrative proceeding affecting any Borrower or
any Guarantor, whether or not the claim is covered by insurance, and of any
litigation, suit or administrative proceeding, which in any such case
materially adversely affects the Collateral or which could reasonably be
expected to have a Material Adverse Effect.

 

9.5.          Material Occurrences.  Promptly notify Agent in writing upon the
occurrence of (a) any Event of Default or Default; (b) any event, development
or circumstance whereby any financial statements or other reports furnished to
Agent fail in any material respect to present fairly, in accordance with GAAP
consistently applied, the financial position or operating results of any
Borrower as of the date of such statements; (c) any accumulated retirement plan
funding deficiency which, if such deficiency continued for two (2) plan years
and was not corrected as provided in Section 4971 of the Code, could subject
any Borrower to a tax imposed by Section 4971 of the Code; (d) each and every default
by any Borrower which could reasonably be expected to result in the
acceleration of the maturity of any Indebtedness, including the names

 

72

 

and addresses of the holders of such
Indebtedness with respect to which there is a default existing or with respect
to which the maturity has been or could be accelerated, and the amount of such
Indebtedness; and (e) any other development in the business or affairs of any
Borrower or any Guarantor, which could reasonably be expected to have a
Material Adverse Effect; in each case describing the nature thereof and the
action Borrowers propose to take with respect thereto.

 

9.6.          Government Receivables.  Notify Agent immediately if any of its
Receivables arise out of contracts between any Borrower and the United States,
any state, Canada, any province, or any department, agency or instrumentality
of any of them.

 

9.7.          Annual Financial Statements.  Furnish Agent and Lenders within ninety (90)
days after the end of each fiscal year of Borrowers, financial statements of
Borrowers on a consolidating and consolidated basis including, but not limited
to, statements of income and stockholders’ equity and cash flow from the
beginning of the current fiscal year to the end of such fiscal year and the
balance sheet as at the end of such fiscal year, all prepared in accordance
with GAAP applied on a basis consistent with prior practices, and in reasonable
detail and reported upon without qualification by an independent certified
public accounting firm selected by Borrowers and satisfactory to Agent (the “Accountants”);
provided however that if Crocs files its annual report on Form 10-K for the
applicable fiscal year and such annual report contains the financial statements
and reports described above, in a format acceptable to Agent in its Permitted
Discretion, then Borrowing Agent may satisfy the requirements of this Section 9.7
by delivering a copy of such annual report to the Agent and each Lender.  The report of the Accountants shall be
accompanied by a statement of the Accountants certifying that (i) they have
caused this Agreement to be reviewed, (ii) in making the examination upon which
such report was based either no information came to their attention which to
their knowledge constituted an Event of Default or a Default under this
Agreement or any related agreement or, if such information came to their
attention, specifying any such Default or Event of Default, its nature, when it
occurred and whether it is continuing, and such report shall contain or have
appended thereto calculations which set forth Borrowers’ compliance with the
requirements or restrictions imposed by Sections 6.5, 7.4, 7.5, 7.6, 7.7, 7.8
and 7.11 hereof.  In addition, the
reports shall be accompanied by a Compliance Certificate.

 

9.8.          Quarterly Financial
Statements.  Furnish
Agent and Lenders within forty five (45) days after the end of each fiscal
quarter, an unaudited balance sheet of Borrowers on a consolidated and
consolidating basis and unaudited statements of income and stockholders’ equity
and cash flow of Borrowers on a consolidated and consolidating basis reflecting
results of operations from the beginning of the fiscal year to the end of such
quarter and for such quarter, prepared on a basis consistent with prior
practices and complete and correct in all material respects, subject to normal
and recurring year end adjustments and the absence of footnotes that
individually and in the aggregate are not material to Borrowers’ business;
provided however that if Crocs files its quarterly report on Form 10-Q for the
applicable fiscal quarter and such quarterly report contains the financial
statements and reports described above, in a format acceptable to Agent in its
Permitted Discretion, then Borrowing Agent may satisfy the requirements of this
Section 9.8 by delivering a copy of such annual report to the Agent and each
Lender..  The reports shall be
accompanied by a Compliance Certificate.

 

73

 

9.9.          Monthly Financial Statements.  Furnish Agent and Lenders within thirty (30)
days after the end of each month, an unaudited balance sheet of Borrowers on a
consolidated and consolidating basis and unaudited statements of income and
stockholders’ equity and cash flow of Borrowers on a consolidated and
consolidating basis reflecting results of operations from the beginning of the
fiscal year to the end of such month and for such month, prepared on a basis
consistent with prior practices and complete and correct in all material
respects, subject to normal and recurring year end adjustments that
individually and in the aggregate are not material to Borrowers’ business.  The reports shall be accompanied by a Compliance
Certificate.

 

9.10.        Other Reports.  Furnish Agent as soon as available, but in
any event within ten (10) days after the issuance thereof, (i) with copies of
such financial statements, reports and returns as each Borrower shall send to
its stockholders and (ii) copies of each annual report, quarterly
report and proxy statements and copies of all annual, regular, periodic and
special reports and registration statements which any Borrower may file or be
required to file with the SEC under Section 13 or 15(d) of the Exchange Act or
with any national securities exchange, and in any case not otherwise required
to be delivered to the Agent pursuant hereto.

 

9.11.        Additional Information.  Furnish Agent with (i) updates to Schedule
4.5 as necessary; and (ii) such additional information as Agent shall
reasonably request in order to enable Agent to determine whether the terms,
covenants, provisions and conditions of this Agreement the Notes and the Other
Documents have been complied with by Borrowers including, without the necessity
of any request by Agent, (a) copies of all environmental audits and reviews, (b)
at least thirty (30) days prior thereto, notice of any Borrower’s opening of
any new office or place of business or any Borrower’s closing of any existing
office or place of business, and (c) promptly upon any Borrower’s learning
thereof, notice of any labor dispute to which any Borrower may become a party,
any strikes or walkouts relating to any of its plants or other facilities, and
the expiration of any labor contract to which any Borrower is a party or by
which any Borrower is bound.

 

9.12.        Projected Operating Budget.  Furnish Agent and Lenders, no later than
thirty (30) days prior to the beginning of each Borrower’s fiscal years
commencing with fiscal year 2010, a month by month projected operating budget
and cash flow of Borrowers on a consolidated and consolidating basis for such
fiscal year (including an income statement for each month and a balance sheet
as at the end of the last month in each fiscal quarter), such projections to be
accompanied by a certificate on behalf of each Borrower signed by the President
or Chief Financial Officer of each Borrower to the effect that such projections
have been prepared on the basis of sound financial planning practice consistent
with past budgets and financial statements and that such officer has no reason
to question the reasonableness of any material assumptions on which such
projections were prepared.

 

9.13.        Variances From Operating
Budget.   Furnish Agent, concurrently
with the delivery of the financial statements referred to in Section 9.7 and
9.8, a written report summarizing all material variances from budgets submitted
by Borrowers pursuant to Section 9.12 and a discussion and analysis by
management with respect to such variances.

 

9.14.        Notice of Suits, Adverse
Events.  Furnish Agent with prompt
written notice of (i) any lapse or other termination of any Consent issued to
any Borrower by any Governmental 

 

74

 

Body or any other Person that is material to
the operation of any Borrower’s business, (ii) any refusal by any Governmental
Body or any other Person to renew or extend any such Consent; and (iii) copies
of any periodic or special reports filed by any Borrower with any Governmental
Body or Person, if such reports indicate any material change in the business,
operations, affairs or condition of any Borrower, or if copies thereof are
requested by Lender, and (iv) copies of any material notices and other communications
from any Governmental Body (including without limitation, the SEC) or Person
which specifically relate to any Borrower, except, with respect to (i) and (ii)
above, where the lapse or termination of such Consent or the refusal to renew
or extend such Consent, could not reasonably be expected to result in a
Material Adverse Effect.

 

9.15.        ERISA Notices and Requests.  Furnish Agent with immediate written notice
in the event that (i) any Borrower or any member of the Controlled Group knows
or has reason to know that a Termination Event has occurred, together with a
written statement describing such Termination Event and the action, if any,
which such Borrower or any member of the Controlled Group has taken, is taking,
or proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, Department of Labor or PBGC with
respect thereto, (ii) any Borrower or any member of the Controlled Group knows
or has reason to know that a prohibited transaction (as defined in Sections 406
of ERISA and 4975 of the Code) has occurred together with a written statement
describing such transaction and the action which such Borrower or any member of
the Controlled Group has taken, is taking or proposes to take with respect
thereto, (iii) a funding waiver request has been filed with respect to any Plan
together with all communications received by any Borrower or any member of the
Controlled Group with respect to such request, (iv) any increase in the
benefits of any existing Plan or the establishment of any new Plan or the
commencement of contributions to any Plan to which any Borrower or any member
of the Controlled Group was not previously contributing shall occur, (v) any
Borrower or any member of the Controlled Group shall receive from the PBGC a
notice of intention to terminate a Plan or to have a trustee appointed to
administer a Plan, together with copies of each such notice, (vi) any Borrower
or any member of the Controlled Group shall receive any favorable or unfavorable
determination letter from the Internal Revenue Service regarding the
qualification of a Plan under Section 401(a) of the Code, together with copies
of each such letter; (vii) any Borrower or any member of the Controlled Group
shall receive a notice regarding the imposition of withdrawal liability,
together with copies of each such notice; (viii) any Borrower or any member of
the Controlled Group shall fail to make a required installment or any other
required payment under Section 412 of the Code on or before the due date for
such installment or payment; or (ix) any Borrower or any member of the
Controlled Group knows that (a) a Multiemployer Plan has been terminated, (b) the
administrator or plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer
Plan, or (c) the PBGC has instituted or will institute proceedings under Section
4042 of ERISA to terminate a Multiemployer Plan.

 

9.16.        Additional Documents.  Execute and deliver to Agent, upon request,
such documents and agreements as Agent may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement.

 

75

 

X.            EVENTS OF DEFAULT.

 

The occurrence of any one or
more of the following events shall constitute an “Event of Default”:

 

10.1.        Nonpayment.  Failure by any Borrower to pay any principal
or interest on the Obligations when due, whether at maturity or by reason of
acceleration pursuant to the terms of this Agreement or by notice of intention
to prepay, or by required prepayment or failure to pay any other liabilities or
make any other payment, fee or charge provided for herein when due or in any
Other Document;

 

10.2.        Breach of Representation.  Any representation or warranty made or deemed
made by any Borrower or any Guarantor in this Agreement, any Other Document or
any related agreement or in any certificate, document or financial or other
statement furnished at any time in connection herewith or therewith shall prove
to have been misleading in any material respect on the date when made or deemed
to have been made;

 

10.3.        Financial Information.  Failure by any Borrower to (i) furnish
financial information when due or when requested in accordance with the terms
hereof, or (ii) permit the inspection of its books or records in accordance
with the terms hereof;

 

10.4.        Judicial Actions.  Issuance of a notice of Lien, levy,
assessment, injunction or attachment against any Borrower’s Inventory or
Receivables or against a material portion of any Borrower’s other property
which is not stayed or lifted within thirty (30) days;

 

10.5.        Noncompliance.  Except as otherwise provided for in Sections
10.1, 10.3 and 10.5(ii), (i) failure or neglect of any Borrower or any
Guarantor or any Person to perform, keep or observe any term, provision,
condition, covenant herein contained, or contained in any Other Document or any
other agreement or arrangement, now or hereafter entered into between any
Borrower or any Guarantor or such Person, and Agent or any Lender executed in connection
herewith, or (ii) failure or neglect of any Borrower to perform, keep or
observe any term, provision, condition or covenant, contained in Sections 4.6,
4.7, 4.9, 6.1, 6.3, 6.4, 9.4 or 9.6 hereof which is not cured within ten (10) days
from the occurrence of such failure or neglect;

 

10.6.        Judgments.  Any judgment or judgments are rendered
against any Borrower in an aggregate amount in excess of $500,000 or against
all Borrowers in an aggregate amount in excess of $1,000,000 and (i) enforcement
proceedings shall have been commenced by a creditor upon such judgment, (ii) there
shall be any period of thirty (30) consecutive days during which a stay of
enforcement of such judgment, by reason of a pending appeal or otherwise, shall
not be in effect, or (iii) any such judgment results in the creation of a Lien
upon any of the Collateral (other than a Permitted Encumbrance);

 

10.7.        Bankruptcy.  Any Borrower, any Guarantor or any Subsidiary
of any Borrower shall (i) apply for, consent to or suffer the appointment of,
or the taking of possession by, a receiver, custodian, trustee, liquidator or
similar fiduciary of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of creditors, (iii) commence a
voluntary case under any state or federal bankruptcy laws (as now or hereafter
in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law 

 

76

 

providing for the relief of debtors, (vi) acquiesce
to, or fail to have dismissed, within thirty (30) days, any petition filed
against it in any involuntary case under such bankruptcy laws,  or (vii) take any action for the purpose of
effecting any of the foregoing;

 

10.8.        Inability to Pay.  Any Borrower or any Guarantor shall admit in
writing its inability, or be generally unable, to pay its debts as they become
due or cease operations of its present business;

 

10.9.        Reserved;

 

10.10.      Material Adverse Effect. The occurrence
of any Material Adverse Effect;

 

10.11.      Lien Priority.  Any Lien created hereunder or provided for
hereby or under any related agreement for any reason ceases to be or is not a
valid and perfected Lien having a first priority interest;

 

10.12.      Reserved.;

 

10.13.      Cross Default.  A default of the obligations of any Borrower
under any other agreement to which it is a party shall occur which causes a
Material Adverse Effect which default is not cured within any applicable grace
period;

 

10.14.      Breach of Guaranty or Pledge
Agreement.  Termination
or breach of any Guaranty, Guaranty Security Agreement, Pledge Agreement or
similar agreement executed and delivered to Agent in connection with the
Obligations, or if any Guarantor or Pledger attempts to terminate, challenges
the validity of, or its liability under, any such Guaranty, Guaranty Security
Agreement, Pledge Agreement or similar agreement;

 

10.15.      Change of Ownership.  Any Change of Ownership shall occur;

 

10.16.      Invalidity.  Any material provision of this Agreement or
any Other Document shall, for any reason, cease to be valid and binding on any
Borrower or any Guarantor, or any Borrower or any Guarantor shall so claim in
writing to Agent or any Lender;

 

10.17.      Licenses.   (i) Any Governmental Body shall (A) revoke,
terminate, suspend or adversely modify any license, permit, patent trademark or
tradename of any Borrower, the continuation of which is material to the
continuation of any Borrower’s business, or (B) commence proceedings to
suspend, revoke, terminate or adversely modify any such license, permit,
trademark, tradename or patent and such proceedings shall not be dismissed or
discharged within sixty (60) days, or (c) schedule or conduct a hearing on the
renewal of any license, permit, trademark, tradename or patent necessary for
the continuation of any Borrower’s business and the staff of such Governmental
Body issues a report recommending the termination, revocation, suspension or
material, adverse modification of such license, permit, trademark, tradename or
patent; (ii) any agreement which is necessary or material to the operation of
any Borrower’s business shall be revoked or terminated and not replaced by a
substitute acceptable to Agent within thirty (30) days after the date of such
revocation or termination, and such revocation or termination and
non-replacement would reasonably be expected to have a Material Adverse Effect;

 

77

 

10.18.      Seizures.  Any portion of the Collateral located in the
United States or Canada or included in the Formula Amount shall be seized or
taken by a Governmental Body, or any Borrower or the title and rights of any
Borrower, any Guarantor or any Original Owner which is the owner of any
material portion of the Collateral shall have become the subject matter of
claim, litigation, suit or other proceeding which could reasonably be expected
in Agent’s Permitted Discretion, upon final determination, to result in
impairment or loss of the security provided by this Agreement or the Other
Documents;

 

10.19.      Operations.  The operations of any Borrower’s
manufacturing facility are interrupted at any time for more than seven (7) consecutive
days, unless such Borrower shall (i) be entitled to receive for such period of
interruption, proceeds of business interruption insurance sufficient to assure
that its per diem cash needs during such period is at least equal to its
average per diem cash needs for the consecutive three (3) month period
immediately preceding the initial date of interruption and (ii) receive such
proceeds in the amount described in clause (i) preceding not later than thirty
(30) days following the initial date of any such interruption; provided,
however, that notwithstanding the provisions of clauses (i) and (ii) of this section,
an Event of Default shall be deemed to have occurred if such Borrower shall be
receiving the proceeds of business interruption insurance for a period of
thirty (30) consecutive days; or

 

10.20.      Pension Plans.  An event or condition specified in Sections
7.16 or 9.15 hereof shall occur or exist with respect to any Plan and, as a
result of such event or condition, together with all other such events or
conditions, any Borrower or any member of the Controlled Group shall incur, or
in the opinion of Agent be reasonably likely to incur, a liability to a Plan or
the PBGC (or both) which, in the reasonable judgment of Agent, would have a
Material Adverse Effect.

 

XI.           LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT.

 

11.1.        Rights and Remedies.

 

(a)           Upon the occurrence of (i) an
Event of Default pursuant to Section 10.7 all Obligations shall be immediately
due and payable and this Agreement and the obligation of Lenders to make
Advances shall be deemed terminated; and, (ii) any of the other Events of
Default and at any time thereafter, at the option of Required Lenders all
Obligations shall be immediately due and payable and Lenders shall have the
right to terminate this Agreement and to terminate the obligation of Lenders to
make Advances and (iii) a filing of a petition against any Borrower in any
involuntary case under any state or federal bankruptcy laws, all Obligations
shall be immediately due and payable and the obligation of Lenders to make
Advances hereunder shall be terminated other than as may be required by an
appropriate order of the bankruptcy court having jurisdiction over such
Borrower.  Upon the occurrence of any
Event of Default, Agent shall have the right to exercise any and all rights and
remedies provided for herein, under the Other Documents, under the Uniform
Commercial Code and at law or equity generally, including the right to
foreclose the security interests granted herein and to realize upon any
Collateral by any available judicial procedure and/or to take possession of and
sell any or all of the Collateral with or without judicial process.  Agent may enter any of any Borrower’s
premises or other premises without legal process and without incurring
liability to any Borrower therefor, and Agent may thereupon, or at any time
thereafter, in its discretion without notice or demand, 

 

78

 

take the Collateral and remove the same to
such place as Agent may deem advisable and Agent may require Borrowers to make
the Collateral available to Agent at a convenient place.  With or without having the Collateral at the
time or place of sale, Agent may sell the Collateral, or any part thereof, at
public or private sale, at any time or place, in one or more sales, at such price
or prices, and upon such terms, either for cash, credit or future delivery, as
Agent may elect.  Except as to that part
of the Collateral which is perishable or threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Agent shall give
Borrowers reasonable notification of such sale or sales, it being agreed that
in all events written notice mailed to Borrowing Agent at least ten (10) days
prior to such sale or sales is reasonable notification.  At any public sale Agent or any Lender may
bid for and become the purchaser, and Agent, any Lender or any other purchaser
at any such sale thereafter shall hold the Collateral sold absolutely free from
any claim or right of whatsoever kind, including any equity of redemption and
all such claims, rights and equities are hereby expressly waived and released
by each Borrower.  Solely in connection
with the exercise of the foregoing remedies, including the sale of Inventory,
Agent is granted a nonrevocable (until indefeasible payment in full of the
Obligations and termination of this Agreement), royalty free, nonexclusive
license and Agent is granted permission to use all of each Borrower’s (a) trademarks,
trade styles, trade names, patents, patent applications, copyrights, service
marks, licenses, franchises and other proprietary rights which are used or
useful in connection with Inventory for the purpose of marketing, advertising
for sale and selling or otherwise disposing of such Inventory and (b) Equipment
for the purpose of completing the manufacture of unfinished goods.  The cash proceeds realized from the sale of
any Collateral shall be applied to the Obligations in the order set forth in Section
11.5 hereof.  Noncash proceeds will only
be applied to the Obligations as they are converted into cash.  If any deficiency shall arise, Borrowers
shall remain liable to Agent and Lenders therefor.

 

(b)           To the extent that
Applicable Law imposes duties on the Agent to exercise remedies in a
commercially reasonable manner, each Borrower acknowledges and agrees that it
is not commercially unreasonable for the Agent (i) to fail to incur expenses
reasonably deemed significant by the Agent to prepare Collateral for
disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (ii) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or
third party consents for the collection or disposition of Collateral to be
collected or disposed of, (iii) to fail to exercise collection remedies against
Customers or other Persons obligated on Collateral or to remove Liens on or any
adverse claims against Collateral, (iv) to exercise collection remedies against
Customers and other Persons obligated on Collateral directly or through the use
of collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other Persons, whether or not in the same business as any Borrower, for
expressions of interest in acquiring all or any portion of such Collateral, (vii)
to hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the Collateral is of a specialized nature, (viii) to
dispose of Collateral by utilizing internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capacity of doing so, or that match buyers and sellers of assets, (ix) to
dispose of assets in wholesale rather than retail markets, (x) to disclaim
disposition warranties, such as title, possession or quiet enjoyment, (xi) to
purchase insurance or credit enhancements to insure the Agent against risks of
loss, collection or disposition of Collateral or to provide to the Agent a
guaranteed return from the collection or 

 

79

 

disposition of Collateral, or (xii) to the
extent deemed appropriate by the Agent, to obtain the services of other
brokers, investment bankers, consultants and other professionals to assist the
Agent in the collection or disposition of any of the Collateral.  Each Borrower acknowledges that the purpose
of this Section 11.1(b) is to provide non-exhaustive indications of what
actions or omissions by the Agent would not be commercially unreasonable in the
Agent’s exercise of remedies against the Collateral and that other actions or
omissions by the Agent shall not be deemed commercially unreasonable solely on
account of not being indicated in this Section 11.1(b).  Without limitation upon the foregoing,
nothing contained in this Section 11.1(b) shall be construed to grant any
rights to any Borrower or to impose any duties on Agent that would not have
been granted or imposed by this Agreement or by Applicable Law in the absence
of this Section 11.1(b).

 

11.2.        Agent’s Discretion.  Agent shall have the right in its sole
discretion to determine which rights, Liens, security interests or remedies
Agent may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of Agent’s or Lenders’ rights hereunder.

 

11.3.        Setoff.  Subject to Section 14.12, in addition to any
other rights which Agent or any Lender may have under Applicable Law, upon the
occurrence of an Event of Default hereunder, Agent and such Lender shall have a
right, immediately and without notice of any kind, to apply any Borrower’s
property held by Agent and such Lender to reduce the Obligations.

 

11.4.        Rights and Remedies not
Exclusive.  The
enumeration of the foregoing rights and remedies is not intended to be
exhaustive and the exercise of any rights or remedy shall not preclude the
exercise of any other right or remedies provided for herein or otherwise
provided by law, all of which shall be cumulative and not alternative.

 

11.5.        Allocation of Payments After
Event of Default. 
Notwithstanding any other provisions of this Agreement to the contrary,
after the occurrence and during the continuance of an Event of Default, all
amounts collected or received by the Agent on account of the Obligations or any
other amounts outstanding under any of the Other Documents or in respect of the
Collateral may, at Agent’s discretion, be paid over or delivered as follows:

 

FIRST, to the payment of all
reasonable out-of-pocket costs and expenses (including reasonable attorneys’
fees) of the Agent in connection with enforcing its rights and the rights of
the Lenders under this Agreement and the Other Documents and any protective
advances made by the Agent with respect to the Collateral under or pursuant to
the terms of this Agreement;

 

SECOND, to payment of any fees
owed to the Agent;

 

THIRD, to the payment of all
reasonable out-of-pocket costs and expenses (including reasonable attorneys’
fees) of each of the Lenders to the extent owing to such Lender pursuant to the
terms of this Agreement;

 

FOURTH, to the payment of
all of the Obligations consisting of accrued fees and interest;

 

80

 

FIFTH, to the payment of the
outstanding principal amount of the Obligations (including the payment or cash
collateralization of any outstanding Letters of Credit);

 

SIXTH, to all other
Obligations and other obligations which shall have become due and payable under
the Other Documents or otherwise and not repaid pursuant to clauses “FIRST”
through “FIFTH” above; and

 

SEVENTH, to the payment of
the surplus, if any, to whoever may be lawfully entitled to receive such
surplus.

 

In carrying out the
foregoing, (i) amounts received shall be applied in the numerical order
provided until exhausted prior to application to the next succeeding category; (ii)
each of the Lenders shall receive (so long as it is not a Defaulting Lender) an
amount equal to its pro rata share (based on the proportion that the then
outstanding Advances held by such Lender bears to the aggregate then
outstanding Advances) of amounts available to be applied pursuant to clauses “FOURTH”,
“FIFTH” and “SIXTH” above; and (iii) to the extent that any amounts available
for distribution pursuant to clause “FIFTH” above are attributable to the
issued but undrawn amount of outstanding Letters of Credit, such amounts shall
be held by the Agent in a cash collateral account and applied (A) first, to
reimburse the Issuer from time to time for any drawings under such Letters of
Credit and (B) then, following the expiration of all Letters of Credit, to all
other obligations of the types described in clauses “FIFTH” and “SIXTH” above
in the manner provided in this Section 11.5.

 

XII.         WAIVERS AND JUDICIAL PROCEEDINGS.

 

12.1.        Waiver of Notice.  Each Borrower hereby waives notice of
non-payment of any of the Receivables, demand, presentment, protest and notice
thereof with respect to any and all instruments, notice of acceptance hereof,
notice of loans or advances made, credit extended, Collateral received or
delivered, or any other action taken in reliance hereon, and all other demands
and notices of any description, except such as are expressly provided for
herein.

 

12.2.        Delay.  No delay or omission on Agent’s or any Lender’s
part in exercising any right, remedy or option shall operate as a waiver of
such or any other right, remedy or option or of any Default or Event of
Default.

 

12.3.        Jury Waiver.  EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO
OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT
OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY
HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT 

 

81

 

TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

XIII.        EFFECTIVE DATE AND
TERMINATION.

 

13.1.        Term.  This Agreement, which shall inure to the
benefit of and shall be binding upon the respective successors and permitted
assigns of each Borrower, Agent and each Lender, shall become effective on the
date hereof and shall continue in full force and effect until September 24,
2012 (the “Term”) unless sooner terminated as herein provided.  Borrowers may terminate this Agreement at any
time upon ninety (90) days’ prior written notice upon payment in full of the
Obligations.  In the event the
Obligations are prepaid in full prior to the last day of the Term (the date of
such prepayment hereinafter referred to as the “Early Termination Date”),
Borrowers shall pay to Agent for the benefit of Lenders an early termination
fee in an amount equal to (x) three percent (3.0%) of the Maximum Revolving
Advance Amount if the Early Termination Date occurs on or after the Closing
Date to and including the date immediately preceding the first anniversary of
the Closing Date, (y) two percent (2.0%) of the Maximum Revolving Advance
Amount if the Early Termination Date occurs on or after the first anniversary
of the Closing Date to and including the date immediately preceding the second
anniversary of the Closing Date, and (z) one percent (1.0%) of the Maximum
Revolving Advance Amount if the Early Termination Date occurs on or after the
second anniversary of the Closing Date to and including the date immediately
preceding the third anniversary of the Closing Date.

 

13.2.        Termination.  The termination of the Agreement shall not
affect any Borrower’s, Agent’s or any Lender’s rights, or any of the Obligations
having their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have been fully and
indefeasibly paid, disposed of, concluded or liquidated.  The security interests, Liens and rights
granted to Agent and Lenders hereunder and the financing statements filed
hereunder shall continue in full force and effect, notwithstanding the
termination of this Agreement or the fact that Borrowers’ Account may from time
to time be temporarily in a zero or credit position, until all of the
Obligations of each Borrower have been indefeasibly paid and performed in full
after the termination of this Agreement or each Borrower has furnished Agent
and Lenders with an indemnification satisfactory to Agent and Lenders with
respect thereto.  Accordingly, each
Borrower waives any rights which it may have under the Uniform Commercial Code
to demand the filing of termination statements with respect to the Collateral,
and Agent shall not be required to send such termination statements to each
Borrower, or to file them with any filing office, unless and until this
Agreement shall have been terminated in accordance with its terms and all
Obligations have been indefeasibly paid in full in immediately available
funds.  All representations, warranties,
covenants, waivers and agreements contained herein shall survive termination
hereof until all Obligations are indefeasibly paid and performed in full.

 

82

 

XIV.        REGARDING AGENT.

 

14.1.        Appointment.  Each Lender hereby designates PNC to act as
Agent for such Lender under this Agreement and the Other Documents.  Each Lender hereby irrevocably authorizes
Agent to take such action on its behalf under the provisions of this Agreement
and the Other Documents and to exercise such powers and to perform such duties
hereunder and thereunder as are specifically delegated to or required of Agent
by the terms hereof and thereof and such other powers as are reasonably
incidental thereto and Agent shall hold all Collateral, payments of principal
and interest, fees (except the fees set forth in the Fee Letter), charges and
collections (without giving effect to any collection days) received pursuant to
this Agreement, for the ratable benefit of Lenders.  Agent may perform any of its duties hereunder
by or through its agents or employees.  As
to any matters not expressly provided for by this Agreement (including collection
of the Note) Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions
of the Required Lenders, and such instructions shall be binding; provided,
however, that Agent shall not be required to take any action which exposes
Agent to liability or which is contrary to this Agreement or the Other
Documents or Applicable Law unless Agent is furnished with an indemnification
reasonably satisfactory to Agent with respect thereto.  The Lenders may not, unless an Event of
Default has occurred and is continuing, remove PNC as the Agent and designate a
successor Agent without the prior written consent of the Borrowing Agent, such
consent not to be unreasonably withheld or delayed.

 

14.2.        Nature of Duties.  Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
Other Documents.  Neither Agent nor any
of its officers, directors, employees or agents shall be (i) liable for any
action taken or omitted by them as such hereunder or in connection herewith,
unless caused by their gross (not mere) negligence or willful misconduct (as
determined by a court of competent jurisdiction in a final non-appealable
judgment), or (ii) responsible in any manner for any recitals, statements,
representations or warranties made by any Borrower or any officer thereof
contained in this Agreement, or in any of the Other Documents or in any
certificate, report, statement or other document referred to or provided for
in, or received by Agent under or in connection with, this Agreement or any of
the Other Documents or for the value, validity, effectiveness, genuineness, due
execution, enforceability or sufficiency of this Agreement, or any of the Other
Documents or for any failure of any Borrower to perform its obligations
hereunder.  Agent shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any of the Other Documents, or to inspect the properties, books or
records of any Borrower.  The duties of
Agent as respects the Advances to Borrowers shall be mechanical and
administrative in nature; Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Lender; and nothing in this Agreement,
expressed or implied, is intended to or shall be so construed as to impose upon
Agent any obligations in respect of this Agreement except as expressly set
forth herein.

 

14.3.        Lack of Reliance on Agent
and Resignation. 
Independently and without reliance upon Agent or any other Lender, each
Lender has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of each Borrower and any
Guarantor in connection with the making and the continuance of the Advances
hereunder and the taking or not taking of any action in connection herewith,
and (ii) its own appraisal of the

 

83

 

creditworthiness of each Borrower and any
Guarantor.  Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Lender with any credit or other information with respect thereto, whether
coming into its possession before making of the Advances or at any time or
times thereafter except as shall be provided by any Borrower pursuant to the
terms hereof.  Agent shall not be
responsible to any Lender for any recitals, statements, information,
representations or warranties herein or in any agreement, document, certificate
or a statement delivered in connection with or for the execution,
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Agreement or any Other Document, or of the financial
condition of any Borrower or any Guarantor, or be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement, the Note, the Other Documents or the financial
condition of any Borrower, or the existence of any Event of Default or any
Default.

 

Agent may resign on sixty
(60) days’ written notice to each of Lenders and Borrowing Agent and upon such
resignation, the Required Lenders will promptly designate a successor Agent
with the prior written consent of the Borrowing Agent in accordance with Section
14.1.

 

Any such successor Agent
shall succeed to the rights, powers and duties of Agent, and the term “Agent”
shall mean such successor agent effective upon its appointment, and the former
Agent’s rights, powers and duties as Agent shall be terminated, without any
other or further act or deed on the part of such former Agent.  After any Agent’s resignation as Agent, the
provisions of this Article XIV shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement.

 

14.4.        Certain Rights of Agent.  If Agent shall request instructions from
Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any Other Document, Agent shall be entitled
to refrain from such act or taking such action unless and until Agent shall
have received instructions from the Required Lenders; and Agent shall not incur
liability to any Person by reason of so refraining.  Without limiting the foregoing, Lenders shall
not have any right of action whatsoever against Agent as a result of its acting
or refraining from acting hereunder in accordance with the instructions of the
Required Lenders.

 

14.5.        Reliance.  Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram, order
or other document or telephone message believed by it to be genuine and correct
and to have been signed, sent or made by the proper person or entity, and, with
respect to all legal matters pertaining to this Agreement and the Other
Documents and its duties hereunder, upon advice of counsel selected by it.  Agent may employ agents and attorneys-in-fact
and shall not be liable for the default or misconduct of any such agents or
attorneys-in-fact selected by Agent with reasonable care.

 

14.6.        Notice of Default.  Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default hereunder or
under the Other Documents, unless Agent has received notice from a Lender or
Borrowing Agent referring to this Agreement or the Other Documents, describing
such Default or Event of Default and stating that such notice is a “notice of
default”.  In the event that Agent
receives such a notice, Agent shall give notice thereof to Lenders.  Agent shall take such action with respect to
such Default or Event of Default 

 

84

 

as shall be reasonably directed by the
Required Lenders; provided, that, unless and until Agent shall have received
such directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of Lenders.

 

14.7.        Indemnification.  To the extent Agent is not reimbursed and
indemnified by Borrowers, each Lender will reimburse and indemnify Agent in proportion
to its respective portion of the Advances (or, if no Advances are outstanding,
according to its Commitment Percentage), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against Agent in performing its
duties hereunder, or in any way relating to or arising out of this Agreement or
any Other Document; provided that, Lenders shall not be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from Agent’s gross
(not mere) negligence or willful misconduct (as determined by a court of
competent jurisdiction in a final non-appealable judgment).

 

14.8.        Agent in its Individual
Capacity.  With
respect to the obligation of Agent to lend under this Agreement, the Advances
made by it shall have the same rights and powers hereunder as any other Lender
and as if it were not performing the duties as Agent specified herein; and the
term “Lender” or any similar term shall, unless the context clearly otherwise
indicates, include Agent in its individual capacity as a Lender.  Agent may engage in business with any
Borrower as if it were not performing the duties specified herein, and may
accept fees and other consideration from any Borrower for services in
connection with this Agreement or otherwise without having to account for the
same to Lenders.

 

14.9.        Delivery of Documents.  To the extent Agent receives financial
statements required under Sections 9.7, 9.8, 9.12 and 9.13 or Borrowing Base
Certificates from any Borrower pursuant to the terms of this Agreement which
any Borrower is not obligated to deliver to each Lender, Agent will promptly
furnish such documents and information to Lenders.

 

14.10.      Borrowers’ Undertaking to
Agent.  Without prejudice to their
respective obligations to Lenders under the other provisions of this Agreement,
each Borrower hereby undertakes with Agent to pay to Agent from time to time on
demand all amounts from time to time due and payable by it for the account of
Agent or Lenders or any of them pursuant to this Agreement to the extent not
already paid.  Any payment made pursuant
to any such demand shall pro tanto satisfy the relevant Borrower’s obligations
to make payments for the account of Lenders or the relevant one or more of them
pursuant to this Agreement.

 

14.11.      No Reliance on Agent’s
Customer Identification Program.  Each Lender acknowledges and agrees that
neither such Lender, nor any of its Affiliates, participants or assignees, may
rely on the Agent to carry out such Lender’s, Affiliate’s, participant’s or
assignee’s customer identification program, or other obligations required or
imposed under or pursuant to the USA PATRIOT Act or the regulations thereunder,
including the regulations contained in 31 CFR 103.121 (as hereafter amended or
replaced, the “CIP Regulations”), or any other Anti-Terrorism Law,
including any programs involving any of the following items relating to or in
connection with any Borrower, its Affiliates or its agents, this Agreement, the
Other 

 

85

 

Documents or the transactions hereunder or
contemplated hereby: (1) any identity verification procedures, (2) any
record-keeping, (3) comparisons with government lists, (4) customer notices or (5)
other procedures required under the CIP Regulations or such other laws.

 

14.12.      Other Agreements.  Each of the Lenders agrees that it shall not,
without the express consent of Agent, and that it shall, to the extent it is
lawfully entitled to do so, upon the request of Agent, set off against the
Obligations, any amounts owing by such Lender to any Borrower or any deposit
accounts of any Borrower now or hereafter maintained with such Lender.  Anything in this Agreement to the contrary
notwithstanding, each of the Lenders further agrees that it shall not, unless
specifically requested to do so by Agent, take any action to protect or enforce
its rights arising out of this Agreement or the Other Documents, it being the
intent of Lenders that any such action to protect or enforce rights under this
Agreement and the Other Documents shall be taken in concert and at the
direction or with the consent of Agent or Required Lenders.

 

XV.         BORROWING AGENCY.

 

15.1.        Borrowing Agency Provisions.

 

(a)           Each Borrower hereby
irrevocably designates Borrowing Agent to be its attorney and agent and in such
capacity to borrow, sign and endorse notes, and execute and deliver all
instruments, documents, writings and further assurances now or hereafter
required hereunder, on behalf of such Borrower or Borrowers, and hereby
authorizes Agent to pay over or credit all loan proceeds hereunder in
accordance with the request of Borrowing Agent.

 

(b)           The handling of this credit
facility as a co-borrowing facility with a borrowing agent in the manner set
forth in this Agreement is solely as an accommodation to Borrowers and at their
request.  Neither Agent nor any Lender
shall incur liability to Borrowers as a result thereof.  To induce Agent and Lenders to do so and in
consideration thereof, each Borrower hereby indemnifies Agent and each Lender
and holds Agent and each Lender harmless from and against any and all
liabilities, expenses, losses, damages and claims of damage or injury asserted
against Agent or any Lender by any Person arising from or incurred by reason of
the handling of the financing arrangements of Borrowers as provided herein,
reliance by Agent or any Lender on any request or instruction from Borrowing
Agent or any other action taken by Agent or any Lender with respect to this Section
15.1 except due to willful misconduct or gross (not mere) negligence by the
indemnified party (as determined by a court of competent jurisdiction in a
final and non-appealable judgment).

 

(c)           All Obligations shall be
joint and several, and each Borrower shall make payment upon the maturity of
the Obligations by acceleration or otherwise, and such obligation and liability
on the part of each Borrower shall in no way be affected by any extensions,
renewals and forbearance granted by Agent or any Lender to any Borrower,
failure of Agent or any Lender to give any Borrower notice of borrowing or any
other notice, any failure of Agent or any Lender to pursue or preserve its
rights against any Borrower, the release by Agent or any Lender of any
Collateral now or thereafter acquired from any Borrower, and such agreement by
each Borrower to pay upon any notice issued pursuant thereto is unconditional
and unaffected by 

 

86

 

prior recourse by Agent or any Lender to the
other Borrowers or any Collateral for such Borrower’s Obligations or the lack
thereof.  Each Borrower waives all
suretyship defenses.

 

15.2.        Waiver of Subrogation.  Each Borrower expressly waives any and all
rights of subrogation, reimbursement, indemnity, exoneration, contribution of
any other claim which such Borrower may now or hereafter have against the other
Borrowers or other Person directly or contingently liable for the Obligations
hereunder, or against or with respect to the other Borrowers’ property
(including, without limitation, any property which is Collateral for the
Obligations), arising from the existence or performance of this Agreement,
until termination of this Agreement and repayment in full of the Obligations.

 

XVI.        MISCELLANEOUS.

 

16.1.        Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applied to
contracts to be performed wholly within the State of New York.  Any judicial proceeding brought against any
Borrower with respect to any of the Obligations, this Agreement, the Other
Documents or any related agreement may be brought in any court of competent
jurisdiction in the State of New York, United States of America, and, by
execution and delivery of this Agreement, each Borrower accepts for itself and
in connection with its properties, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement.  Each Borrower hereby waives personal service
of any and all process upon it and consents that all such service of process
may be made by registered mail (return receipt requested) directed to Borrowing
Agent at its address set forth in Section 16.6 and service so made shall be
deemed completed five (5) days after the same shall have been so deposited in
the mails of the United States of America, or, at the Agent’s option, by
service upon Borrowing Agent which each Borrower irrevocably appoints as such
Borrower’s Agent for the purpose of accepting service within the State of New
York.  Nothing herein shall affect the
right to serve process in any manner permitted by law or shall limit the right
of Agent or any Lender to bring proceedings against any Borrower in the courts
of any other jurisdiction.  Each Borrower
waives any objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of jurisdiction or
venue or based upon forum non conveniens. 
Each Borrower waives the right to remove any judicial proceeding brought
against such Borrower in any state court to any federal court.  Any judicial proceeding by any Borrower
against Agent or any Lender involving, directly or indirectly, any matter or
claim in any way arising out of, related to or connected with this Agreement or
any related agreement, shall be brought only in a federal or state court
located in the County of New York, State of New York.

 

16.2.        Entire Understanding.

 

(a)           This Agreement and the
documents executed concurrently herewith contain the entire understanding
between each Borrower, Agent and each Lender and supersedes all prior
agreements and understandings, if any, relating to the subject matter
hereof.  Any promises, representations,
warranties or guarantees not herein contained and hereinafter made shall have
no force and effect unless in writing, signed by each Borrower’s, Agent’s and
each Lender’s respective officers. 
Neither this Agreement nor any portion or provisions hereof may be
changed, modified, amended, waived, supplemented, discharged, cancelled or
terminated 

 

87

 

orally or by any course of dealing, or in any
manner other than by an agreement in writing, signed by the party to be
charged.  Each Borrower acknowledges that
it has been advised by counsel in connection with the execution of this
Agreement and Other Documents and is not relying upon oral representations or
statements inconsistent with the terms and provisions of this Agreement.

 

(b)           The Required Lenders, Agent
with the consent in writing of the Required Lenders, and Borrowers may, subject
to the provisions of this Section 16.2 (b), from time to time enter into
written supplemental agreements to this Agreement or the Other Documents
executed by Borrowers, for the purpose of adding or deleting any provisions or
otherwise changing, varying or waiving in any manner the rights of Lenders,
Agent or Borrowers thereunder or the conditions, provisions or terms thereof or
waiving any Event of Default thereunder, but only to the extent specified in
such written agreements; provided, however, that no such supplemental agreement
shall, without the consent of all Lenders:

 

(i)            increase the Commitment
Percentage, the maximum dollar commitment of any Lender or the Maximum
Revolving Advance Amount;

 

(ii)           extend the maturity of any
Note or the due date for any amount payable hereunder, or decrease the rate of
interest or reduce any fee payable by Borrowers to Lenders pursuant to this
Agreement;

 

(iii)          alter the definition of the
term Required Lenders or alter, amend or modify this Section 16.2(b);

 

(iv)          release any Collateral
during any calendar year (other than in accordance with the provisions of this
Agreement) having an aggregate value in excess of $2,000,000;

 

(v)           change the rights and duties
of Agent;

 

(vi)          permit any Revolving Advance
to be made if after giving effect thereto the total of Revolving Advances
outstanding hereunder would exceed the Formula Amount for more than sixty (60)
consecutive Business Days or exceed one hundred and ten percent (110%) of the
Formula Amount;

 

(vii)         increase the Advance Rates
above the Advance Rates in effect on the Closing Date; or

 

(viii)        release any Guarantor.

 

Any such supplemental
agreement shall apply equally to each Lender and shall be binding upon
Borrowers, Lenders and Agent and all future holders of the Obligations.  In the case of any waiver, Borrowers, Agent
and Lenders shall be restored to their former positions and rights, and any
Event of Default waived shall be deemed to be cured and not continuing, but no
waiver of a specific Event of Default shall extend to any subsequent Event of
Default (whether or not the subsequent Event of Default is the same as the
Event of Default which was waived), or impair any right consequent thereon.

 

88

 

In the event that Agent
requests the consent of a Lender pursuant to this Section 16.2 and such Lender
shall not respond or reply to Agent in writing within five (5) days of delivery
of such request, such Lender shall be deemed to have consented to the matter
that was the subject of the request.  In
the event that Agent requests the consent of a Lender pursuant to this Section 16.2
and such consent is denied, then PNC may, at its option, require such Lender to
assign its interest in the Advances to PNC or to another Lender or to any other
Person designated by the Agent (the “Designated Lender”), for a price
equal to (i) the then outstanding principal amount thereof plus (ii) accrued
and unpaid interest and fees due such Lender, which interest and fees shall be
paid when collected from Borrowers.  In
the event PNC elects to require any Lender to assign its interest to PNC or to
the Designated Lender, PNC will so notify such Lender in writing within forty
five (45) days following such Lender’s denial, and such Lender will assign its
interest to PNC or the Designated Lender no later than five (5) days following
receipt of such notice pursuant to a Commitment Transfer Supplement executed by
such Lender, PNC or the Designated Lender, as appropriate, and Agent.

 

Notwithstanding (a) the
existence of a Default or an Event of Default, (b) that any of the other
applicable conditions precedent set forth in Section 8.2 hereof have not been
satisfied or (c) any other provision of this Agreement, Agent may at its
discretion and without the consent of the Required Lenders, voluntarily permit
the outstanding Revolving Advances at any time to exceed the Formula Amount by
up to ten percent (10%) of the Formula Amount for up to sixty (60) consecutive
Business Days (the “Out-of-Formula Loans”).  If Agent is willing in its sole and absolute
discretion to make such Out-of-Formula Loans, such Out-of-Formula Loans shall
be payable on demand and shall bear interest at the Default Rate for Revolving
Advances consisting of Domestic Rate Loans; provided that, if Lenders do make
Out-of-Formula Loans, neither Agent nor Lenders shall be deemed thereby to have
changed the limits of Section 2.1(a). 
For purposes of this paragraph, the discretion granted to Agent
hereunder shall not preclude involuntary overadvances that may result from time
to time due to the fact that the Formula Amount was unintentionally exceeded
for any reason, including, but not limited to, Collateral previously deemed to
be either “Eligible Receivables” or “Eligible Inventory”, as applicable,
becomes ineligible, collections of Receivables applied to reduce outstanding
Revolving Advances are thereafter returned for insufficient funds or
overadvances are made to protect or preserve the Collateral.  In the event Agent involuntarily permits the
outstanding Revolving Advances to exceed the Formula Amount by more than ten
percent (10%), Agent shall use its efforts to have Borrowers decrease such
excess in as expeditious a manner as is practicable under the circumstances and
not inconsistent with the reason for such excess.  Revolving Advances made after Agent has
determined the existence of involuntary overadvances shall be deemed to be
involuntary overadvances and shall be decreased in accordance with the
preceding sentence.

 

In addition to (and not in
substitution of) the discretionary Revolving Advances permitted above in this Section
16.2, the Agent is hereby authorized by Borrowers and the Lenders, from time to
time in the Agent’s sole discretion, (A) after the occurrence and during the
continuation of a Default or an Event of Default, or (B) at any time that any
of the other applicable conditions precedent set forth in Section 8.2 hereof
have not been satisfied, to make Revolving Advances to Borrowers on behalf of
the Lenders which the Agent, in its reasonable business judgment, deems
necessary or desirable (a) to preserve or protect the Collateral, or any
portion thereof, (b) to enhance the likelihood of, or maximize the amount of,
repayment of the Advances and other Obligations, or (c) to pay any other amount
chargeable to Borrowers pursuant to the terms of this 

 

89

 

Agreement;
provided, that at any time after giving effect to any such Revolving Advances
the outstanding Revolving Advances do not exceed one hundred and ten percent
(110%) of the Formula Amount.

 

16.3.        Successors and Assigns;
Participations; New Lenders.

 

(a)           This Agreement shall be
binding upon and inure to the benefit of Borrowers, Agent, each Lender, all
future holders of the Obligations and their respective successors and assigns,
except that no Borrower may assign or transfer any of its rights or obligations
under this Agreement without the prior written consent of Agent and each
Lender.

 

(b)           Each Borrower acknowledges
that in the regular course of commercial banking business one or more Lenders
may at any time and from time to time sell participating interests in the
Advances to other financial institutions (each such transferee or purchaser of
a participating interest, a “Participant”).  Each Participant may exercise all rights of
payment (including rights of set-off) with respect to the portion of such
Advances held by it or other Obligations payable hereunder as fully as if such
Participant were the direct holder thereof provided that Borrowers shall not be
required to pay to any Participant more than the amount which it would have
been required to pay to Lender which granted an interest in its Advances or
other Obligations payable hereunder to such Participant had such Lender
retained such interest in the Advances hereunder or other Obligations payable
hereunder and in no event shall Borrowers be required to pay any such amount
arising from the same circumstances and with respect to the same Advances or
other Obligations payable hereunder to both such Lender and such
Participant.  Each Borrower hereby grants
to any Participant a continuing security interest in any deposits, moneys or
other property actually or constructively held by such Participant as security
for the Participant’s interest in the Advances.

 

(c)           Any Lender, with the consent
of Agent which shall not be unreasonably withheld or delayed, may sell, assign
or transfer all or any part of its rights and obligations under or relating to
Revolving Advances under this Agreement and the Other Documents to one or more
additional banks or financial institutions and one or more additional banks or
financial institutions may commit to make Advances hereunder (each a “Purchasing
Lender”), in minimum amounts of not less than $7,500,000, pursuant to a
Commitment Transfer Supplement, executed by a Purchasing Lender, the transferor
Lender, and Agent and delivered to Agent for recording.  Upon such execution, delivery, acceptance and
recording, from and after the transfer effective date determined pursuant to
such Commitment Transfer Supplement, (i) Purchasing Lender thereunder shall be
a party hereto and, to the extent provided in such Commitment Transfer
Supplement, have the rights and obligations of a Lender thereunder with a
Commitment Percentage as set forth therein, and (ii) the transferor Lender
thereunder shall, to the extent provided in such Commitment Transfer
Supplement, be released from its obligations under this Agreement, the
Commitment Transfer Supplement creating a novation for that purpose.  Such Commitment Transfer Supplement shall be
deemed to amend this Agreement to the extent, and only to the extent, necessary
to reflect the addition of such Purchasing Lender and the resulting adjustment
of the Commitment Percentages arising from the purchase by such Purchasing
Lender of all or a portion of the rights and obligations of such transferor
Lender under this Agreement and the Other Documents.  Each Borrower hereby consents to the addition
of such Purchasing Lender and the resulting adjustment of the Commitment
Percentages arising from the 

 

90

 

purchase by such Purchasing Lender of all or
a portion of the rights and obligations of such transferor Lender under this
Agreement and the Other Documents. 
Borrowers shall execute and deliver such further documents and do such
further acts and things in order to effectuate the foregoing.

 

(d)           Any Lender, with the consent
of Agent which shall not be unreasonably withheld or delayed, may directly or
indirectly sell, assign or transfer all or any portion of its rights and
obligations under or relating to Revolving Advances under this Agreement and
the Other Documents to an entity, whether a corporation, partnership, trust,
limited liability company or other entity that (i) is engaged in making,
purchasing, holding or otherwise investing in bank loans and similar extensions
of credit in the ordinary course of its business and (ii) is administered,
serviced or managed by the assigning Lender or an Affiliate of such Lender (a “Purchasing
CLO” and together with each Participant and Purchasing Lender, each a “Transferee”
and collectively the “Transferees”), pursuant to a Commitment Transfer
Supplement modified as appropriate to reflect the interest being assigned (“Modified
Commitment Transfer Supplement”), executed by any intermediate purchaser,
the Purchasing CLO, the transferor Lender, and Agent as appropriate and
delivered to Agent for recording.  Upon
such execution and delivery, from and after the transfer effective date
determined pursuant to such Modified Commitment Transfer Supplement, (i) Purchasing
CLO thereunder shall be a party hereto and, to the extent provided in such
Modified Commitment Transfer Supplement, have the rights and obligations of a
Lender thereunder and (ii) the transferor Lender thereunder shall, to the
extent provided in such Modified Commitment Transfer Supplement, be released
from its obligations under this Agreement, the Modified Commitment Transfer
Supplement creating a novation for that purpose.  Such Modified Commitment Transfer Supplement
shall be deemed to amend this Agreement to the extent, and only to the extent,
necessary to reflect the addition of such Purchasing CLO.  Each Borrower hereby consents to the addition
of such Purchasing CLO.  Borrowers shall
execute and deliver such further documents and do such further acts and things
in order to effectuate the foregoing.

 

(e)           Agent shall maintain at its
address a copy of each Commitment Transfer Supplement and Modified Commitment
Transfer Supplement delivered to it and a register (the “Register”) for
the recordation of the names and addresses of each Lender and the outstanding
principal, accrued and unpaid interest and other fees due hereunder.  The entries in the Register shall be
conclusive, in the absence of manifest error, and each Borrower, Agent and
Lenders may treat each Person whose name is recorded in the Register as the
owner of the Advance recorded therein for the purposes of this Agreement.  The Register shall be available for
inspection by Borrowing Agent or any Lender at any reasonable time and from
time to time upon reasonable prior notice. 
Agent shall receive a fee in the amount of $3,500 payable by the
applicable Purchasing Lender and/or Purchasing CLO upon the effective date of
each transfer or assignment (other than to an intermediate purchaser) to such
Purchasing Lender and/or Purchasing CLO.

 

(f)            Each Borrower authorizes
each Lender to disclose to any Transferee and any prospective Transferee any
and all financial information in such Lender’s possession concerning such
Borrower which has been delivered to such Lender by or on behalf of such
Borrower pursuant to this Agreement or in connection with such Lender’s credit
evaluation of such Borrower.

 

91

 

16.4.        Application of Payments.  Agent shall have the continuing and exclusive
right to apply or reverse and re-apply any payment and any and all proceeds of
Collateral to any portion of the Obligations. 
To the extent that any Borrower makes a payment or Agent or any Lender
receives any payment or proceeds of the Collateral for any Borrower’s benefit,
which are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to a trustee, debtor in possession,
receiver, custodian or any other party under any bankruptcy law, common law or
equitable cause, then, to such extent, the Obligations or part thereof intended
to be satisfied shall be revived and continue as if such payment or proceeds
had not been received by Agent or such Lender.

 

16.5.        Indemnity.  Each Borrower shall indemnify Agent, each
Lender and each of their respective officers, directors, Affiliates, attorneys,
employees and agents from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses and
disbursements of any kind or nature whatsoever (including fees and
disbursements of counsel) which may be imposed on, incurred by, or asserted
against Agent or any Lender in any claim, litigation, proceeding or
investigation instituted or conducted by any Governmental Body or
instrumentality or any other Person with respect to any aspect of, or any
transaction contemplated by, or referred to in, or any matter related to, this
Agreement or the Other Documents, whether or not Agent or any Lender is a party
thereto, except to the extent that any of the foregoing arises out of the
willful misconduct of the party being indemnified (as determined by a court of
competent jurisdiction in a final and non-appealable judgment).  Without limiting the generality of the
foregoing, this indemnity shall extend to any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and
disbursements of any kind or nature whatsoever (including fees and
disbursements of counsel) asserted against or incurred by any of the
indemnitees described above in this Section 16.5 by any Person under any
Environmental Laws or similar laws by reason of any Borrower’s or any other
Person’s failure to comply with laws applicable to solid or hazardous waste
materials, including Hazardous Substances and Hazardous Waste, or other Toxic
Substances.  Additionally, if any taxes
(excluding taxes imposed upon or measured solely by the net income of Agent and
Lenders, but including any intangibles taxes, stamp tax, recording tax or
franchise tax) shall be payable by Agent, Lenders or Borrowers on account of
the execution or delivery of this Agreement, or the execution, delivery,
issuance or recording of any of the Other Documents, or the creation or
repayment of any of the Obligations hereunder, by reason of any Applicable Law
now or hereafter in effect, Borrowers will pay (or will promptly reimburse
Agent and Lenders for payment of) all such taxes, including interest and
penalties thereon, and will indemnify and hold the indemnitees described above
in this Section 16.5 harmless from and against all liability in connection
therewith.

 

16.6.        Notice.  Any notice or request hereunder may be given
to Borrowing Agent or any Borrower or to Agent or any Lender at their
respective addresses set forth below or at such other address as may hereafter
be specified in a notice designated as a notice of change of address under this
Section.  Any notice, request, demand,
direction or other communication (for purposes of this Section 16.6 only, a “Notice”)
to be given to or made upon any party hereto under any provision of this Loan
Agreement shall be given or made by telephone or in writing (which includes by
means of electronic transmission (i.e., “e-mail”) or facsimile transmission or
by setting forth such Notice on a site on the World Wide Web (a “Website
Posting”) if Notice of such Website Posting (including the information
necessary to access such site) has previously

 

92

 

been delivered to the
applicable parties hereto by another means set forth in this Section 16.6)
in accordance with this Section 16.6. 
Any such Notice must be delivered to the applicable parties hereto at
the addresses and numbers set forth under their respective names on Section 16.6
hereof or in accordance with any subsequent unrevoked Notice from any such
party that is given in accordance with this Section 16.6.  Any Notice shall be effective:

 

(a)                                  In the case of
hand-delivery, when delivered;

 

(b)                                 If given by
mail, four days after such Notice is deposited with the United States Postal
Service, with first-class postage prepaid, return receipt requested;

 

(c)                                  In the case of
a telephonic Notice, when a party is contacted by telephone, if delivery of
such telephonic Notice is confirmed no later than the next Business Day by hand
delivery, a facsimile or electronic transmission, a Website Posting or an
overnight courier delivery of a confirmatory Notice (received at or before noon
on such next Business Day);

 

(d)                                 In the case of
a facsimile transmission, when sent to the applicable party’s facsimile machine’s
telephone number, if the party sending such Notice receives confirmation of the
delivery thereof from its own facsimile machine;

 

(e)                                  In the case of
electronic transmission, when actually received;

 

(f)                                    In the case of
a Website Posting, upon delivery of a Notice of such posting (including the
information necessary to access such site) by another means set forth in this Section 16.6;
and

 

(g)                                 If given by any
other means (including by overnight courier), when actually received.

 

Any
Lender giving a Notice to Borrowing Agent or any Borrower shall concurrently
send a copy thereof to the Agent, and the Agent shall promptly notify the other
Lenders of its receipt of such Notice.

 

(A)                              If to Agent or
PNC at:

 

	
  PNC
  Bank, National Association

  
	
  2
  North Lake Avenue, Suite 440

  
	
  Pasadena,
  CA 91101

  
	
  Attention:

  	
  Steve
  Roberts

  
	
  Telephone:

  	
  626-432-6128

  
	
  Facsimile:

  	
  626-432-4589

  
	
   

  	
   

  
	
  with
  an additional copy to:

  
	
   

  
	
  Blank
  Rome LLP

  
	
  The
  Chrysler Building

  
	
  405
  Lexington Avenue

  
	
  New York, NY 10174-0208

  

 

93

 

	
  Attn:

  	
  Lawrence
  F. Flick II, Esquire

  
	
  Telephone:

  	
  (212)
  885-5556

  
	
  Facsimile:

  	
  (215) 832-5556

  

 

(B)                                If to a Lender
other than Agent, as specified on the signature pages hereof

 

(C)                                If to Borrowing
Agent or any Borrower:

 

Crocs,
Incorporated

6328
Monarch Park Place

Niwot,
CO 80503

Attention: Mario Pasquale

Telephone: 
(303) 848-7576

Facsimile:  
(303) 848-7010

 

with
a copy to:

 

Faegre &
Benson, LLP

3200
Wells Fargo Center

1700
Lincoln Street

Denver,
CO 80207

	
  Attention:

  	
  Nathaniel
  G. Ford, Esquire

  
	
  Telephone:

  	
  (303)
  607-3500

  
	
  Facsimile:

  	
  (303)
  607-3600

  

 

16.7.                        Survival.  The obligations of Borrowers under Sections
2.2(f), 4.19(h), and 16.5 and the obligations of Lenders under Section 14.7,
shall survive termination of this Agreement and the Other Documents and payment
in full of the Obligations.  The
obligations of the Borrowers under Section 3.7, 3.8 and 3.9 shall survive
for two (2) years following the indefeasible payment in full of the
Obligations and termination of this Agreement.

 

16.8.                        Severability.  If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under Applicable Laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated
thereby and shall be given effect so far as possible.

 

16.9.                        Expenses.  All costs and expenses including reasonable
attorneys’ fees (including the allocated costs of in house counsel) and
disbursements incurred by Agent on its behalf or on behalf of Lenders (a) in
all efforts made to enforce payment of any Obligation or effect collection of
any Collateral, or (b) in connection with the entering into, modification,
amendment, administration and enforcement of this Agreement, the Other
Documents, or any consents or waivers hereunder or thereunder and all related
agreements, documents and instruments, or (c) in instituting, maintaining,
preserving, enforcing and foreclosing on Agent’s security interest in or Lien
on any of the Collateral, or maintaining, preserving or enforcing any of Agent’s
or any Lender’s rights hereunder, under the Other Documents and under all
related agreements, documents and instruments, whether through judicial
proceedings or otherwise, or (d) in defending or prosecuting any actions
or proceedings arising out of or relating to Agent’s or 

 

94

 

any Lender’s transactions
with any Borrower or any Guarantor, or (e) in connection with any advice
given to Agent or any Lender with respect to its rights and obligations under
this Agreement the Other Documents and all related agreements, documents and
instruments, may be charged to Borrowers’ Account and shall be part of the
Obligations.

 

16.10.                  Injunctive Relief.  Each Borrower recognizes that, in the event
any Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, or threatens to fail to perform, observe or
discharge such obligations or liabilities, any remedy at law may prove to be
inadequate relief to Lenders; therefore, Agent, if Agent so requests, shall be
entitled to seek temporary and permanent injunctive relief in any such case
without the necessity of proving that actual damages are not an adequate
remedy.

 

16.11.                  Consequential Damages.  Neither Agent nor any Lender, nor any agent
or attorney for any of them, shall be liable to any Borrower or any Guarantor
(or any Affiliate of any such Person) for indirect, punitive, exemplary or
consequential damages arising from any breach of contract, tort or other wrong
relating to the establishment, administration or collection of the Obligations
or as a result of any transaction contemplated under this Agreement or any
Other Document.

 

16.12.                  Captions.  The captions at various places in this
Agreement are intended for convenience only and do not constitute and shall not
be interpreted as part of this Agreement.

 

16.13.                  Counterparts; Facsimile
Signatures.  This
Agreement may be executed in any number of and by different parties hereto on
separate counterparts, all of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute one and the same
agreement.  Any signature delivered by a
party by facsimile or electronic transmission shall be deemed to be an original
signature hereto.

 

16.14.                  Construction.  The parties acknowledge that each party and
its counsel have reviewed this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments, schedules or exhibits thereto.

 

16.15.                  Confidentiality; Sharing
Information.   Agent,
each Lender and each Transferee shall hold all non-public information obtained
by Agent, such Lender or such Transferee pursuant to the requirements of this
Agreement in accordance with Agent’s, such Lender’s and such Transferee’s
customary procedures for handling confidential information of this nature;
provided, however, Agent, each Lender and each Transferee may disclose such
confidential information (a) to its examiners, Affiliates, outside
auditors, counsel and other professional advisors, (b) to Agent, any
Lender or to any prospective Transferees, and (c) as required or requested
by any Governmental Body or representative thereof or pursuant to legal
process; provided, further that (i) unless specifically prohibited by Applicable
Law, Agent, each Lender and each Transferee shall use its reasonable best
efforts prior to disclosure thereof, to notify the applicable Borrower of the
applicable request for disclosure of such non-public information (A) by a
Governmental Body or representative thereof (other than any such request in
connection with an examination of the financial condition of a Lender or a
Transferee by such Governmental Body) or (B) pursuant to legal process and
(ii) in no event shall Agent, any Lender or any 

 

95

 

Transferee be obligated to
return any materials furnished by any Borrower other than those documents and
instruments in possession of Agent or any Lender in order to perfect its Lien
on the Collateral once the Obligations have been paid in full and this
Agreement has been terminated.  Each
Borrower acknowledges that from time to time financial advisory, investment
banking and other services may be offered or provided to such Borrower or one
or more of its Affiliates (in connection with this Agreement or otherwise) by
any Lender or by one or more Subsidiaries or Affiliates of such Lender and each
Borrower hereby authorizes each Lender to share any information delivered to
such Lender by such Borrower and its Subsidiaries pursuant to this Agreement,
or in connection with the decision of such Lender to enter into this Agreement,
to any such Subsidiary or Affiliate of such Lender, it being understood that
any such Subsidiary or Affiliate of any Lender receiving such information shall
be bound by the provisions of this Section 16.15 as if it were a Lender
hereunder.  Such authorization shall
survive the repayment of the other Obligations and the termination of this
Agreement.

 

16.16.                  Publicity.  Each Borrower and each Lender hereby
authorizes Agent to make appropriate announcements of the financial arrangement
entered into among Borrowers, Agent and Lenders, including announcements which
are commonly known as tombstones, in such publications and to such selected parties
as Agent shall in its sole and absolute discretion deem appropriate.

 

16.17.                  Certifications From Banks
and Participants; US PATRIOT Act.  Each Lender or assignee or participant of a
Lender that is not incorporated under the Laws of the United States of America
or a state thereof (and is not excepted from the certification requirement
contained in Section 313 of the USA PATRIOT Act and the applicable
regulations because it is both (i) an affiliate of a depository
institution or foreign bank that maintains a physical presence in the United
States or foreign country, and (ii) subject to supervision by a banking
authority regulating such affiliated depository institution or foreign bank)
shall deliver to the Agent the certification, or, if applicable, recertification,
certifying that such Lender is not a “shell” and certifying to other matters as
required by Section 313 of the USA PATRIOT Act and the applicable
regulations: (1) within 10 days after the Closing Date, and (2) as
such other times as are required under the USA PATRIOT Act.

 

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

 

96

 

Each
of the parties has signed this Agreement as of the day and year first above
written.

 

	
   

  	
  CROCS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Russell C. Hammer

  
	
   

  	
  Name:

  	
  Russell
  C. Hammer

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CROCS RETAIL, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Russell C. Hammer

  
	
   

  	
  Name:

  	
  Russell
  C. Hammer

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CROCS ONLINE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Russell C. Hammer

  
	
   

  	
  Name:

  	
  Russell
  C. Hammer

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  OCEAN MINDED, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Russell C. Hammer

  
	
   

  	
  Name:

  	
  Russell C. Hammer

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  JIBBITZ, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ken Chaplin

  
	
   

  	
  Name:

  	
  Ken Chaplin

  
	
   

  	
  Title:

  	
  Sole Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  BITE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Russell C. Hammer

  
	
   

  	
  Name:

  	
  Russell C. Hammer

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  

 

[SIGNATURE PAGE TO
REVOLVING CREDIT AND SECURITY AGREEMENT]

 

S-1

 

	
   

  	
  PNC BANK, NATIONAL ASSOCIATION,

  
	
   

  	
  As Lender and as Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steve Roberts

  
	
   

  	
  Name:

  	
  Steve Roberts

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  2
  North Lake Avenue, Suite 440

  
	
   

  	
  Pasadena,
  CA 91101

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Commitment Percentage: 100%

  

 

[SIGNATURE PAGE TO
REVOLVING CREDIT AND SECURITY AGREEMENT]

 

S-2

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