LOAN, GUARANTY AND SECURITY AGREEMENT

Exhibit 10.26

LOAN, GUARANTY AND SECURITY AGREEMENT

by and among

DESIGN WITHIN REACH, INC.

as Borrower,

THE GUARANTORS SIGNATORY HERETO,

as Credit Parties,

THE LENDERS THAT ARE SIGNATORIES HERETO

as the Lenders,

and

WELLS FARGO RETAIL FINANCE, LLC

as Administrative Agent

Dated as of February 2, 2007

TABLE OF CONTENTS

 

LOAN, GUARANTY AND SECURITY AGREEMENT

THIS LOAN, GUARANTY AND SECURITY AGREEMENT (this “ Agreement ”), is entered into as of February 2, 2007, by and among, on the one hand, the lenders identified on the signature pages hereof (such lenders, together with their respective successors and permitted assigns, are referred to hereinafter each individually as a “ Lender ” and collectively as the “ Lenders ”) and WELLS FARGO RETAIL FINANCE, LLC, a Delaware limited liability company, as administrative agent for the Lenders (“ Agent ”), and, on the other hand, DESIGN WITHIN REACH, INC., a Delaware corporation (“ Borrower ”) and the Guarantors identified on the signature pages hereof (together with Borrower, the “ Credit Parties ” and each individually as a “ Credit Party ”).

The parties agree as follows:

1. DEFINITIONS AND CONSTRUCTION.

1.1. Definitions . As used in this Agreement, the following terms shall have the following definitions:

“ Account ” means an account (as that term is defined in the Code), and any and all supporting obligations in respect thereof.

“ Account Debtor ” means any Person who is obligated under, with respect to, or on account of, an Account, chattel paper, or a General Intangible when used with respect to Credit Card Receivables, “Account Debtor” means the respective Credit Card Processors.

“ ACH Transactions ” means any cash management or related services (including the Automated Clearing House processing of electronic fund transfers through the direct Federal Reserve Fedline system) provided by Wells Fargo or any of its Affiliates for the account of any Credit Party.

“ Additional Documents ” has the meaning set forth in Section 4.4(c) .

“ Advance Rates ” means the percentage rates set forth in the definition of “Borrowing Base”, as such percentage rates may be modified pursuant to Section 2.1(b) .

“ Advances ” has the meaning set forth in Section 2.1(a) .

“ Affiliate ” means, as applied to any Person, any other Person who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” means the possession, directly or indirectly through one or more intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise; provided, however , that, for purposes of the definition of Eligible Accounts and Section 7.11 hereof: (a) any Person which owns directly or indirectly 10% or more of the Stock having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or

more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed an Affiliate of such Person.

“ Agent ” means WFRF, in its capacity as arranger and administrative agent hereunder, and any successor thereto.

“ Agent-Related Persons ” means Agent, together with its Affiliates, officers, directors, employees, attorneys, and agents.

“ Agent’s Account ” means the Deposit Account of Agent identified on Schedule A-1 .

“ Agent’s Liens ” means the Liens granted by the Credit Parties to Agent under this Agreement or the other Loan Documents.

“ Aggregate Payments ” has the meaning set forth in Section 17.2 .

“ Agreement ” has the meaning set forth in the preamble to this Agreement.

“ Applicable Margin ” means initially, the rates for Base Rate Loans, LIBOR Rate Loans, Documentary Letters of Credit and Standby Letters of Credit set forth below:

 

The Applicable Margin shall be adjusted quarterly as of the first day of each calendar quarter, based upon the Average Availability for the immediately preceding calendar quarter. If, as a result of any restatement of or other adjustment to the financial statements of the Credit Parties

 

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or for any other reason, the Agent or Required Lenders determine that (a) the Applicable Margin as calculated by the Borrower as of any applicable date was inaccurate and (b) a proper calculation of the Applicable Margin would have resulted in a higher level of pricing for any period, then the Borrower shall automatically and retroactively be obligated to pay to the Lender Group, and shall pay to the Lender Group promptly on demand by the Agent or Required Lenders, an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period.

“ Asset Sale ” means a sale, lease or sub-lease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer or other disposition to any Person (other than a Credit Party) or any exchange of property with any Person (other than any exchange between Credit Parties), in one transaction or a series of transactions, of all or any part of any Credit Party’s businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, including the Stock of any Credit Party, other than (i) Inventory (or other assets) sold or leased in the ordinary course of business, (ii) Cash Equivalents sold in the ordinary course of business, (iii) any disposition which is deemed to have occurred in connection with a casualty or taking (pursuant to the power of eminent domain, condemnation or otherwise) event which results in a Credit Party or any landlord of any Credit Party receiving insurance or condemnation proceeds, or (iv) non-perpetual licenses of any Credit Party’s intellectual property (which licenses may grant varying degrees of exclusivity provided that such Credit Party retains an unlimited right to use the intellectual property which is the subject of such licenses) which are entered into in the ordinary course of business of such Credit Party, as such business is now or hereafter conducted in compliance with this Agreement.

“ Assignee ” has the meaning set forth in Section 14.1(a) .

“ Assignment and Acceptance ” means an Assignment and Acceptance Agreement substantially in the form of Exhibit A-1 .

“ Authorized Person ” means those individuals identified on Schedule A-2, as such schedule may be modified by written notice from Borrower to Agent from time to time.

“ Availability ” means, as of any date of determination, the amount that Borrower is entitled to borrow as Advances hereunder (after giving effect to all then outstanding Obligations (other than Obligations referenced in clause (b) of the definition thereof) and all sublimits and Reserves then applicable hereunder but without regard to Section 7.15).

“ Average Availability ” means for any calendar quarter an amount equal to the sum of the Availability, plus cash and Cash Equivalents of Borrower, for each day of such calendar quarter divided by the actual number of days in such calendar quarter, as determined by Agent, which determination shall be conclusive absent manifest error.

“ Bankruptcy Code ” means title 11 of the United States Code, as in effect from time to time.

 

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“ Base LIBOR Rate ” means the rate per annum, determined by Agent in accordance with its customary procedures, and utilizing such electronic or other quotation sources as it considers appropriate (rounded upwards, if necessary, to the next  ¹ / 100 %), to be the rate at which Dollar deposits (for delivery on the first day of the requested Interest Period) are offered to major banks in the London interbank market at approximately 11 a.m. (London time) 2 Business Days prior to the commencement of the requested Interest Period, for a term and in an amount comparable to the Interest Period and the amount of the LIBOR Rate Loan requested (whether as an initial LIBOR Rate Loan or as a continuation of an extant LIBOR Rate Loan or as a conversion of a Base Rate Loan to a LIBOR Rate Loan) by Borrower in accordance with this Agreement, which determination shall be conclusive in the absence of manifest error.

“ Base Rate ” means, the rate of interest announced, from time to time, within Wells Fargo at its principal office in San Francisco as its “prime rate”, with the understanding that the “prime rate” is one of Wells Fargo’s base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publications as Wells Fargo may designate.

“ Base Rate Loan ” means the portion of the Advances that bears interest at a rate determined by reference to the Base Rate.

“ Benefit Plan ” means a “defined benefit plan” (as defined in Section 3(35) of ERISA) subject to Title IV of ERISA for which any Credit Party or ERISA Affiliate of any Credit Party has been an “employer” (as defined in Section 3(5) of ERISA) within the past six years.

“ Board of Directors ” means the board of directors (or comparable managers) of Borrower or any committee thereof duly authorized to act on behalf of the board of directors (or comparable managers).

“ Books ” means each Credit Party’s now owned or hereafter acquired books and records (including all of its Records indicating, summarizing, or evidencing its assets (including the Collateral) or liabilities, all of the Records of each Credit Party relating to its business operations or financial condition, and all of its goods or General Intangibles related to such information).

“ Borrower ” has the meaning set forth in the preamble to this Agreement.

“ Borrowing ” means a borrowing hereunder consisting of Advances made on the same day by the Lenders (or Agent on behalf thereof).

“ Borrowing Base ” means, as of any date of determination, the result of:

(a) 90% of Eligible Accounts; provided that no more than $5,000,000 of such Accounts may consist of Corporate Wholesale Receivables, plus

 

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(b) 90% times the then extant Net Liquidation Percentage times the Cost of Eligible Inventory, minus

(c) the aggregate amount of Reserves, if any, established by Agent.

“ Borrowing Base Certificate ” has the meaning set forth in Schedule 6.2 .

“ Business Day ” means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close in the state of Massachusetts or California, except that, if a determination of a Business Day shall relate to a LIBOR Rate Loan, the term “Business Day” also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank market.

“ Capital Expenditures ” means, with respect to any Person for any period, the aggregate of all expenditures by such Person and its Subsidiaries during such period that are capital expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or financed.

“ Capital Lease ” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

“ Capitalized Lease Obligation ” means that portion of the obligations under a Capital Lease.

“ Cash Equivalents ” means, as of any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, a rating of at least A-1 from Standard &Poor’s Rating Group (“S&P”) or at least P-1 from Moody’s Investors Service Inc. (“Moody’s”); (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody’s; (iv) certificates of deposit or bankers’ acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least “adequately capitalized” (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; (v) shares of any money market mutual fund that (a) has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above and (b) has the highest rating obtainable from either S&P or Moody’s; and (vi) Investments described on Schedule 7.10.

“ Cash Management Account ” has the meaning set forth in Section 2.7(a) .

 

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“ Cash Management Agreements ” means those certain cash management agreements, in form and substance satisfactory to Agent, each of which is among the applicable Credit Party, Agent, and one of the Cash Management Banks with respect to a Deposit Account.

“ Cash Management Bank ” has the meaning set forth in Section 2.7(a) .

“ Certificated Security ” means any certificated security (as that term is defined in the Code).

“ Change of Control ” means that (a) any “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50%, of the Stock of Borrower having the right to vote for the election of members of the Board of Directors, or (b) Borrower ceases to own, directly or indirectly, and control 100% of the outstanding Stock of each Guarantor, other than any Guarantor, the stock of which was disposed of in an Asset Sale permitted by Section 7.3 .

“ Chattel Paper ” means chattel paper (as that term is defined in the Code).

“ Closing Date ” means the earlier of the date of the making of the initial Advance (or other extension of credit) hereunder or the date on which Agent sends Borrower a written notice that each of the conditions precedent set forth in Section 3.1 either have been satisfied or have been waived.

“ Closing Date Business Plan ” means the set of Projections of Borrower for the 1 year period following the Closing Date (on a month by month basis), in form and substance (including as to scope and underlying assumptions) satisfactory to Agent.

“ Co-Branded Credit Cards ” means any credit card issued by Alliance or another major credit card provider and co-branded with the Design Within Reach name, in each case for which the credit card relationship with the holder of the credit card involves no risk or other liability to any Credit Party.

“ Code ” means the New York Uniform Commercial Code, as in effect from time to time.

“ Collateral ” means the Credit Party Collateral and all other assets and interests in assets and proceeds thereof now owned or hereafter acquired by any Credit Party in or upon which a Lien is granted under any of the Loan Documents.

“ Collateral Access Agreement ” means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in any Credit Party’s Inventory or Books relating to Collateral, in each case, in form and substance satisfactory to Agent.

“ Collection Accounts ” has the meaning set forth in Section 2.7(a) .

 

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“ Collections ” means all cash, checks, notes, instruments, and other items of payment relating to the Collateral.

“ Compliance Certificate ” means a certificate substantially in the form of Exhibit C-1 delivered by the chief financial officer of Borrower to Agent.

“ Concentration Accounts ” has the meaning set forth in Section 2.7(a) .

“ Consolidated Net Tangible Assets ” means, at any date of determination, (i) the consolidated net book value of all assets of Borrower and its Subsidiaries, minus (ii) the consolidated total net book value of all assets of Borrower and its Subsidiaries which would be treated as intangibles under GAAP, including goodwill and trademarks, all as determined on a consolidated basis in accordance with GAAP.

“ Contributing Guarantors ” has the meaning set forth in Section 17.2 .

“ Control Exercise Notice ” has the meaning set forth in Section 2.7(c) .

“ Corporate Wholesale Receivables ” means, on any date of determination, corporate wholesale Accounts constituting Eligible Accounts.

“ Cost ” means the calculated cost of Inventory, computed on an average cost basis, as determined from invoices received by the applicable Credit Party, the applicable Credit Party’s purchase journals or stock ledgers, based upon the applicable Credit Party’s accounting practices, known to Agent, which practices are in effect on the date on which this Agreement was executed; provided, that “Cost” does not include any capitalization costs unrelated to the acquisition of Inventory used in a Credit Party’s calculation of cost of goods sold but may include other charges used in a Credit Party’s determination of cost of goods sold and bringing goods to market, all within Agent’s Permitted Discretion and in accordance with GAAP.

“ Credit Card Agreements ” means those certain credit card receipts agreements, each in form and substance reasonably satisfactory to Agent, and each of which is among Agent, the applicable Credit Party, and one of such Credit Party’s Credit Card Processors, whereby, among other things, such Credit Card Processor is irrevocably directed and agrees to transfer all proceeds of credit card charges for sales by such Credit Party received by it (or other amounts payable by such Credit Card Processor) into a designated Concentration Account on a daily basis or such other periodic basis as Agent may otherwise direct.

“ Credit Card Processor ” means any Person (including an issuer of a credit card) that acts as a credit card clearinghouse or remits payments due to any Credit Party with respect to credit card charges accepted by such Credit Party.

“ Credit Card Receivables ” means, on any date of determination thereof, Accounts consisting of rights of any Credit Party to payment by any Credit Card Processor in connection with consumer retail sales for which such Credit Party has accepted payment by means of charges to debit cards or major credit cards (MasterCard, VISA, American Express, Discover, Co-Branded Credit Cards and such other bank or non-bank credit or debit cards as may be approved by Agent in its Permitted Discretion).

 

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“ Credit Party ” means the Borrower and each Guarantor.

“ Credit Party Collateral ” means all of the now owned or hereafter acquired right, title, and interest of each Credit Party in and to each of the following other than the Excluded Assets.

(a) all of the personal property now owned or at any time hereafter acquired by any Credit Party or in which any Credit Party now has or at any time in the future may acquire any right, title or interest, including all of each Credit Party’s Accounts, Chattel Paper, Deposit Accounts, Documents, Equipment, Fixtures, General Intangibles, Instruments, intellectual property, Inventory, Investment Property, Letter-of-Credit Rights, Supporting Obligations and all commercial tort claims;

(b) all books and records pertaining to any of the foregoing; and

(c) all Proceeds and products of any of the foregoing.

“ Customs Broker ” means such Persons as may be selected by Borrower after the date hereof who are reasonably acceptable to Agent in its Permitted Discretion to perform port of entry services to accept and process Inventory imported by any Credit Party and who have executed and delivered a Customs Broker Agreement.

“ Customs Broker Agreement ” means a custom broker agreement in form and substance satisfactory to Agent in its Permitted Discretion, duly executed and delivered to Agent by a Customs Broker and the applicable Credit Party.

“ Daily Balance ” means, as of any date of determination and with respect to any Obligation, the amount of such Obligation owed at the end of such day.

“ Default ” means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.

“ Defaulting Lender ” means any Lender that fails to make any Advance (or other extension of credit) that it is required to make hereunder on the date that it is required to do so hereunder.

“ Defaulting Lender Rate ” means (a) for the first 3 days from and after the date the relevant payment is due, the Base Rate, and (b) thereafter, the interest rate then applicable to Advances that are Base Rate Loans (inclusive of the Applicable Margin applicable thereto).

“ De-Listing Event ” means the failure of the Company to continue to be listed on The NASDAQ Global Market.

 

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“ Deposit Account ” means any deposit account (as that term is defined in the Code).

“ Designated Account ” means the Deposit Account of each Credit Party identified on Schedule D-1 .

“ Designated Account Bank ” has the meaning ascribed thereto on Schedule D-1 .

“ Disbursement Letter ” means an instructional letter executed and delivered by Borrower to Agent regarding the extensions of credit to be made on the Closing Date, the form and substance of which is satisfactory to Agent.

“ Documents ” means any Document (as that term is defined in the Code).

“ Dollars ” or “ $ ” means United States dollars.

“ Eligible Accounts ” means those Accounts consisting of Credit Card Receivables or Corporate Wholesale Receivables in each case (for all such Accounts) that are created by any Credit Party in the ordinary course of its business, that arise out of such Credit Party’s sale of goods or rendition of services, that comply with each of the representations and warranties respecting Eligible Accounts made in the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the excluding criteria set forth below; provided , however , that such criteria may be revised from time to time by Agent in its Permitted Discretion to address the results of any audit performed by Agent from time to time after the Closing Date. In determining the amount to be included, Eligible Accounts shall be calculated at face value, net of customer deposits and unapplied cash. Eligible Accounts shall not include the following:

(a) (i) Credit Card Receivables that the applicable Credit Card Processor has failed to pay within 5 days after the applicable sale date or (ii) Corporate Wholesale Receivables that the Account Debtor has failed to pay within 60 days of original payment due date or (iii) Corporate Wholesale Receivables with selling terms of more than 60 days;

(b) Accounts owed by an Account Debtor (or its Affiliates) where 50% or more of all Accounts owed by that Account Debtor (or its Affiliates) are deemed ineligible under clauses (a)(i) or (a) (ii) above,

(c) Accounts that are not payable in Dollars or Canadian Dollars,

(d) Accounts with respect to which the Account Debtor either (i) does not maintain its chief executive office in the United States or Canada, or (ii) is not organized under the laws of the United States or any state thereof or Canada, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof, unless (y) the Account is supported by an irrevocable letter of credit satisfactory to Agent in its Permitted Discretion (as to form, substance, and issuer or domestic confirming bank)

 

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that has been delivered to Agent and is directly drawable by Agent, or (z) the Account is covered by credit insurance in form, substance, and amount, and by an insurer, satisfactory to Agent in its Permitted Discretion,

(e) Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding, or as to which any Credit Party has received notice of an imminent Insolvency Proceeding,

(f) Accounts, the collection of which, Agent, in its Permitted Discretion, believes to be doubtful by reason of the Account Debtor’s financial condition, or

(g) Accounts that are not subject to a valid and perfected first priority Agent’s Lien and, in the case of Credit Card Receivables, are not subject to a Credit Card Agreement,

(h) Accounts that arise from a sale to any director, officer, other employee or Affiliate of any Credit Party, or to any entity that has any common officer or director with any Credit Party; or

(i) Accounts with respect to which Borrower or any Subsidiary thereof is liable for goods sold or services rendered by the applicable Account Debtor to Borrower or any Subsidiary thereof but only to the extent of the potential offset.

Notwithstanding the foregoing, Corporate Wholesale Receivables shall not constitute Eligible Accounts until Agent has received a satisfactory field exam detailing Corporate Wholesale Receivables in form and substance satisfactory to Agent in its sole discretion.

“ Eligible In-Transit Inventory ” means those items of Inventory that do not qualify as Eligible Landed Inventory solely because they are not in a location set forth on Schedule E-1 or in transit among such locations, but as to which (a) such Inventory currently is, and has been for a period not exceeding forty-five (45) days, in transit (whether by vessel, air, or land) from a location outside of the United States to a location set forth on Schedule E-1 , (b) title to such Inventory has passed to a Credit Party, (c) such Inventory is insured against types of loss, damage, hazards, and risks, and in amounts, satisfactory to Agent in its Permitted Discretion, (d) such Inventory is in the possession or control of a Freight Forwarder then subject to a Freight Forwarder Agreement and, to the extent such Inventory is the subject of a bill of lading or other document of title, the same (1) is consigned to a Credit Party (either directly or by means of endorsements) and (2) is either (x) in the possession of a Credit Party, a Freight Forwarder then subject to a Freight Forwarder Agreement or a Customs Broker then subject to a Customs Broker Agreement, or (y) the subject of a telefacsimile copy that a Credit Party has received from the Underlying Issuer which issued the Underlying Letter of Credit and as to which a Credit Party also has received a confirmation from such Underlying Issuer that such document is in-transit by air-courier to a Credit Party or a Customs Broker then subject to a Customs Broker Agreement (in each case, in the United States) and (e) such Credit Party has certified to Agent (pursuant to an applicable borrowing base certificate delivered pursuant to Schedule 6.2(a) ) that certifies that,

 

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to the knowledge of such Credit Party, such Inventory meets all of such Credit Party’s representations and warranties contained in the Loan Documents concerning Eligible Inventory, that to the knowledge of such Credit Party there is no reason why such Inventory would not be accepted by a Credit Party when it arrives in United States, and that the shipment as evidenced by the documents conforms to the related order documents. Delivery of each borrowing base certificate pursuant to Schedule 6.2(a) shall constitute a representation and warranty by such Credit Party that the Inventory listed (or otherwise treated) therein as being Eligible In-Transit Inventory satisfies the foregoing definition. Notwithstanding the foregoing, at any time of determination the amount of Eligible In-Transit Inventory shall equal the lesser of (i) the actual Eligible In-Transit Inventory at such time as determined pursuant to the foregoing standards; and (ii) $3,000,000.

“ Eligible Inventory ” means Eligible Landed Inventory, Eligible L/C Inventory or Eligible In-Transit Inventory.

“ Eligible Landed Inventory ” means Inventory consisting of finished goods held for sale in the ordinary course of each Credit Party’s business (including “scratch and dent” and “distressed” goods which are saleable in an amount not to exceed $5,000,000 in the aggregate) that complies with each of the representations and warranties respecting Eligible Landed Inventory made in the Loan Documents, and that is not excluded as ineligible by virtue of the one or more of the excluding criteria set forth below; provided , however , that such criteria may be revised from time to time by Agent in its Permitted Discretion to address the results of any audit or appraisal performed by Agent from time to time after the Closing Date. In determining the amount to be so included, Inventory shall be valued at Cost. An item of Inventory shall not be included in Eligible Landed Inventory if:

(a) a Credit Party does not have good, valid, and marketable title thereto,

(b) it is not located at one of the locations in the United States set forth on Schedule E-1 (or in transit from one such location to another such location) as such locations are updated by the Borrower from time to time by written notice to Agent,

(c) it is located on real property leased by any Credit Party or in a contract warehouse, unless it is segregated or otherwise separately identifiable from goods of others, if any, stored on the premises and, with respect to any Credit Party’s Non-Owned Storage Facilities, is subject to a Collateral Access Agreement,

(d) it is not subject to a valid and perfected first priority Agent’s Lien,

(e) it consists of goods returned or rejected by any Credit Party’s customers unless such goods are saleable in the ordinary course of such Credit Party’s business (including “scratch and dent” and “distressed” goods), or

(f) it consists of goods that are obsolete or slow moving, restrictive or custom items, work-in-process, mismatches, return to vendor goods, raw materials, or goods that constitute spare parts, packaging and shipping materials, supplies used or consumed in any Credit Party’s business, bill and hold goods, or Inventory acquired on consignment.

 

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“ Eligible L/C Inventory ” means, as of the date of determination thereof, without duplication of other Eligible Inventory, Inventory (a) not yet delivered to a Credit Party, (b) the purchase of which is supported by a Qualified Import Letter of Credit, (c) for which the document of title reflects a Credit Party as consignee (along with delivery to a Credit Party or the Issuing Bank, as applicable, of the documents of title with respect thereto), (d) such Inventory is insured against types of loss, damage, hazards and risks, and in amounts, satisfactory to Agent in its Permitted Discretion and (e) (x) is being transported pursuant to a nonnegotiable document of title within the meaning of the Code and (y) as to which, at any time after the 90th day following the Closing Date, Agent has control over the documents of title which evidence ownership of the subject Inventory by the delivery of a Customs Broker Agreement.

“ Eligible Transferee ” means any Person which is either: (1) either (a) a commercial bank organized under the laws of the United States, or any state thereof, and having total assets in excess of $250,000,000, (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development or a political subdivision of any such country and which has total assets in excess of $250,000,000, provided that such bank is acting through a branch or agency located in the United States, (c) a finance company, insurance company, or other financial institution or fund that is engaged in making, purchasing, or otherwise investing in commercial loans in the ordinary course of its business and having (together with its Affiliates) total assets in excess of $250,000,000, (d) any Affiliate (other than individuals) of a Lender, or (e) any other Person approved by Agent or; (2) so long as no Event of Default has occurred and is continuing, approved by Borrower (which approval of Borrower shall not be unreasonably withheld, delayed, or conditioned).

“ Environmental Actions ” means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter, or other communication, each, by or from any Governmental Authority, or any third party involving (x) violations of Environmental Laws or (y) releases of Hazardous Materials (a) from any assets, properties, or businesses of any Credit Party, or any of their predecessors in interest, (b) from adjoining properties or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by any Credit Party, or any of their predecessors in interest.

“ Environmental Law ” means any applicable federal, state, provincial, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy, or rule of common law now in effect and in each case as amended, or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, in each case, to the extent binding on any Credit Party, relating to the environment, employee health and safety, or Hazardous Materials, including the Comprehensive Environmental Response, Compensation and Liability Act, 42 USC § 9601 et seq .; the Solid Waste Disposal Act, 42 USC § 6901 et seq ; the Federal Water Pollution Control Act, 33 USC § 1251 et seq ; the Toxic Substances Control Act, 15 USC § 2601

 

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et seq; the Clean Air Act, 42 USC § 7401 et seq. ; the Safe Drinking Water Act, 42 USC § 3803 et seq. ; the Oil Pollution Act of 1990, 33 USC § 2701 et seq. ; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 USC § 11001 et seq. ; the Hazardous Material Transportation Act, 49 USC § 1801 et seq. ; and the Occupational Safety and Health Act, 29 USC §651 et seq. (to the extent it regulates occupational exposure to Hazardous Materials); any state and local or foreign counterparts or equivalents, in each case as amended from time to time.

“ Environmental Liabilities and Costs ” means all liabilities, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to any Environmental Action.

“ Environmental Lien ” means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs.

“ Equipment ” means equipment (as that term is defined in the Code) and includes machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), computer hardware, tools, parts, and goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto.

“ ERISA Affiliate ” means (a) any Person subject to ERISA whose employees are treated as employed by the same employer as the employees of any Credit Party under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of any Credit Party under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which any Credit Party is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA that is a party to an arrangement with any Credit Party and whose employees are aggregated with the employees of any Credit Party under IRC Section 414(o).

“ ERISA ” means the Employee Retirement Income Security Act of 1974.

“ ERISA Event ” means any of the following: (a) a reportable event described in Section 4043(b) of ERISA (or, unless the 30-day notice requirement has been duly waived under the applicable regulations, Section 4043(c) of ERISA) with respect to a Title IV Plan; (b) the withdrawal of any ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the complete or partial withdrawal of any ERISA Affiliate from any Multiemployer

 

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Plan; (d) with respect to any Multiemployer Plan, the filing of a notice of reorganization, insolvency or termination (or treatment of a plan amendment as termination) under Section 4041A of ERISA; (e) the filing of a notice of intent to terminate a Title IV Plan (or treatment of a plan amendment as termination) under Section 4041 of ERISA; (f) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (g) the failure to make any required contribution to any Title IV Plan or Multiemployer Plan when due; (h) the imposition of a lien under Section 412 of the Code or Section 302 or 4068 of ERISA on any property (or rights to property, whether real or personal) of any ERISA Affiliate; (i) the failure of a Benefit Plan or any trust thereunder intended to qualify for tax exempt status under Section 401 or 501 of the Code or other requirements of law to qualify thereunder; and (j) any other event or condition that might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the imposition of any liability upon any ERISA Affiliate under Title IV of ERISA other than for PBGC premiums due but not delinquent.

“ Event of Default ” has the meaning set forth in Section 8 .

“ Exchange Act ” means the Securities Exchange Act of 1934, as in effect from time to time.

“ Excluded Assets ” means (i) leasehold interest rights of a Credit Party to Real Property to the extent the terms of such leasehold rights expressly prohibit the grant of a security interest therein, (ii) any General Intangible, Investment Property or other such rights of a Grantor arising under any contract, lease, instrument, license or other document if (but only to the extent that) the grant of a security interest therein would (x) constitute a violation of a valid and enforceable restriction of the terms of such General Intangible, Investment Property or under any law, regulation, permit, order or decree of any Governmental Authority, unless and until all required consents shall have been obtained (for the avoidance of doubt, the restrictions described herein are not negative pledges or similar undertakings or prohibitions on granting Liens in favor of a lender or other financial counterparty) or (y) expressly give any other party in respect of any such contract, lease, instrument, license or other document, the right to terminate its obligations thereunder, provided , however , that the limitation set forth in clause (ii) above shall not affect, limit, restrict or impair the grant by a Grantor of a security interest pursuant to this Agreement in any such Collateral to the extent that an otherwise applicable prohibition or restriction on such grant is rendered ineffective by any applicable Law, including the Code; provided, further , that in any of the above cases, at such time as any such property or asset ceases to be an Excluded Asset, the same shall become subject to the security interest granted hereunder immediately and automatically, (iii) that certain Consulting Agreement dated as of February 2, 2005 between the Borrower and CDS LLC and (iv) those certain Design License Agreements dated as of April 1, 2006 between the Borrower and Piet Boon Zone B.V.

“ Existing Lender ” means Wells Fargo HSBC Trade Bank, National Association.

“ Fair Share ” has the meaning set forth in Section 17.2 .

 

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“ Fair Share Contribution Amount ” has the meaning set forth in Section 17.2 .

“ Fair Share Shortfall ” has the meaning set forth in Section 17.2 .

“ Fee Letter ” means that certain fee letter, dated as of even date herewith, between Borrower and Agent, in form and substance satisfactory to Agent.

“ FEIN ” means Federal Employer Identification Number.

Fixtures means all of the following, whether now owned or hereafter acquired by a Credit Party: plant fixtures; business fixtures; other fixtures and storage facilities, wherever located; and all additions and accessories thereto and replacements therefor.

“ Freight Forwarder ” means such Persons as may be selected by Borrower after the date hereof who are reasonably acceptable to Agent in its Permitted Discretion to perform freight forwarding or international transportation of Inventory imported by Borrower and who have executed and delivered a Freight Forwarder Agreement.

“ Freight Forwarder Agreement ” means a freight forwarder agreement in form and substance satisfactory to Agent in its Permitted Discretion, duly executed and delivered to Agent by a Freight Forwarder and the applicable Credit Party.

“ Funding Date ” means the date on which a Borrowing occurs.

“ Funding Guarantor ” has the meaning set forth in Section 17.2 .

“ Funding Losses ” has the meaning set forth in Section 2.13(b)(ii) .

“ GAAP ” means generally accepted accounting principles as in effect from time to time in the United States, consistently applied.

“ General Intangibles ” means general intangibles (as that term is defined in the Code), including payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, patents, trade names, trade secrets, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, route lists, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, insurance premium rebates, tax refunds, and tax refund claims, and any and all Supporting Obligations in respect thereof.

“ Governing Documents ” means, with respect to any Person, the certificate or articles of incorporation, by-laws, or other organizational documents of such Person.

“ Governmental Authority ” means any federal, state, local, or other governmental or administrative body, instrumentality, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body.

 

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“ Gross Collateral Availability ” means, as of any date of determination, the Borrowing Base, less the then extant amount of outstanding Obligations (without giving effect to any outstanding obligations referenced in clause (b)  of the definition of Obligations), plus cash and Cash Equivalents to the extent Agent has been granted a first priority perfected Lien in such cash and Cash Equivalents pursuant to documentation in form and substance acceptable to Agent in its Permitted Discretion.

“ Guaranteed Obligations ” has the meaning set forth in Section 17.1 .

“ Guarantor ” means any Subsidiary of Borrower.

“ Guaranty ” means the guaranty of each Guarantor set forth in Section 17 .

“ Hazardous Materials ” means (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as “hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic substances,” or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP toxicity”, (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million.

“ Hedge Agreement ” means any and all agreements or documents now existing or hereafter entered into by any Credit Party that provide for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging such Credit Party’s exposure to fluctuations in interest or exchange rates, loan, credit exchange, security, or currency valuations or commodity prices.

“ Holdout Lender ” has the meaning set forth in Section 15.2(a) .

“ Indebtedness ” means, without duplication, (a) all obligations for borrowed money, (b) all obligations evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, interest rate swaps, or other financial products, (c) all obligations as a lessee under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of the Borrower or its Subsidiaries, irrespective of whether such obligation or liability is assumed, (e) all obligations to pay the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business and repayable in accordance with customary trade practices), (f) all

 

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obligations owing under Hedge Agreements, and (g) any obligation guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person that constitutes Indebtedness under any of clauses (a) through (f) above.

“ Indemnified Liabilities ” has the meaning set forth in Section 11.3 .

“ Indemnified Person ” has the meaning set forth in Section 11.3 .

“ Instrument ” means instrument (as that term is defined in the Code).

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

“ Intellectual Property Security Agreement ” means each of those Intellectual Property Security Agreements entered into by Borrower and any Guarantor dated as of the Closing Date in favor of the Agent.

“ Intercompany Note ” means any promissory note evidencing loans made by any Credit Party to any Subsidiary.

“ Interest Period ” means, with respect to each LIBOR Rate Loan, a period commencing on the date of the making of such LIBOR Rate Loan (or the continuation of a LIBOR Rate Loan or the conversion of a Base Rate Loan to a LIBOR Rate Loan) and ending 1, 2 or 3 months thereafter, as elected by the Borrower pursuant to Section 2.13 and subject to Section 2.13(d)(ii)(y) ; provided , however , that (a) if any Interest Period would end on a day that is not a Business Day, such Interest Period shall be extended (subject to clauses (c)-(e) below) to the next succeeding Business Day, (b) interest shall accrue at the applicable rate based upon the LIBOR Rate from and including the first day of each Interest Period to, but excluding, the day on which any Interest Period expires, (c) any Interest Period that would end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, (d) with respect to an Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period), the Interest Period shall end on the last Business Day of the calendar month that is 1, 2 or 3 months after the date on which the Interest Period began, as applicable, and (e) Borrower may not elect an Interest Period which will end after the Maturity Date.

“ Inventory ” means inventory (as that term is defined in the Code).

“ Investment ” means, with respect to any Person, any investment by such Person in any other Person (including Affiliates) in the form of loans, guarantees, advances, or capital

 

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contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (b)  bona fide Accounts (including trade receivables) arising in the ordinary course of business consistent with past practice), purchases or other acquisitions of Indebtedness, Stock, or all or substantially all of the assets of such other Person (or of any division or business line of such other Person), and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP.

“ Investment Property ” means investment property (as that term is defined in the Code), and any and all supporting obligations in respect thereof.

“ IRC ” means the Internal Revenue Code of 1986, as in effect from time to time.

“ Issuing Lender ” means WFRF or any Affiliate thereof or any other Lender that, at the request of Borrower and with the consent of Agent, agrees, in such Lender’s sole discretion, to become an Issuing Lender for the purpose of issuing L/Cs or L/C Undertakings pursuant to Section 2.12 .

“ L/C ” has the meaning set forth in Section 2.12(a) .

“ L/C Disbursement ” means a payment made by the Issuing Lender pursuant to a Letter of Credit.

“ L/C Undertaking ” has the meaning set forth in Section 2.12(a) .

“ Leased Store Location ” means any Design Within Reach store for which any Credit Party has a leasehold or right-to-occupy via license interest.

“ Lender ” and “ Lenders ” have the respective meanings set forth in the preamble to this Agreement, and shall include any other Person made a party to this Agreement in accordance with the provisions of Section 14.1 .

“ Lender Group ” means, (a) individually and collectively, each of the Lenders (including the Issuing Lender) and Agent and (b) individually, Wells Fargo or any of its Affiliates with respect to the Obligations referred to in clause (b) of the definition of Obligations.

“ Lender Group Expenses ” means all (a) costs or expenses (including taxes, and insurance premiums) required to be paid by any Credit Party under any of the Loan Documents that are paid, advanced, or incurred by the Lender Group, (b) reasonable fees or charges paid or incurred by Agent in connection with the Lender Group’s transactions with any Credit Party, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and UCC searches), filing, recording, publication, appraisal (including periodic collateral appraisals or business valuations to the extent of the fees and charges (and up to the amount of any limitation) set forth in the Loan Documents), (c) reasonable out of pocket costs and expenses incurred by Agent in the disbursement of funds to any Credit Party or other members of the Lender Group (by wire

 

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transfer or otherwise), (d) reasonable out of pocket charges paid or incurred by Agent resulting from the dishonor of checks, (e) reasonable out of pocket costs and expenses paid or incurred by the Lender Group to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated, (f) reasonable out of pocket audit fees and expenses of Agent related to audit examinations of the Books to the extent of the fees and charges (and up to the amount of any limitation) set forth in the Loan Documents, (g) reasonable out of pocket costs and expenses of third party claims or any other suit paid or incurred by the Lender Group in enforcing or defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or the Lender Group’s relationship with any Credit Party, (h) Agent’s reasonable out of pocket costs and expenses (including attorneys fees) incurred in advising, structuring, drafting, reviewing, administering, syndicating, or amending the Loan Documents subject to any limitations set forth in the Fee Letter, and (i) Agent’s reasonable out of pocket costs and expenses (including attorneys, accountants, consultants, and other advisors fees and expenses) incurred in terminating, enforcing (including attorneys, accountants, consultants, and other advisors fees and expenses incurred in connection with a “workout,” a “restructuring,” or an Insolvency Proceeding concerning any Credit Party or in exercising rights or remedies under the Loan Documents), or defending the Loan Documents, irrespective of whether suit is brought, or in taking any Remedial Action concerning the Collateral.

“ Lender-Related Person ” means, with respect to any Lender, such Lender, together with such Lender’s Affiliates, officers, directors, employees, attorneys, and agents.

“ Letter of Credit ” means an L/C or an L/C Undertaking, as the context requires.

“ Letter of Credit Rights ” means any Letter of Credit Rights (as that term is defined in the Code).

“ Letter of Credit Usage ” means, as of any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit.

“ LIBOR Deadline ” has the meaning set forth in Section 2.13(b)(i) .

“ LIBOR Notice ” means a written notice in the form of Exhibit L-1.

“ LIBOR Rate ” means, for each Interest Period for each LIBOR Rate Loan, the rate per annum determined by Agent (rounded upwards, if necessary, to the next 1/100%) by dividing (a) the Base LIBOR Rate for such Interest Period, by (b) 100% minus the Reserve Percentage. The LIBOR Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage.

“ LIBOR Rate Loan ” means each portion of an Advance that bears interest at a rate determined by reference to the LIBOR Rate.

 

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“ Lien ” means any interest in an asset securing an obligation owed to, or a claim by, any Person other than the owner of the asset, irrespective of whether (a) such interest is based on the common law, statute, or contract, (b) such interest is recorded or perfected, and (c) such interest is contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances. Without limiting the generality of the foregoing, the term “Lien” includes the lien or security interest arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also includes reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Real Property.

“ Loan Account ” has the meaning set forth in Section 2.10 .

“ Loan Documents ” means this Agreement, the Cash Management Agreements, the Credit Card Agreements, the Disbursement Letter, the Fee Letter, the Letters of Credit, the Officers’ Certificate, any note or notes executed by Borrower in connection with this Agreement and payable to a member of the Lender Group, and any other agreement entered into, now or in the future, by any Credit Party and the Lender Group in connection with this Agreement or otherwise relating to the Obligations.

“ Material Adverse Change ” means (a) a material adverse change in the business, operations, results of operations, assets, liabilities or condition (financial or otherwise) of the Credit Parties, taken as a whole, (b) a material impairment of the Credit Parties’ ability, taken as a whole, to perform their obligations under the Loan Documents to which they are parties or of the Lender Group’s ability to enforce the Obligations or realize upon the Collateral, or (c) a material impairment of the enforceability or priority of the Agent’s Liens with respect to the Collateral as a result of an action or failure to act on the part of any Credit Party. Notwithstanding the foregoing, in no event shall the occurrence of a De-Listing Event be deemed to constitute a Material Adverse Change.

“ Maturity Date ” has the meaning set forth in Section 3.3 .

“ Maximum Revolver Amount ” means $20,000,000 plus the amount, if any, of any increase permitted by Section 2.2 (after which increase, the Maximum Revolver Amount shall not exceed $25,000,000).

“ Multiemployer Plan ” means any multiemployer plan, as defined in Section 4001(a)(3) of ERISA, as to which any ERISA Affiliate incurs or otherwise has any obligation or liability, contingent or otherwise.

“ Negotiable Collateral ” means letters of credit, letter of credit rights, instruments, promissory notes, drafts, documents, and chattel paper (including electronic chattel paper and tangible chattel paper), and any and all supporting obligations in respect thereof.

 

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“ Net Liquidation Percentage ” means the percentage of Cost of each Credit Party’s Eligible Inventory that is estimated to be recoverable in an orderly liquidation of such Inventory as determined from time to time by a qualified appraisal company selected by Agent subject to Agent’s satisfactory review.

“ Non-Owned Storage Facility ” means any distribution center or warehouse facility leased by any Credit Party, together with any other location where Inventory of any Credit Party is stored or held pursuant to a lease, bailment, warehousing or similar arrangement, which location (a) is not owned by a Credit Party, and (b) is not a Leased Store Location.

“ Obligations ” means (a) all loans, Advances, debts, principal, interest (including any interest that, but for the commencement of an Insolvency Proceeding, would have accrued), contingent reimbursement obligations with respect to outstanding Letters of Credit, premiums, liabilities (including all amounts charged to Borrower’s Loan Account pursuant hereto), obligations (including indemnification obligations), fees (including the fees provided for in the Fee Letter), charges, costs, Lender Group Expenses (including any fees or expenses that, but for the commencement of an Insolvency Proceeding, would have accrued), lease payments, guaranties, covenants, and duties of any kind and description owing by any Credit Party to the Lender Group pursuant to or evidenced by the Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all Lender Group Expenses that the Credit Parties are required to pay or reimburse by the Loan Documents, by law, or otherwise, and (b) all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by any Credit Party to Wells Fargo or any of its Affiliates with respect to credit cards, credit card processing services, debit cards, purchase cards, ACH Transactions, cash management, including controlled disbursement, accounts or services, or transactions under Hedge Agreements (and including any obligations of a Credit Party to the Agent or any member of the Lender Group with respect to participations of such Person in any of the foregoing). Any reference in this Agreement or in the Loan Documents to the Obligations shall include all extensions, modifications, renewals, or alterations thereof, both prior and subsequent to any Insolvency Proceeding.

“ Obligee Guarantor ” has the meaning set forth in Section 17.7 .

“ Officers’ Certificate ” means the representations and warranties of officers form submitted by Agent to Borrower in the form of Exhibit N thereto, together with Borrower’s completed responses to the inquiries set forth therein, the form and substance of such responses to be satisfactory to Agent in its Permitted Discretion.

“ Originating Lender ” has the meaning set forth in Section 14.1(e) .

“ Overadvance ” has the meaning set forth in Section 2.5 .

“ Participant ” has the meaning set forth in Section 14.1(e) .

 

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“ Pay-Off Letter ” means a letter, in form and substance satisfactory to Agent, from Existing Lender to Agent respecting the amount necessary to repay in full all of the obligations of each Credit Party owing to Existing Lender and obtain a release of all of the Liens existing in favor of Existing Lender in and to the assets of any Credit Party.

“ Perfection Certificate ” means a perfection certificate executed by the Borrower and each Credit Party in the form previously delivered by Agent to Borrower.

“ Permitted Discretion ” means a determination made in the exercise of reasonable (from the perspective of a secured lender) business judgment.

“ Permitted Dispositions ” means (a) sales or other dispositions of Equipment that is substantially worn, damaged, or obsolete in the ordinary course of business, (b) sales of Inventory to buyers in the ordinary course of business, (c) the use or transfer of money or Cash Equivalents in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents, (d) in connection with any retail store closing, the sublease of the applicable store retail space, (e) the disposition of Equipment in the ordinary course of business in connection with the refurbishing or closing of retail stores an the disposition of Equipment utilized at storage facilities (including Non-Owned Storage Locations), provided such Equipment has an aggregate fair market value not in excess of $1,000,000 in any fiscal year, (f) the incurrence of Permitted Liens, (g) the surrender or waiver of contract rights or the disposition, settlement, release or surrender of contract or commercial tort claims in the ordinary course of business, provided that no such surrender, waiver, disposition, settlement, or release could reasonably be expected to result in a Material Adverse Change, (h) dispositions of receivables that arose in the ordinary course of business for collection, (i) any disposition which is deemed to have occurred in connection with a casualty or taking (pursuant to the power of eminent domain, condemnation or otherwise) event which results in a Credit Party or any landlord of any Credit Party receiving insurance or condemnation proceeds, and (j) non-perpetual licenses of any Credit Party’s intellectual property (which licenses may grant varying degrees of exclusivity provided that such Credit Party retains an unlimited right to use the intellectual property which is the subject of such licenses) which are entered into in the ordinary course of business of such Credit Party, as such business is now or hereafter conducted in compliance with this Agreement.

“ Permitted Investments ” means (a) Investments in cash and Cash Equivalents, (b) Investments in negotiable instruments for collection, (c) advances made in connection with purchases of goods or services in the ordinary course of business, (d) Investments made by one Credit Party in another Credit Party, (e) Investments received in settlement of amounts due to any Credit Party effected in the ordinary course of business or owing to any Credit Party as a result of Insolvency Proceedings involving an Account Debtor or upon the foreclosure or enforcement of any Lien in favor of such Credit Party, and (f) Investments in bonds issued by a Governmental Authority in connection with the lease of property or equipment by any Credit Party from such Governmental Authority, provided that such bonds are secured by the lease payments required to be made by such Credit Party with respect to such leased property and are issued in transactions which are in form and substance substantially similar to those in which the Investments described on Schedule 7.10 were made.

 

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“ Permitted Liens ” means (a) Liens held by Agent, (b) Liens for unpaid taxes that either (i) are not yet delinquent, or (ii) do not constitute an Event of Default hereunder and are the subject of Permitted Protests, (c) Liens set forth on Schedule P-1 , or otherwise permitted pursuant to Section 7.2, (d) the interests of lessors under operating leases and licensors under licenses, (e) purchase money Liens or the interests of lessors under Capital Leases to the extent that such Liens or interests secure Permitted Purchase Money Indebtedness and so long as such Lien attaches only to the asset purchased or acquired and the proceeds thereof, (f) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, (ii) are for sums not more than thirty (30) days past due or (iii) are the subject of Permitted Protests, (g) Liens arising from deposits made in connection with obtaining worker’s compensation or other unemployment insurance, (h) Liens or deposits to secure performance of bids, tenders, or leases incurred in the ordinary course of business and not in connection with the borrowing of money, (i) Liens granted as security for surety or appeal bonds in connection with obtaining such bonds in the ordinary course of business, (j) Liens resulting from any judgment or award that is not an Event of Default hereunder, (k) with respect to any Real Property, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof, (l) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods and (m) Liens related to an executed agreement with respect to a Permitted Disposition or Asset Sale so long as such Liens attach only to the property to be sold pursuant to such Permitted Disposition or Asset Sale.

“ Permitted Protest ” means the right of any Credit Party to protest any Lien (other than any Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on the Books in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by such Credit Party, as applicable, in good faith, and (c) Agent is reasonably satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Agent’s Liens.

“ Permitted Purchase Money Indebtedness ” means, as of any date of determination, Purchase Money Indebtedness incurred after the Closing Date in an aggregate principal amount outstanding at any one time not in excess of $1,500,000.

“ Person ” means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof.

“ Pledged Equity ” means the equity interests listed on Schedule 5.23 , together with any other equity interests, certificates, options or rights of any nature whatsoever in respect of the equity interests of any Person that may be issued or granted to, or held by, any Credit Party while this Agreement is in effect; provided that in no event shall more than 65% of the total outstanding equity interests of any foreign Subsidiary be required to be pledged hereunder.

 

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“ Pledged Notes ” means all promissory notes listed on Schedule 5.23 , all Intercompany Notes at any time issued to any Credit Party and all other promissory notes issued to or held by any Credit Party (other than (a) promissory notes issued in connection with extensions of trade credit by any Credit Party in the ordinary course of business and (b) any individual promissory note which is less than $50,000 in principal amount, up to an aggregate of $250,000 for all such promissory notes excluded under this clause (b)).

“ Proceeds ” means all proceeds as such term is defined in Section 9-306(1) of the Code and, in any event, shall include all dividends or other income from the Investment Property, collections thereon or distributions and payments with respect thereto.

“ Projections ” means Borrower’s forecasted monthly (a) balance sheets, (b) profit and loss statements, and (c) cash flow statements, all prepared on a basis acceptable to Agent in its Permitted Discretion, together with appropriate supporting details and a statement of underlying assumptions.

“ Pro Rata Share ” means, as of any date of determination: (i) prior to the Revolver Commitments being terminated or reduced to zero, the percentage obtained by dividing (y) such Lender’s Revolver Commitment, by (z) the aggregate Revolver Commitments of all Lenders, and (ii) from and after the time that the Revolver Commitments have been terminated or reduced to zero, the percentage obtained by dividing (y) the aggregate outstanding principal amount of such Lender’s Advances plus such Lender’s ratable portion of the Risk Participation Liability with respect to outstanding Letters of Credit by (z) the aggregate outstanding principal amount of all Advances plus the aggregate amount of the Risk Participation Liability with respect to outstanding Letters of Credit.

“ Purchase Money Indebtedness ” means Indebtedness (other than the Obligations, but including Capitalized Lease Obligations), incurred at the time of, or within 60 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof, together with any refinancings under Section 7.1(d) .

“ Qualified Import Letter of Credit ” means a Letter of Credit that (a) is issued to facilitate the purchase by any Credit Party of Eligible Inventory, and (b) has an expiry date of less than 90 days and is otherwise in form and substance reasonably acceptable to Agent.

“ Real Property ” means any estates or interests in real property now owned or hereafter acquired by any Credit Party and the improvements thereto.

“ Record ” means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.

“ Remedial Action ” means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor

 

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or outdoor environment, (b) prevent or minimize a release or threatened release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (d) conduct any other actions authorized by 42 USC § 9601.

“ Replacement Lender ” has the meaning set forth in Section 15.2(a) .

“ Report ” has the meaning set forth in Section 16.17 .

“ Required Lenders ” means, at any time, Lenders whose aggregate Pro Rata Shares equal or exceed 50.1%.

“ Reserve Percentage ” means, on any day, for any Lender, the maximum percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor Governmental Authority) for determining the reserve requirements (including any basic, supplemental, marginal, or emergency reserves) that are in effect on such date with respect to eurocurrency funding (currently referred to as “eurocurrency liabilities”) of that Lender, but so long as such Lender is not required or directed under applicable regulations to maintain such reserves, the Reserve Percentage shall be zero.

“ Reserves ” has the meaning set forth in Section 2.1(b) .

“ Restricted Payment ” means (a) any dividend or other distribution, direct or indirect, on account of any shares of any Stock of any Credit Party now or hereafter outstanding, except a dividend payable solely in shares of that class of Stock to the holders of that class; (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Stock of a Credit Party now or hereafter outstanding; (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire any Stock of any Credit Party now or hereafter outstanding; and (d) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness.

“ Revolver Commitment ” means, with respect to each Lender, its Revolver Commitment, and, with respect to all Lenders, their Revolver Commitments, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable heading on Schedule C-1 or in the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1 and as such amounts may be increased pursuant to Section 2.2 or otherwise decreased pursuant to the terms of this Agreement.

“ Revolver Increase Notice ” has the meaning set forth in Section 2.2 .

 

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“ Revolver Usage ” means, as of any date of determination, the sum of (a) the then extant amount of outstanding Advances, plus (b) the then extant amount of the Letter of Credit Usage.

“ Risk Participation Liability ” means, as to each Letter of Credit, all reimbursement obligations of Borrower to the Issuing Lender with respect to an L/C Undertaking, consisting of (a) the amount available to be drawn or which may become available to be drawn, (b) all amounts that have been paid by the Issuing Lender to the Underlying Issuer to the extent not reimbursed by Borrower, whether by the making of an Advance or otherwise, and (c) all accrued and unpaid interest, fees, and expenses payable with respect thereto.

“ Sale-Leasebacks ” has the meaning assigned to that term in Section 7.14 .

“ SEC ” means the United States Securities and Exchange Commission and any successor thereto.

“ Settlement ” has the meaning set forth in Section 2.3(c)(i) .

“ Settlement Date ” has the meaning set forth in Section 2.3(c)(i) .

“ Solvent ” means, with respect to any Person on a particular date, that, at fair valuations, the sum of such Person’s assets is greater than all of such Person’s debts.

“ Stock ” means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).

“ Subordinated Indebtedness ” means Indebtedness of the Credit Parties subordinated in right of payment to the Obligations pursuant to documentation containing maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other material terms in form and substance reasonably satisfactory to Agent.

“ Subsidiary ” of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity.

“ Supporting Obligations ” means any Supporting Obligations (as that term is defined in the Code).

“ Taxes ” has the meaning set forth in Section 16.11 .

 

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“ Title IV Plan ” means a pension plan subject to Title IV of ERISA, other than a Multiemployer Plan, to which any ERISA Affiliate incurs or otherwise has any obligation or liability, contingent or otherwise.

“ Triggering Event ” means (i) the occurrence and continuation of an Event of Default, or (ii) the date on which Gross Collateral Availability shall be less than $10,000,000.

“ UCC ” means the Uniform Commercial Code as in effect from time to time in the State of New York.

“ UCC Filing Authorization Letter ” means a letter duly executed by each Credit Party authorizing Agent to file appropriate financing statements on Form UCC-1 without the signature of such Credit Party, in such office or offices as may be necessary or, in the reasonable opinion of Agent, desirable to perfect the security interests purported to be created by the Loan Documents.

“ United States ” means the United States of America.

“ Underlying Issuer ” means a third Person which is the beneficiary of an L/C Undertaking or Qualified Import Letter of Credit and which has issued a letter of credit at the request of the Issuing Lender for the benefit of any Credit Party.

“ Underlying Letter of Credit ” means a letter of credit that has been issued by an Underlying Issuer.

“ Voidable Transfer ” has the meaning set forth in Section 18.7 .

“ Wells Fargo ” means Wells Fargo Bank, National Association, a national banking association.

“ WFRF ” means Wells Fargo Retail Finance, LLC, a Delaware limited liability company.

1.2. Accounting Terms . All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term “financial statements” shall include the notes and schedules thereto. Whenever the term “Borrower” is used in respect of a financial covenant or a related definition, it shall be understood to mean Borrower and its Subsidiaries on a consolidated basis unless the context clearly requires otherwise.

1.3. Code . Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein.

1.4. Construction . Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term “including” is not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.” The words

 

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“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in the other Loan Documents to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein to the repayment in full or satisfaction in full of the Obligations shall mean the repayment in full in cash (or cash collateralized in accordance with the terms hereof) of all Obligations other than contingent indemnification Obligations and other than any Obligations referred to in clause (b)  of the definition thereof that, at such time, are allowed by Wells Fargo or its applicable Affiliate to remain outstanding and are not required to be repaid or cash collateralized pursuant to the provisions of this Agreement. Any reference herein to any Person shall be construed to include such Person’s successors and assigns. Any requirement of a writing contained herein or in the other Loan Documents shall be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the material accuracy and completeness of the information contained therein.

1.5. Schedules and Exhibits . All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference.

2. LOAN AND TERMS OF PAYMENT.

2.1. Revolver Advances .

(a) Subject to the terms and conditions of this Agreement, and during the term of this Agreement, each Lender agrees (severally, not jointly or jointly and severally) to make advances (“ Advances ”) to Borrower in an amount at any one time outstanding not to exceed such Lender’s Pro Rata Share of an amount equal to the lesser of (i) the Maximum Revolver Amount less the Letter of Credit Usage less outstanding Advances, or (ii) the Borrowing Base less the Letter of Credit Usage less outstanding Advances.

(b) Anything to the contrary in this Section 2.1 notwithstanding, Agent shall have the right to establish and modify reserves against Availability in such amounts, and with respect to such matters, as Agent in its Permitted Discretion shall deem necessary or appropriate (collectively, “ Reserves ”), including, without limitation, with respect to (i) shrinkage (so as to bring perpetual records in line with historical levels), (ii) outstanding Obligations described in clause (b) of the definition of Obligations (other than with respect to Hedge Agreements), (iii) potential liabilities to customers, including without limitation, in connection with merchandise deposits, returns, merchandise credits, gift certificates, and frequent shopper programs in an amount, with respect to gift certificates and customer deposits, not in excess of 50% of the value of such gift certificates and merchandise deposits, (iv) bad debt write-downs,

 

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discounts, advertising allowances, credits, or other dilutive items with respect to Accounts, (v) unpaid freight charges, warehousing or storage charges, taxes, duties, and other similar unpaid costs associated with the acquisition of Inventory, (vi) sums that any Credit Party is required to pay (such as taxes, assessments, insurance premiums, or, in the case of leased assets, rents or other amounts payable under such leases) and has failed to pay under any Section of this Agreement or any other Loan Document, and (vii) amounts owing by any Credit Party to any Person to the extent secured by a Lien on, or trust over, any of the Collateral (other than any existing Permitted Lien set forth on Schedule P-1 which is specifically identified thereon as entitled to have priority over the Agent’s Liens and Liens securing Purchase Money Indebtedness), which Lien or trust, in the Permitted Discretion of Agent likely would have a priority superior to the Agent’s Liens (such as Liens or trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad valorem , excise, sales, or other taxes where given priority under applicable law) in and to such item of the Collateral. In addition to the foregoing, but subject to the provision of Section 4.6, Agent shall have the right to have the Collateral reappraised by a qualified company selected by Agent from time to time after the Closing Date for the purpose of re-determining the value of Eligible Accounts or Eligible Inventory and modifying Advance Rates and, as a result, re determining the Borrowing Base.

(c) The Lenders shall have no obligation to make additional Advances hereunder to the extent such additional Advances would cause the Revolver Usage to exceed the Maximum Revolver Amount or exceed the Borrowing Base.

(d) Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement.

2.2. Revolver Increase . On and after the Closing Date, Borrower shall have the option to increase in minimum increments of $2,500,000 (the “ Revolver Increase ”) the Maximum Revolver Amount by up to $5,000,000 (after giving effect to which the Maximum Revolver Amount shall not exceed $25,000,000 less the aggregate amount of reductions to the Revolver Commitments effected on or prior to the date of the Revolver Increase) (and Borrower shall be permitted to make such reductions from time to time and the “Maximum Revolver Amount” shall be correspondingly reduced, so long as immediately after giving effect to any such reduction the total amount of Advances does not exceed either (i) the Maximum Revolver Amount less the Letter of Credit Usage or (ii) the Borrowing Base less the Letter of Credit Usage)) upon at least 30 days (but not more than 45 days) advance written notice (“ Revolver Increase Notice ”) from Borrower to the Agent (which notice Agent shall promptly deliver to the Lenders). The Revolver Increase Notice shall (a) specify the date upon which the Revolver Increase is requested to occur, (b) be delivered at a time when no Default or Event of Default has occurred and is continuing (and the effectiveness of the Revolver Increase shall be subject to no Default or Event of Default existing of the time of the Revolver Increase) and (c) certify that the Revolver Increase will not violate or conflict with the terms of any Indebtedness or any other material contract, agreement, instrument or obligation of any Credit Party (and which notice will be accompanied by an opinion of counsel to Credit Parties on terms satisfactory to Agent in its

 

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Permitted Discretion). Any Advance as a result of an increase to the Revolver Commitment pursuant to this Section 2.2 shall be subject to the terms and conditions contained in this Agreement. Upon the increase of the Revolver Commitment pursuant to this Section 2.2 , Schedule C-1 shall be deemed amended and replaced with a new Schedule C-1 reflecting the new Revolver Commitments hereunder. For purposes of clarification, the Revolver Increase is a fully committed credit extension, subject to satisfaction of the terms and conditions contained in this Section 2.2 and otherwise as set forth in this Agreement.

2.3. Borrowing Procedures and Settlements. (a) Procedure for Borrowing. Each Borrowing shall be made by an irrevocable written request by an Authorized Person delivered to Agent (not later than (a) in the case of a Base Rate borrowing, 1:00 p.m. (New York time) on the proposed date of such Borrowing, and (b) in the case of a LIBOR Rate borrowing, 1:00 p.m. (New York time) at least two (2) Business Days prior to the date that is the requested Funding Date (subject to Section 2.13(b)(i) in the case of any LIBOR Rate Loan). At Agent’s election, in lieu of delivering the above-described written request, any Authorized Person may give Agent electronic notice of such request by the required time. In such circumstances, Borrower agrees that any such electronic notice will be confirmed in writing within 24 hours of the giving of such notice and the failure to provide such written confirmation shall not affect the validity of the request.

(b) Making of Loans .

(i) Promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a) , Agent shall notify the Lenders, not later than 4:00 p.m. (New York time) on the Business Day immediately preceding the Funding Date applicable thereto, by telecopy, telephone, or other similar form of transmission, of the requested Borrowing. Each Lender shall make the amount of such Lender’s Pro Rata Share of the requested Borrowing available to Agent in immediately available funds, to Agent’s Account, not later than 1:00 p.m. (New York time) on the Funding Date applicable thereto. After Agent’s receipt of the proceeds of such Advances, Agent shall make the proceeds thereof available to Borrower on the applicable Funding Date by transferring immediately available funds equal to such proceeds received by Agent to Borrower’s Designated Account; provided , however , that, subject to the provisions of Section 2.3(i) , Agent shall not request any Lender to make, and no Lender shall have the obligation to make, any Advance if Agent shall have actual knowledge that (1) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing unless such condition has been waived, or (2) the requested Borrowing would exceed the Availability on such Funding Date.

(ii) Unless Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, prior to noon (New York time) on the date of such Borrowing, that such

 

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Lender will not make available as and when required hereunder to Agent for the account of Borrower the amount of that Lender’s Pro Rata Share of the Borrowing, Agent may assume that each Lender has made or will make such amount available to Agent in immediately available funds on the Funding Date and Agent may (but shall not be so required), in reliance upon such assumption, make available to Borrower on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount available to Agent in immediately available funds and Agent in such circumstances has made available to Borrower such amount, then such Lender shall on the Business Day following such Funding Date make such amount available to Agent, together with interest at the Defaulting Lender Rate for each day during such period. A notice submitted by Agent to any Lender with respect to amounts owing under this subsection shall be conclusive, absent manifest error. If such amount is so made available, such payment to Agent shall constitute such Lender’s Advance on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to Agent on the Business Day following the Funding Date, Agent will notify Borrower of such failure to fund and, upon demand by Agent, Borrower shall pay such amount to Agent for Agent’s account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Advances composing such Borrowing. The failure of any Lender to make any Advance on any Funding Date shall not relieve any other Lender of any obligation hereunder to make an Advance on such Funding Date, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on any Funding Date.

(iii) Agent shall not be obligated to transfer to a Defaulting Lender any payments made by any Credit Party to Agent for the Defaulting Lender’s benefit, and, in the absence of such transfer to the Defaulting Lender, Agent shall transfer any such payments to each other non-Defaulting Lender member of the Lender Group ratably in accordance with their Revolver Commitments (but only to the extent that such Defaulting Lender’s Advance was funded by the other members of the Lender Group) or, if so directed by Borrower and if no Event of Default had occurred and is continuing (and to the extent such Defaulting Lender’s Advance was not funded by the Lender Group), retain same to be re-advanced to Borrower as if such Defaulting Lender had made Advances to Borrower. Subject to the foregoing, Agent may hold and, in its Permitted Discretion, re-lend to Borrower for the account of such Defaulting Lender the amount of all such payments received and retained by Agent for the account of such Defaulting Lender. Solely for the purposes of voting or consenting to matters with respect to the Loan Documents, such Defaulting Lender shall be deemed not to be a “Lender” and such

 

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Lender’s Revolver Commitment shall be deemed to be zero. This Section shall remain effective with respect to such Lender until (x) the Obligations under this Agreement shall have been declared or shall have become immediately due and payable, (y) the non-Defaulting Lenders, Agent, and the Credit Parties shall have waived such Defaulting Lender’s default in writing, or (z) the Defaulting Lender makes its Pro Rata Share of the applicable Advance and pays to Agent all amounts owing by Defaulting Lender in respect thereof. The operation of this Section shall not be construed to increase or otherwise affect the Revolver Commitment of any Lender, to relieve or excuse the performance by such Defaulting Lender or any other Lender of its duties and obligations hereunder, or to relieve or excuse the performance by any Credit Party of its duties and obligations hereunder to Agent or to the Lenders other than such Defaulting Lender. Any such failure to fund by any Defaulting Lender shall constitute a material breach by such Defaulting Lender of this Agreement and shall entitle Borrower at its option, upon written notice to Agent, to arrange for a substitute Lender to assume the Revolver Commitment of such Defaulting Lender, such substitute Lender to be acceptable to Agent. In connection with the arrangement of such a substitute Lender, the Defaulting Lender shall have no right to refuse to be replaced hereunder, and agrees to execute and deliver a completed form of Assignment and Acceptance in favor of the substitute Lender (and agrees that it shall be deemed to have executed and delivered such document if it fails to do so) subject only to being repaid its share of the outstanding Obligations (other than Obligations referred to in clause (b)  of the definition thereof, but including an assumption of its Pro Rata Share of the Risk Participation Liability) without any premium or penalty of any kind whatsoever; provided , however , that any such assumption of the Revolver Commitment of such Defaulting Lender shall not be deemed to constitute a waiver of any of the Lender Groups’ or any Credit Party’s rights or remedies against any such Defaulting Lender arising out of or in relation to such failure to fund.

(c) Settlement. It is agreed that each Lender’s funded portion of the Advances is intended by the Lenders to equal, at all times, such Lender’s Pro Rata Share of the outstanding Advances. Such agreement notwithstanding, Agent, and the other Lenders agree (which agreement shall not be for the benefit of or enforceable by Borrower) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Advances, shall take place on a periodic basis in accordance with the following provisions:

(i) Agent shall request settlement (“ Settlement ”) with the Lenders on a weekly basis, or on a more frequent basis if so determined by Agent with respect to any Credit Party’s Collections received by Agent by notifying the Lenders by telecopy, telephone, or other similar form of

 

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transmission, of such requested Settlement, no later than 2:00 p.m. (New York time) on the Business Day immediately prior to the date of such requested Settlement (the date of such requested Settlement being the “ Settlement Date ”). Such notice of a Settlement Date shall include a summary statement of the amount of outstanding Advances for the period since the prior Settlement Date. Subject to the terms and conditions contained herein (including Section 2.3(c)(iii) ): (y) if a Lender’s balance of the Advances exceeds such Lender’s Pro Rata Share of the Advances as of a Settlement Date, then Agent shall, by no later than 3:00 p.m. (New York time) on the Settlement Date, transfer in immediately available funds to a Deposit Account of such Lender (as such Lender may designate), an amount such that each such Lender shall, upon receipt of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances, and (z) if a Lender’s balance of the Advances is less than such Lender’s Pro Rata Share of the Advances as of a Settlement Date, such Lender shall no later than 2:00 p.m. (New York time) on the Settlement Date transfer in immediately available funds to the Agent’s Account, an amount such that each such Lender shall, upon transfer of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances. If any such amount is not made available to Agent by any Lender on the Settlement Date applicable thereto to the extent required by the terms hereof, Agent shall be entitled to recover for its account such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate.

(ii) In determining whether a Lender’s balance of the Advances is less than, equal to, or greater than such Lender’s Pro Rata Share of the Advances as of a Settlement Date, Agent shall, as part of the relevant Settlement, apply to such balance the portion of payments actually received in good funds by Agent with respect to principal, interest, fees payable by any Credit Party and allocable to the Lenders hereunder, and proceeds of Collateral. To the extent that a net amount is owed to any such Lender after such application, such net amount shall be distributed by Agent to that Lender as part of such next Settlement.

(d) Notation. Agent shall record on its books the principal amount of the Advances owing to each Lender and the interests therein of each Lender, from time to time and such records shall, absent manifest error, conclusively be presumed to be correct and accurate. In addition, each Lender is authorized, at such Lender’s option, to note the date and amount of each payment or prepayment of principal of such Lender’s Advances in its books and records, including computer records.

(e) Lenders’ Failure to Perform. All Advances shall be made by the Lenders contemporaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Advance (or other extension of credit) hereunder, nor shall any Revolver Commitment

 

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of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligations hereunder, and (ii) no failure by any Lender to perform its obligations hereunder shall excuse any other Lender from its obligations hereunder.

2.4. Payments .

(a) Payments by Borrower .

(i) Except as otherwise expressly provided herein, all payments by Borrower shall be made to Agent’s Account for the account of the Lender Group and shall be made in immediately available funds, no later than 2:00 p.m. (New York time) on the date specified herein. Any payment received by Agent later than 2:00 p.m. (New York time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

(ii) Unless Agent receives notice from Borrower prior to the date on which any payment is due to the Lenders that Borrower will not make such payment in full as and when required, Agent may assume that Borrower has made (or will make) such payment in full to Agent on such date in immediately available funds and Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent Borrower does not make such payment in full to Agent on the date when due, each Lender severally shall repay to Agent on demand such amount distributed to such Lender, together with interest thereon at the Defaulting Lender Rate for each day from the date such amount is distributed to such Lender until the date repaid.

(b) Apportionment and Application of Payments.

(i) Except as otherwise provided with respect to Defaulting Lenders and except as otherwise provided in the Loan Documents (including letter agreements between Agent and individual Lenders), aggregate principal and interest payments shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Obligations to which such payments relate held by each Lender) and payments of fees and expenses (other than fees or expenses that are for Agent’s separate account, after giving effect to any letter agreements between Agent and individual Lenders) shall be apportioned ratably among the Lenders having a Pro Rata Share of the type of Revolver Commitment or Obligation to which a particular fee relates. All payments shall be remitted to Agent and all such payments, and all proceeds of Collateral received by Agent, shall be applied as follows:

 

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(A) first , to pay any Lender Group Expenses then due to Agent under the Loan Documents, until paid in full,

(B) second , to pay any Lender Group Expenses then due to the Lenders under the Loan Documents, on a ratable basis, until paid in full,

(C) third , to pay any fees then due to Agent (for its separate account, after giving effect to any letter agreements between Agent and individual Lenders) under the Loan Documents until paid in full,

(D) fourth , to pay any fees then due to any or all of the Lenders (after giving effect to any letter agreements between Agent and individual Lenders) under the Loan Documents, on a ratable basis, until paid in full,

(E) fifth , ratably to pay interest due in respect of the Advances until paid in full,

(F) sixth , so long as no Event of Default has occurred and is continuing, to pay the principal of all Advances until paid in full,

(G) seventh , if an Event of Default has occurred and is continuing, ratably (i) to pay the principal of all Advances until paid in full and (ii)to Agent, to be held by Agent, for the ratable benefit of Issuing Lender and those Lenders having a Revolver Commitment, as cash collateral an amount up to 105% of the then extant Letter of Credit Usage until paid in full,

(H) eighth , if an Event of Default has occurred and is continuing, to pay any other Obligations (including the provision of amounts to Agent, to be held by Agent as cash collateral in an amount up to the amount determined by Agent in its Permitted Discretion as the amount necessary to secure each Credit Party’s obligations in respect of the then extant Obligations under clause (b)  of the definition thereof), and

(I) ninth , to Borrower (to be wired to the Designated Account) or such other Person entitled thereto under applicable law.

(ii) Agent promptly shall distribute to each Lender, pursuant to the applicable wire instructions received from each Lender in writing, such funds as it may be entitled to receive, subject to a Settlement delay as provided in Section 2.3(c) .

 

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(iii) In each instance, so long as no Event of Default has occurred and is continuing, this Section 2.4(b) shall not be deemed to apply to any payment by Borrower specified by Borrower to be for the payment of specific Obligations then due and payable (or prepayable) under any provision of this Agreement.

(iv) For purposes of the foregoing, “paid in full” means payment of all amounts owing under the Loan Documents according to the terms thereof, including loan fees, service fees, professional fees, interest (and specifically including interest accrued after the commencement of any Insolvency Proceeding), default interest, interest on interest, and expense reimbursements, whether or not any of the foregoing would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding.

(v) In the event of a direct conflict between the priority provisions of this Section 2.4 and other provisions contained in any other Loan Document, it is the intention of the parties hereto that such priority provisions in such documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 2.4 shall control and govern.

2.5. Overadvances . If, at any time or for any reason, the amount of Obligations (other than Obligations referred to in clause (b) of the definition thereof) owed by the Credit Parties to the Lender Group pursuant to Section 2.1 or Section 2.12 is greater than either the Dollar or percentage limitations set forth in Section 2.1 or Section 2.12 , as applicable (an “ Overadvance ”), Borrower immediately shall pay to Agent, in cash, the amount of such excess, which amount shall be used by Agent to reduce the Obligations in accordance with the priorities set forth in Section 2.4(b) . In addition, Borrower hereby promises to pay the Obligations (including principal, interest, fees, costs, and expenses) in Dollars in full as and when due and payable under the terms of this Agreement and the other Loan Documents.

2.6. Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations.

(a) Interest Rates . Except as provided in clause (c) below, all Obligations (except for undrawn Letters of Credit and except for Obligations referred to in clause (b)  of the definition thereof) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof as follows (i) if the relevant Obligation is an Advance that is a LIBOR Rate Loan, at a per annum rate equal to the LIBOR Rate plus the Applicable Margin for LIBOR Rate Loans and (ii) otherwise, at a per annum rate equal to the Base Rate plus the Applicable Margin for Base Rate Loans. Notwithstanding the foregoing, if, as a result of any restatement of or other adjustment to the financial statements of the Credit

 

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Parties or for any other reason, the Agent or Required Lenders determine that (a) the Applicable Margin as calculated by the Borrower as of any applicable date was inaccurate and (b) a proper calculation of the Applicable Margin would have resulted in a higher level of pricing for any period, then the Borrower shall automatically and retroactively be obligated to pay to the Lender Group, and shall pay to the Lender Group promptly on demand by the Agent or Required Lenders, an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period.

(b) Letter of Credit Fees. Borrower shall pay Agent (for the ratable benefit of the Lenders), Letter of Credit fees (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(e) ) (i) with respect to standby Letters of Credit, which shall accrue at a rate equal to the Applicable Margin then in effect for standby Letters of Credit times the Daily Balance of the undrawn amount of all such outstanding standby Letters of Credit, and (ii) with respect to documentary Letters of Credit, which shall accrue at a rate equal to the Applicable Margin then in effect for documentary Letters of Credit times the Daily Balance of the undrawn amount of all such outstanding documentary Letters of Credit.

(c) Default Rate . Upon the occurrence and during the continuation of an Event of Default,

(i) all Obligations (except for undrawn Letters of Credit and except for Obligations referred to in clause (b)  of the definition thereof) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to 2 percentage points above the per annum rate otherwise applicable hereunder, and

(ii) the Letter of Credit fee provided for above shall be increased to 2 percentage points above the per annum rate otherwise applicable hereunder.

(d) Payment. Except as provided to the contrary in Section 2.13(a) , interest, Letter of Credit fees, and all other fees payable hereunder shall be due and payable, in arrears, on the first day of each month at any time that Obligations or Revolver Commitments are outstanding. Borrower hereby authorizes Agent, from time to time without prior notice to Borrower, to charge such interest and fees, all Lender Group Expenses (as and when incurred), the charges, commissions, fees, and costs provided for in Section 2.12(e) (as and when accrued or incurred), the fees and costs provided for in Section 2.11 (as and when accrued or incurred), and all other payments as and when due and payable with respect to the Obligations to Borrower’s Loan Account, which amounts thereafter shall constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances hereunder. Any interest not paid when due shall be compounded by being charged to Borrower’s Loan Account and shall thereafter constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances that are Base Rate Loans hereunder.

 

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(e) Computation . All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed. In the event the Base Rate is changed from time to time hereafter, the rates of interest hereunder based upon the Base Rate automatically and immediately shall be increased or decreased by an amount equal to such change in the Base Rate.

(f) Intent to Limit Charges to Maximum Lawful Rate . In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Borrower and the Lender Group, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided , however , that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrower is and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess.

2.7. Cash Management .

Within 60 days following the Closing Date with respect to Deposit Accounts in existence as of such date and within 60 days following the opening of any other Deposit Account:

(a) Each Credit Party shall establish and maintain cash management services of a type and on terms satisfactory to Agent at one or more of the banks set forth on Schedule 2.7(a) (each, a “ Cash Management Bank ”), and, in connection therewith, establish and maintain at such Cash Management Banks pursuant to the terms hereof (i) one or more accounts designated (either in Schedule 5.17 or pursuant to Section 2.7(e) ) as concentration accounts (the “ Concentration Accounts ”) and (ii) additional accounts designated (either in Schedule 5.17 or pursuant to Section 2.7(e) ) as collection accounts (the “ Collection Accounts ”, and together with the Concentration Accounts, the “ Cash Management Accounts ”).

(b) Each Credit Party shall (1) request in writing and otherwise take such reasonable steps to ensure that all of its, Account Debtors, Credit Card Processors forward payment of the amounts owed by them directly to a Cash Management Bank for deposit into a Concentration Account, (2) deposit or cause to be deposited promptly, and in any event no later than the third Business Day (unless more than $250,000 in Collections shall have been received in any Deposit Account, in which case Collections from such Deposit Account shall be forwarded on a daily basis) after the date of receipt thereof (and subject to Section 2.7(d) with respect to payments from Credit Card Processors), all such Collections from Account Debtors (including those sent directly to a Cash Management Bank) into a Concentration Account, and (3) deposit or cause to be deposited promptly, and in any event no later than the third Business Day (unless more than $250,000 in Collections shall have been received in any Deposit Account, in which case Collections from such Deposit Account shall be forwarded on a daily basis) after the date of receipt thereof, all other available Collections (including cash, checks, drafts and all

 

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other forms of daily store receipts or other similar items of payment) received by or otherwise under its control into a Cash Management Account provided, so long as no Triggering Event shall have occurred and be continuing, Agent shall permit all funds in any Concentration Account to be forwarded, by daily sweeps, to the Designated Account. Notwithstanding any of the foregoing, upon Agent’s request, Borrower shall provide Agent with copies of its regular monthly bank statements and such other information relating to the Deposit Accounts as shall reasonably be requested by Agent. For purposes of clarification, after funds are swept pursuant to any provision of this Section 2.7 to the Designated Account, they may be used by the Borrower for its general corporate purposes.

(c) With respect to each Concentration Account, each Cash Management Bank shall establish and maintain Cash Management Agreements with Agent and the applicable Credit Party, in form and substance acceptable to Agent in its Permitted Discretion. Each Cash Management Agreement shall provide, among other things, that (i) all items of payment deposited in such Concentration Account and proceeds thereof are subject to the control of Agent, (ii) the Cash Management Bank has no rights of setoff or recoupment or any other claim against the applicable Concentration Account other than for payment of its service fees and other charges directly related to the administration of such Concentration Account and for returned checks or other items of payment, and (iii) from and after the date that it receives written notification from Agent (a “ Control Exercise Notice ”), it immediately will forward by daily sweep all amounts in the applicable Concentration Account to the Agent’s Account or as otherwise directed by Agent to prepay the Obligations in such order as set forth in Section 2.4(b) ; provided, that any such prepayments of the Loans pursuant to this Section 2.7(c) may be reborrowed subject to Section 3.2 . Anything contained herein into the contrary notwithstanding, Agent agrees that it shall not provide a Control Exercise Notice to the Cash Management Banks except during a Triggering Event. At any time during a Triggering Event, Agent shall be free to exercise its right to issue a Control Exercise Notice. Agent shall deliver to Borrower and the applicable Credit Party a copy of any such Control Exercise Notice promptly after delivery thereof to the applicable Cash Management Bank; provided , however that a non-willful failure to so do shall not affect the validity of any such Control Exercise Notice or otherwise limit Agent’s right to send any other Control Exercise Notice. Upon the subsequent termination of such Triggering Event at such time as, for a period of forty-five (45) consecutive days, both (i) Gross Collateral Availability is equal to or greater than $10,000,000 and (ii) there shall not have occurred and be continuing any Event of Default, Agent shall withdraw such Control Exercise Notice and permit funds to be transferred as set forth in Section 2.7(b) above, including as to Credit Party access to funds in any Concentration Account (and daily sweeps thereof into any Designated Account), but subject in all events to the right of Agent to deliver a Control Exercise Notice during any subsequent Triggering Event.

(d) Each Credit Party shall use its best efforts to establish and maintain Credit Card Agreements with Agent and each Credit Card Processor. Each such Credit Card Agreement shall provide, among other things, that each such Credit Card Processor shall transfer all proceeds of credit card charges for sales by each Credit Party received by it (or other amounts payable by such Credit Card Processor) into a designated Concentration Account on a daily basis or such other periodic basis as Agent may otherwise direct. No Credit Party shall change any direction or designation set forth in the Credit Card Agreements regarding payment of charges without the prior written consent of Agent.

 

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(e) So long as no Event of Default has occurred and is continuing, Borrower may amend Schedules 2.7(a) and 5. 17 to add or replace a Cash Management Bank or Cash Management Account; provided , however , that in the case of any Concentration Account, (i) such prospective Cash Management Bank shall be reasonably satisfactory to Agent and Agent shall have consented in writing in advance to the opening of such Cash Management Account with the prospective Cash Management Bank (which consent shall not be required with respect to any additional Concentration Account at an existing Cash Management Bank and otherwise shall not be unreasonably withheld), and (ii) prior to the time of the opening of any Concentration Account, the applicable Credit Party and such prospective Cash Management Bank shall have executed and delivered to Agent a Cash Management Agreement. Each Credit Party shall close any of its Concentration Accounts (and establish replacement cash management accounts in accordance with the foregoing sentence) promptly and in any event within 45 days of notice from Agent (or such longer period as such Credit Party and Agent may agree) that the creditworthiness of any Cash Management Bank is no longer acceptable in Agent’s reasonable judgment, or as promptly as practicable and in any event within 60 days of notice from Agent (or such longer period as such Credit Party and Agent may agree) that the operating performance, funds transfer, or availability procedures or performance of the Cash Management Bank with respect to Concentration Accounts or Agent’s liability under any Cash Management Agreement with such Cash Management Bank is no longer acceptable in Agent’s reasonable judgment.

The Cash Management Accounts shall be cash collateral accounts, with all cash, checks and similar items of payment in such accounts securing payment of the Obligations, and in which each Credit Party hereby grants a Lien to Agent.

2.8. Crediting Payments . The receipt of any payment item by Agent (whether from transfers to Agent by the Cash Management Banks pursuant to the Cash Management Agreements or otherwise) shall not be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made to the Agent’s Account or unless and until such payment item is honored when presented for payment. Should any payment item not be honored when presented for payment, then the applicable Credit Party shall be deemed not to have made such payment and interest shall be calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Agent only if it is received into the Agent’s Account on a Business Day on or before 2:00 p.m. (New York time). If any payment item is received into the Agent’s Account on a non-Business Day or after 2:00 p.m. (New York time) on a Business Day, it shall be deemed to have been received by Agent as of the opening of business on the immediately following Business Day.

2.9. Designated Account . Agent is authorized to make the Advances, and Issuing Lender is authorized to issue the Letters of Credit, under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person or, without instructions, if pursuant to Section 2.6(d) . Borrower agrees to establish and maintain the

 

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Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Advances requested by Borrower and made by Agent or the Lenders hereunder. Unless otherwise agreed by Agent and Borrower, any Advance requested by Borrower and made by Agent or the Lenders hereunder shall be made to the Designated Account.

2.10. Maintenance of Loan Account; Statements of Obligations . Agent shall maintain an account on its books in the name of Borrower (the “ Loan Account ”) on which Borrower will be charged with all Advances made by Agent or the Lenders to Borrower or for Borrower’s account, the Letters of Credit issued by Issuing Lender for Borrower’s account, and with all other payment Obligations hereunder or under the other Loan Documents (except Obligations referred to in clause (b) of the definition thereof), including, accrued interest, fees and expenses, and Lender Group Expenses. In accordance with Section 2.8 , the Loan Account will be credited with all payments received by Agent from Borrower or for Borrower’s account, including all amounts received in the Agent’s Account from any Cash Management Bank. When crediting payments to the Loan Account, the Agent agrees to work with the Borrower to avoid the incurrence of any breakage fees relating to LIBOR contracts. Agent shall render statements regarding the Loan Account to Borrower, including principal, interest, fees, and including an itemization of all charges and expenses constituting Lender Group Expenses owing, and such statements, absent manifest error, shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrower and the Lender Group unless, within 30 days after receipt thereof by Borrower, Borrower shall deliver to Agent written objection thereto describing the error or errors contained in any such statements.

2.11. Fees . Borrower shall pay to Agent the following fees and charges, which fees and charges shall be non-refundable when paid (irrespective of whether this Agreement is terminated thereafter) and shall be apportioned among the Lenders in accordance with the terms of letter agreements between Agent and individual Lenders:

(a) Unused Line Fee . On the first day of each month during the term of this Agreement, an unused line fee in an amount equal to 0.25% per annum times the result of (i) the Maximum Revolver Amount, less (ii) the sum of (A) the average Daily Balance of Advances that were outstanding during the immediately preceding month, plus (B) the average Daily Balance of the Letter of Credit Usage during the immediately preceding month, (such sum being the “Average Utilization”).

(b) Fee Letter Fees . As and when due and payable under the terms of the Fee Letter, the fees set forth in the Fee Letter.

(c) Audit, Appraisal, and Valuation Charges. Audit, appraisal, and valuation fees and charges as follows (i) a fee of $1,000 per day, per auditor, plus out-of-pocket transportation and lodging expenses for each financial audit of Borrower performed by personnel employed by Agent, (ii) if implemented, a fee of $1,000 per day, per applicable individual, plus out-of-pocket expenses for the one-time establishment of electronic collateral reporting systems, (iii) a fee of $1,500 per day per appraiser, plus out-of-pocket expenses, for each appraisal of the Collateral, or any portion thereof, performed by personnel employed by Agent, and (iv) a fee of

 

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$1,500 per day per appraiser, or $1,000 per day per auditor or other individual, as applicable, plus additional out-of-pocket transportation and lodging expenses, and such additional out-of-pocket non-personnel related expenses, as applicable, if Agent elects to employ the services of one or more third Persons to perform financial audits of Borrower or its Subsidiaries, to appraise the Collateral, or any portion thereof, or to assess Borrower’s or its Subsidiaries’ business valuation. The foregoing notwithstanding, from and after the Closing Date, Borrower shall not be required to pay for more than 2 financial audits and 2 inventory appraisals during any 12 consecutive month period so long as no Event of Default has occurred and is continuing, it being understood that, for any audit or appraisal conducted (or commenced) at a time when an Event of Default shall have occurred, Borrower shall pay all fees as specified above for Agent’s employees and all expenses and costs paid or incurred by Agent as specified above.

(d) Revolver Increase Fees. On the effective date of any Revolver Increase pursuant to Section 2.2 , a closing fee equal to 0.25% times the amount of such Revolver Increase.

2.12. Letters of Credit .

(a) Subject to the terms and conditions of this Agreement, the Issuing Lender agrees to issue letters of credit for the account of Borrower (each, an “ L/C ”) or to purchase participations or execute indemnities or reimbursement obligations (each such undertaking, an “ L/C Undertaking ”) with respect to letters of credit issued by an Underlying Issuer (as of the Closing Date, the prospective Underlying Issuer is to be Wells Fargo) for the account of Borrower. To request the issuance of an L/C or an L/C Undertaking (or the amendment, renewal, or extension of an outstanding L/C or L/C Undertaking), Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Lender) to the Issuing Lender and Agent (reasonably in advance of the requested date of issuance, amendment, renewal, or extension) a notice requesting the issuance of an L/C or L/C Undertaking, or identifying the L/C or L/C Undertaking to be amended, renewed, or extended, specifying the date of issuance, amendment, renewal, or extension (which shall be a Business Day), the date on which such L/C or L/C Undertaking is to expire, the amount of such L/C or L/C Undertaking, the name and address of the beneficiary thereof (or the beneficiary of the Underlying Letter of Credit, as applicable), and such other information as shall be necessary to prepare, amend, renew, or extend such L/C or L/C Undertaking. If requested by the Issuing Lender, Borrower also shall be an applicant under the application with respect to any Underlying Letter of Credit that is to be the subject of an L/C Undertaking. The Issuing Lender shall have no obligation to issue a Letter of Credit if any of the following would result after giving effect to the issuance of such requested Letter of Credit:

(i) the Letter of Credit Usage would exceed the Borrowing Base less the then extant amount of outstanding Advances, or

(ii) the Letter of Credit Usage would exceed $5,000,000, or

 

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(iii) the Letter of Credit Usage would exceed the Maximum Revolver Amount less the then extant amount of outstanding Advances.

Borrower and the Lender Group acknowledge and agree that certain Underlying Letters of Credit may be issued to support letters of credit that already are outstanding as of the Closing Date. Each Letter of Credit (and corresponding Underlying Letter of Credit) shall be in form and substance acceptable to the Issuing Lender (in the exercise of its Permitted Discretion), including the requirement that the amounts payable thereunder must be payable in Dollars. If Issuing Lender is obligated to advance funds under a Letter of Credit, Borrower immediately shall reimburse such L/C Disbursement to Issuing Lender by paying to Agent an amount equal to such L/C Disbursement not later than 2:00 p.m., New York time, on the date that such L/C Disbursement is made, if Borrower shall have received written or telephonic notice of such L/C Disbursement prior to 1:00 p.m., New York time, on such date, or, if such notice has not been received by Borrower prior to such time on such date, then not later than 2:00 p.m., New York time, on the Business Day that Borrower receives such notice, if such notice is received prior to 1:00 p.m., New York time, on the date of receipt, and, in the absence of such reimbursement, the L/C Disbursement immediately and automatically shall be deemed to be an Advance hereunder and, thereafter, shall bear interest at the rate then applicable to Advances that are Base Rate Loans under Section 2.6 . To the extent an L/C Disbursement is deemed to be an Advance hereunder, Borrower’s obligation to reimburse such L/C Disbursement shall be discharged and replaced by the resulting Advance. Promptly following receipt by Agent of any payment from Borrower pursuant to this paragraph, Agent shall distribute such payment to the Issuing Lender or, to the extent that Lenders have made payments pursuant to Section 2.12(c) to reimburse the Issuing Lender, then to such Lenders and the Issuing Lender as their interests may appear.

(b) Promptly following receipt of a notice of L/C Disbursement pursuant to Section 2.12(a) , each Lender with a Revolver Commitment agrees to fund its Pro Rata Share of any Advance deemed made pursuant to the foregoing subsection on the same terms and conditions as if Borrower had requested such Advance and Agent shall promptly pay to Issuing Lender the amounts so received by it from the Lenders. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Lender or the Lenders with Revolver Commitments, the Issuing Lender shall be deemed to have granted to each Lender with a Revolver Commitment, and each Lender with a Revolver Commitment shall be deemed to have purchased, a participation in each Letter of Credit, in an amount equal to its Pro Rata Share of the Risk Participation Liability of such Letter of Credit, and each such Lender agrees to pay to Agent, for the account of the Issuing Lender, such Lender’s Pro Rata Share of any payments made by the Issuing Lender under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender with a Revolver Commitment hereby absolutely and unconditionally agrees to pay to Agent, for the account of the Issuing Lender, such Lender’s Pro Rata Share of each L/C Disbursement made by the Issuing Lender and not reimbursed by Borrower on the date due as provided in clause (a) of this Section, or of any reimbursement payment required to be refunded to Borrower for any reason. Each Lender with a Revolver Commitment acknowledges and agrees that its obligation to deliver to Agent, for the account of the Issuing Lender, an amount equal to its respective Pro Rata Share of each L/C Disbursement made by the Issuing Lender

 

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pursuant to this Section 2.12(b) shall be absolute and unconditional and such remittance shall be made notwithstanding the occurrence or continuation of an Event of Default or Default or the failure to satisfy any condition set forth in Section 3 hereof. If any such Lender fails to make available to Agent the amount of such Lender’s Pro Rata Share of each L/C Disbursement made by the Issuing Lender in respect of such Letter of Credit as provided in this Section, such Lender shall be deemed to be a Defaulting Lender and Agent (for the account of the Issuing Lender) shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate until paid in full.

(c) Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless from any loss, cost, expense, or liability, and reasonable attorneys fees incurred by the Lender Group arising out of or in connection with any Letter of Credit; provided , however , that Borrower shall not be obligated hereunder to indemnify for any loss, cost, expense, or liability to the extent that it is caused by the gross negligence or willful misconduct of such Issuing Lender or any other member of the Lender Group. Borrower agrees to be bound by the Underlying Issuer’s regulations and interpretations of any Underlying Letter of Credit or by Issuing Lender’s interpretations of any L/C issued by Issuing Lender to or for Borrower’s account, even though this interpretation may be different from Borrower’s own, and Borrower understands and agrees that the Lender Group shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower’s instructions or those contained in the Letter of Credit or any modifications, amendments, or supplements thereto. Borrower understands that the L/C Undertakings may require Issuing Lender to indemnify the Underlying Issuer for certain costs or liabilities arising out of claims by Borrower against such Underlying Issuer. Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless with respect to any loss, cost, expense (including reasonable attorneys fees), or liability incurred by the Lender Group under any L/C Undertaking as a result of the Lender Group’s indemnification of any Underlying Issuer; provided , however , that Borrower shall not be obligated hereunder to indemnify for any loss, cost, expense, or liability to the extent that it is caused by the gross negligence or willful misconduct of such Issuing Lender or any other member of the Lender Group.

(d) Borrower hereby authorizes and directs any Underlying Issuer to deliver to the Issuing Lender all instruments, documents, and other writings and property received by such Underlying Issuer pursuant to such Underlying Letter of Credit and to accept and rely upon the Issuing Lender’s instructions with respect to all matters arising in connection with such Underlying Letter of Credit and the related application.

(e) Any and all charges, commissions, fees, and costs incurred by the Issuing Lender relating to Underlying Letters of Credit shall be Lender Group Expenses for purposes of this Agreement and immediately shall be reimbursable by Borrower to Agent for the account of the Issuing Lender; it being acknowledged and agreed by Borrower that the Underlying Issuer may impose a schedule of charges for amendments, extensions, drawings, and renewals.

 

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(f) If by reason of (i) any change after the Closing Date in any applicable law, treaty, rule, or regulation or any change in the interpretation or application thereof by any Governmental Authority, or (ii) compliance by the Underlying Issuer or the Lender Group with any direction, request, or requirement (irrespective of whether having the force of law) of any Governmental Authority or monetary authority including, Regulation D of the Federal Reserve Board as from time to time in effect (and any successor thereto):

(i) any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letter of Credit issued hereunder, or

(ii) there shall be imposed on the Underlying Issuer or the Lender Group any other condition regarding any Underlying Letter of Credit or any Letter of Credit issued pursuant hereto,

and the result of the foregoing is to increase, directly or indirectly, the cost to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce the amount receivable in respect thereof by the Lender Group, (except (x) costs relating to payments on account of Taxes and additional amounts that are required to be paid pursuant to, or explicitly excluded from the terms of Section 16.11 and (y) costs or reductions in amounts receivable as a result of a change of general applicability in (1) taxes imposed on or measured by a Lender’s net income or (2) franchise taxes imposed on a Lender, in lieu of net income taxes, by the jurisdiction, or any political subdivision thereof, under the laws of which it is organized or otherwise resides for tax purposes or maintains a lending office), then, and in any such case, Agent may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify Borrower, and Borrower shall pay on demand such amounts as Agent may specify to be necessary to compensate the Lender Group for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to Base Rate Loans hereunder. The determination by Agent of any amount due pursuant to this Section, as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto.

(g) Borrower acknowledges and agrees that certain of the Qualified Import Letters of Credit may provide for the presentation of time drafts to the Underlying Issuer. If an Underlying Issuer accepts such a time draft that is presented under an Underlying Letter of Credit, it is acknowledged and agreed that (i) the Letter of Credit will require the Issuing Lender to reimburse the Underlying Issuer for amounts paid on account of such time draft on or after the maturity date thereof, (ii) the pricing provisions hereof (including Sections 2.6(b) and 2.12(e) ) shall continue to apply, until payment of such time draft on or after the maturity date thereof, as if the Underlying Letter of Credit were still outstanding, and (iii) on the date on which Issuing Lender makes payment to the Underlying Issuer of the amounts paid on account of such time draft, Borrower immediately shall reimburse such amount to Issuing Lender and such amount shall constitute an L/C Disbursement hereunder.

 

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2.13. LIBOR Option .

(a) Interest and Interest Payment Dates. In lieu of having interest charged at the rate based upon the Base Rate, Borrower shall have the option (the “ LIBOR Option ”) to have interest on all or a portion of the Advances be charged at a rate of interest based upon the LIBOR Rate. Interest on LIBOR Rate Loans shall be payable on the earliest of (i) the last day of the Interest Period applicable thereto, (ii) the date that is one month after the commencement of the applicable Interest Period, (iii) the occurrence of an Event of Default in consequence of which the Required Lenders or Agent on behalf thereof elect to accelerate the maturity of all or any portion of the Obligations, or (iv) termination of this Agreement pursuant to the terms hereof. On the last day of each applicable Interest Period in respect of a LIBOR R