-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ng7639UH/ap5GZgI0RagIOCceob+Ojh/kJENeRDOg9D0+RkiSapY2xeUJKV8OTzB wogRTee7ZgDzC9x+/sxPGA== 0001019439-04-000006.txt : 20040318 0001019439-04-000006.hdr.sgml : 20040318 20040317185646 ACCESSION NUMBER: 0001019439-04-000006 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20040303 ITEM INFORMATION: Acquisition or disposition of assets FILED AS OF DATE: 20040318 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIG DOG HOLDINGS INC CENTRAL INDEX KEY: 0001019439 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 521868665 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22963 FILM NUMBER: 04676510 BUSINESS ADDRESS: STREET 1: 121 GRAY AVENUE STREET 2: SUITE 300 CITY: SANTA BARBARA STATE: CA ZIP: 93101 BUSINESS PHONE: 8059638727 MAIL ADDRESS: STREET 1: 121 GRAY AVENUE STREET 2: SUITE 300 CITY: SANTA BARBARA STATE: CA ZIP: 93101 8-K 1 form8-k.txt FORM 8K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): March 3, 2004 Big Dog Holdings, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 0-22963 52-1868665 (State or Other Jurisdiction (Commission File Number) (IRS Employer of Incorporation) Identification No.) 121 Gray Avenue Santa Barbara, California 93101 (Address of Principal Executive Offices) (Zip Code) Mr. Anthony J. Wall Executive Vice President and General Counsel 121 Gray Avenue Santa Barbara, California 93101 (Name and Address of Agent For Service) (805) 963-8727 (Telephone Number, Including Area Code, of Agent for Service) Item 2. Acquisition or Disposition of Assets On March 3, 2004, Big Dog Holdings, Inc. (the "Company"), through its majority-owned subsidiary, TWC Acquisition Corp. ("TWC"), completed the acquisition (the "Acquisition") of substantially all of the assets of The Walking Company, a California corporation, and Alan's Shoes, Inc., an Arizona corporation (together, the "Debtors"), through an asset purchase pursuant to the Debtors' Second Amended Plan of Reorganization (the "Plan") in Case No. SV 03-15880-GM confirmed by the United States Bankruptcy Court for the Central District of California (the "Bankruptcy Court") in an order (the "Order") entered on March 2, 2004. Following the Acquisition, TWC changed its name to "The Walking Company." The terms of the Acquisition are contained in the Plan and the Order, which are attached hereto as exhibits and incorporated herein by reference. The Walking Company is a leading specialty retailer of high quality, technically designed comfort walkwear and accessories, featuring quality brands such as Ecco, Mephisto, Dansko, Birkenstock and Merrell. It sells its products through more than 70 retail store locations. The Debtors had total annual sales of approximately $65 million in 2003. The assets of the Debtors acquired by TWC consist primarily of inventory, equipment, leases and trademarks, all of which will be used by TWC to continue the business of the Debtors under the name "The Walking Company." The Company initiated the Acquisition by making a bid for the Debtors' assets in an auction held by the Bankruptcy Court on January 26, 2004. The Bankruptcy Court confirmed that the Company was the winning bidder in a hearing held on February 2, 2004, and subsequently the Debtors submitted the Plan to the Bankruptcy Court for confirmation. Prior to the confirmation of the Plan, none of the Company or any of its affiliates, directors or officers, or any associate of any such director or officer, had any material relationship with either of the Debtors. The total purchase price for the Acquisition was approximately $19 million, subject to adjustment, which included the payment and issuance of cash, notes and securities by TWC and the Company pursuant to the Plan. This included that TWC (i) paid the approximately $7.27 million outstanding balance under the Debtors' Loan and Security Agreement with Wells Fargo Retail Finance II, LLC ("WFRF"), (ii) paid $1.7 million in cash to certain creditors of the Debtors, (iii) issued $3.3 million in aggregate principal amount of secured promissory notes to certain creditors of the Debtors, and issued to such creditors a right to put 50% of the outstanding principal amount of such notes to the Company at a 20% discount, (iv) issued $700,000 in aggregate principal amount of unsecured promissory notes to certain creditors of the Debtors, and issued a right to put such unsecured notes to TWC at a 20% discount, (v) assumed a long-term obligation to pay $572,000 in accrued sales taxes, (vi) paid approximately $2.21 million in certain acquisition-related fees and expenses, (vii) assumed approximately $2.3 million of accrued expenses and other liabilities, and (viii) issued to certain creditors of the Debtors 10% of TWC's outstanding common stock (valued at $645,000), with a right (in the form of warrants) to convert the TWC shares into shares of common stock of the Company at a price of $4.35 per share and a right to put such TWC shares to TWC for cash totaling $645,000. In addition, the Company (i) provided a one-year "sunset" guaranty in regard to TWC's obligations under certain retail store leases assumed by TWC and (ii) a guaranty in regard to a potential administrative claim against TWC of up to $2.9 million (which claim is being disputed). The total number of shares of Company common stock issuable under all of such warrants is 1,067,817. All of the foregoing warrants and put rights issued by the Company or TWC will expire at 5:00 p.m., p.s.t., on June 30, 2004. In addition, Fred Kayne (the Chairman of the Board of the Company), and Andrew Feshbach (the CEO of the Company), who also are the holders of a majority of the outstanding stock of the Company, agreed (in response to the demands of certain creditors) to provide personal back-up guaranties to fund (i) the above obligations of the Company and TWC in regard to the potential administrative claim and (ii) the above obligation of the Company to make payment on the potential exercise of put rights of the holders of the secured TWC notes. The foregoing cash payments by TWC and TWC's initial working capital were funded by (i) the Company contributing $8.95 million to TWC ($6.45 million as equity and $2.5 million as subordinated debt) and (ii) TWC refinancing the $7.27 million required to pay off the Debtors' obligation to WFRF under a new Loan and Security Agreement between TWC and WFRF dated March 3, 2004. The Company funded such subordinated debt contribution to TWC by borrowing (i) $1.05 million under its Loan and Security Agreement, dated October 23, 2001, as amended, with WFRF and (ii) $1.45 million under an unsecured Revolving Promissory Note facility, dated March 1, 2004, with Israel Discount Bank. The Company funded the equity portion of its contribution to TWC from available cash distributed to it from the Company's primary operating subsidiary, Big Dog USA, Inc. Item 7. Financial Statements and Exhibits. (a)(4) Financial statements required by this item will be filed by amendment not later than 60 days after the date that this initial report must be filed. (c) Exhibits. Exhibit Number Description 2.1 Second Amended Plan of Reorganization of Shoes Liquidation Co. (formerly The Walking Company) and Alan's Shoes, Inc., confirmed on March 2, 2004.* 2.2 Order of the United States Bankruptcy Court for the Central District of California confirming the Second Amended Plan of Reorganization of Shoes Liquidation Co. (formerly The Walking Company) and Alan's Shoes, Inc., entered on March 2, 2004. 4.1 Revolving Promissory Note issued by Big Dog Holdings, Inc. in favor of Israel Discount Bank,dated March 1, 2004. 4.2 Warrant, dated March 3, 2004, to purchase 55,188 shares of the common stock of Big Dog Holdings, Inc. at an exercise price of $4.35 per share, exercisable by the tender of common stock of The Walking Company (formerly TWC Acquisition Corp.), issued to Retail & Restaurant Growth Capital L.P. Substantially identical Warrants were issued to a total of 16 additional junior secured creditors of Shoes Liquidation Co. (formerly The Walking Company) and Alan's Shoes, Inc., in the names and amounts indicated in the schedule attached to Exhibit 4.2. 4.3 Warrant, dated March 3, 2004, to purchase up to 286,978 shares of the common stock of Big Dog Holdings, Inc. at an exercise price of $4.35 per share, exercisable by the tender of Junior Secured Creditors Promissory Notes issued by The Walking Company (formerly TWC Acquisition Corp.), issued to Retail & Restaurant Growth Capital L.P. Substantially identical Warrants were issued to a total of 16 additional junior secured creditors of Shoes Liquidation Co. (formerly The Walking Company) and Alan's Shoes, Inc., in the names and amounts indicated in the schedule attached to Exhibit 4.3. 4.4 Warrant, dated March 3, 2004, to purchase up to 164,611 shares of the common stock of Big Dog Holdings, Inc. at an exercise price of $4.35 per share, exercisable by the tender of a First Unsecured Creditors Promissory Note issued by The Walking Company (formerly TWC Acquisition Corp.), issued to the Post-Confirmation Committee for the benefit of the unsecured creditors of Shoes Liquidation Co. (formerly The Walking Company) and Alan's Shoes, Inc. 4.4 Warrant, dated March 3, 2004, to purchase up to 4,938 shares of the Common Stock of Big Dog Holdings, Inc. at an exercise price of $4.35 per share, exercisable by the tender of a Second Unsecured Creditors Promissory Note issued by The Walking Company (formerly TWC Acquisition Corp.), issued to the Post-Confirmation Committee for the benefit of the unsecured creditors of Shoes Liquidation Co. (formerly The Walking Company) and Alan's Shoes, Inc. 4.6 Junior Secured Creditors Promissory Notes, dated March 3, 2004, in the aggregate principal amount of $3,279,000, issued by The Walking Company (formerly TWC Acquisition Corp.) to the junior secured creditors of Shoes Liquidation Co. (formerly The Walking Company) and Alan's Shoes, Inc. (the "Debtors") pursuant to the Debtors' Second Amended Plan of Reorganization.** 4.7 First Unsecured Creditors Promissory Note, dated March 3, 2004, in the principal amount of $700,000, issued by The Walking Company (formerly TWC Acquisition Corp.) to the Post-Confirmation Committee for the benefit of the unsecured creditors of Shoes Liquidation Co. (formerly The Walking Company) and Alan's Shoes, Inc. (the "Debtors") pursuant to the Debtors' Second Amended Plan of Reorganization.** 4.8 Second Unsecured Creditors Promissory Note, dated March 3, 2004, in the principal amount of $21,000, issued by The Walking Company (formerly TWC Acquisition Corp.) to the Post-Confirmation Committee for the benefit of the unsecured creditors of Shoes Liquidation Co. (formerly The Walking Company) and Alan's Shoes, Inc. (the "Debtors") pursuant to the Debtors' Second Amended Plan of Reorganization** 99.1 Loan and Security Agreement, dated March 3, 2004, among the lenders signatory thereto, Wells Fargo Retail Finance II, LLC, as agent, and The Walking Company (formerly TWC Acquisition Corp.), as borrower. 99.2 Third Amendment to Loan and Security Agreement, dated March 3, 2004, among the lenders signatory thereto, Wells Fargo Retail Finance II, LLC, as agent, and Big Dog Holdings, Inc., Big Dog USA, Inc. and CSI Acquisition Corporation, as borrowers. * The exhibits and schedules to the Plan have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. Big Dog Holdings, Inc. will furnish copies of any of such exhibits and schedules to the Securities and Exchange Commission upon request. ** Not filed as permitted by the provisions of Item 601(b)(4)(iii) of Regulation S-K. Big Dog Holdings, Inc. agrees to provide a copy of these documents to the Securities and Exchange Commission upon request. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BIG DOG HOLDINGS, INC. Date: March 16 , 2004 -------------------------------------- Andrew D. Feshbach President and Chief Executive Officer EX-99.2 THIRD AMENDM 3 exhibit99-2.txt EXHIBIT 99.2 THIRDAMENDTOLOAN&SECAGREEMT EXHIBIT 99.2 Execution Copy THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT This THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT entered into as of this 3rd day of March, 2004 (this "Third Amendment"), is hereby entered into between and among, on the one hand, the lenders identified on the signature pages hereof (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), WELLS FARGO RETAIL FINANCE II, LLC, a Delaware limited liability company, as the arranger and administrative agent for the Lenders ("Agent"), and, on the other hand, BIG DOG HOLDINGS, INC., a Delaware corporation ("Parent" or "Guarantor"), and BIG DOG USA, INC., a California corporation ("Big Dog") and CSI ACQUISITION CORPORATION, a California corporation ("CSI" together with Big Dog collectively, the "Borrowers"). RECITALS WHEREAS, Borrowers, Parent, Agent and Lenders have executed and delivered that certain Loan and Security Agreement dated as of October 23, 2001, as amended by the First Amendment to Loan and Security Agreement dated as of June 5, 2003, as amended by the Second Amendment to Loan and Security Agreement dated as of November 1, 2003 (as may be amended, modified or supplemented from time to time, the "Loan Agreement"); WHEREAS, pursuant to the Walking Company Plan of Reorganization, TWC Acquisition Corp., a Delaware corporation and subsidiary of the Parent ("TWC Acquisition"), is to acquire the Walking Company; WHEREAS, pursuant to the Walking Company Plan of Reorganization, TWC Acquisition will issue the Junior Secured Creditors Promissory Note, the First Unsecured Creditors Promissory Note and the Second Unsecured Creditors Promissory Note; WHEREAS, pursuant to the Walking Company Plan of Reorganization, the Parent will provide the Junior Secured Creditors and the unsecured creditors with certain put rights with an option of either cash payment or conversion rights pursuant to the Junior Secured Creditors Note Put Right Agreement, the Junior Secured Creditors Stock Put Right Agreement and the Second Unsecured Creditors Note Put Right Agreement; WHEREAS, the Warrant to Purchase Common Stock of Big Dog Holdings, Inc. dated March 3, 2004, by and between Parent and the Junior Secured Creditors ("Junior Secured Creditors Warrant"), the Warrant to Purchase Common Stock of Big Dog Holdings, Inc. dated March 3, 2004, by and between Parent and the holders First Unsecured Creditors Note Holders ("First Unsecured Creditors Warrant"), and the Warrant to Purchase Common Stock of Big Dog Holdings, Inc. dated March 3, 2004, by and between Parent and the Second Unsecured Creditors Note Holder ("Second Unsecured Creditors Warrant" together with the Junior Secured Creditors Warrant and the First Unsecured Creditors Warrant, collectively, the "Warrants"), provides the Junior Secured Creditors and the unsecured creditors with a right to purchase the Parent's stock at $4.35 per stock unit; WHEREAS, Borrower wishes to make a Distribution (as defined in the Loan Agreement) to Parent in the aggregate amount of Seven Million Five Hundred Thousand Dollars ($7,500,000.00) ("Big Dog Distribution"); WHEREAS, the Parent will make the Parent Loan I, Parent Loan II and the Parent Equity Contribution to TWC Acquisition in the aggregate amount of Eight Million Nine Hundred Fifty Thousand Dollars ($8,950,000.00); and WHEREAS, the Parent and the Borrowers have requested that Agent and Lenders amend the Loan Agreement and other Loan Documents to permit the consummation of the foregoing transactions. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and upon the terms and conditions set forth herein, the parties hereby agree as follows: SECTION 1. RELATION TO THE LOAN AGREEMENT; DEFINITIONS. 1.1 Relation to Loan Agreement. This Third Amendment constitutes an integral part of the Loan Agreement and shall be deemed to be a Loan Document for all purposes. Upon the effectiveness of this Third Amendment, on and after the date hereof each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof," or words of like import referring to the Loan Agreement, and each reference in the other Loan Documents to "the Loan Agreement," "thereunder," "thereof" or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as amended hereby. This Third Amendment shall be considered a Loan Document and, without in any way limiting the application of other provisions of the Loan Agreement, this Third Amendment shall be governed by the provisions of Sections 11, 12, 13, 15, 16 and 17.6 of the Loan Agreement. No further amendment to the Loan Agreement shall be made except by a writing signed by all parties to the Loan Agreement. 1.2 Capitalized Terms. For all purposes of this Third Amendment, capitalized terms used herein without definition shall have the meanings specified in the Loan Agreement. SECTION 2. AMENDMENT TO LOAN AGREEMENT. 2.1 Definitions. (a) The following definitions are hereby added to Section 1.1 of the Loan Agreement: "Account Reserves" means such reserves as Agent determines from time to time in its Permitted Discretion as being appropriate to reflect impediments to the Agent's ability to realize upon the Collateral. Without limiting the generality of the foregoing, Account Reserves may include (but are not limited to) reserves based upon the following: (a) any Account or parties thereof is past due, delinquent or otherwise at risk of non-payment, (b) any Account or portion thereof which is subject to counterclaim, defense, or dispute, (c) any Account or portion thereof which is subject to setoff or chargeback, (d) any facts, events or circumstances which impair the validity, enforceability or collectibility of such Account or reduce the amount payable or delay payment thereunder, (e) any material adverse change in the financial condition of the Credit Card Processor or Agent no longer deems the Credit Card Processor as credit worthy, (f) any event of default under any Credit Card Agreement which event of default gives the Credit Card Processor the right to setoff against amounts otherwise payable to a Borrower or the right to establish reserves or establish or demand collateral." "Big Dog Distribution" shall have the respective meaning as set forth in the Recitals of this Third Amendment. "Big Dog Dividend" means of the dividend by Big Dog to Parent in the amount of One Million FiftyThousand Dollars ($1,050,000.00). "Closing Date for Third Amendment" means March 3, 2004. -------------------------------- "Commercial Tort Claims" shall have the same definition as in the Code. "Cost" means the lower of ---- (a) the calculated cost of purchases, based upon a Borrower's accounting practices, on a first-in, first-out (FIFO) basis, in accordance with GAAP, which practices are in effect on the date on which this Agreement was executed as such calculated cost is determined from invoices received by a Borrower; such Borrower's purchase journal; or such Borrower's stock ledger; and (b) the cost equivalent of the lowest ticketed price at which the subject Inventory is offered to the public, after all ticketed mark-downs (whether or not such price is then reflected on a Borrower's accounting system), determined in accordance with the cost method of accounting and reflecting a Borrower's practices in the ordinary course of a Borrower's business; provided that "Cost" shall not include Inventory capitalization costs or other non-purchase price charges (such as freight charges and UNICAP) used in a Borrower's calculation of cost of goods sold. "Customer Credit Liabilities" means gift certificates, customer deposits, merchandise credits, layaway obligations, frequent shopper programs, and similar liabilities of Borrowers to its retail customers and prospective customers. "Deposit Accounts" shall have the same definition as in the Code. "Distribution Center Inventory Reserve" means an aggregate amount (based on cost) of Inventory at Borrowers' warehouses or distribution centers (exclusive of Inventory, up to a maximum aggregate amount of $2,000,000 at any one time, that is physically segregated from the other Inventory and relates to the mail order and internet business, corporate sales business, or wholesale sales business), measured on a consolidated and month-end basis, of not more than an amount that is equal to 40% times the aggregate amount of all Inventory on the last day of each month." "Eligible Wholesale Accounts" means those Wholesale Accounts that comply with each of the representations and warranties respecting Eligible Wholesale Accounts made by Borrowers under the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the criteria set forth below, which criteria may be fixed and revised by Agent in its Permitted Discretion from time to time after the Closing Date of the Third Amendment. In determining the amount to be included, Eligible Wholesale Accounts shall be calculated net of customer deposits and unapplied cash remitted to Borrowers. Eligible Wholesale Accounts shall not include the following: (a) Wholesale Accounts that the Account Debtor has failed to pay within 90 days of original invoice date or Accounts with selling terms of more than 60 days, (b) Wholesale Accounts owed by an Account Debtor (or its Affiliates) where 25% or more of all Wholesale Accounts owed by that Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above, (c) Wholesale Accounts with respect to which the Account Debtor is an employee, Affiliate, or agent of any Borrower, (d) Wholesale Accounts arising in a transaction wherein goods are placed on consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and hold, or any other terms by reason of which the payment by the Account Debtor may be conditional, (e) Wholesale Accounts that are not payable in Dollars, (f) Wholesale Accounts with respect to which the Account Debtor either (i) does not maintain its chief executive office in the United States, or (ii) is not organized under the laws of the United States or any state thereof, 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 Wholesale Account is supported by an irrevocable letter of credit satisfactory to Agent (as to form, substance, and issuer or domestic confirming bank) that has been delivered to Agent and is directly drawable by Agent, or (z) the Wholesale Account is covered by credit insurance in form, substance, and amount, and by an insurer, satisfactory to Agent, (g) Wholesale Accounts with respect to which the Account Debtor is either (i) the United States or any department, agency, or instrumentality of the United States (exclusive, however, of Wholesale Accounts with respect to which the applicable Borrower has complied, to the reasonable satisfaction of Agent, with the Assignment of Claims Act, 31 USC ss. 3727), or (ii) any state of the United States (exclusive, however, of (y) Wholesale Accounts owed by any state that does not have a statutory counterpart to the Assignment of Claims Act or (z) Accounts owed by any state that does have a statutory counterpart to the Assignment of Claims Act as to which the applicable Borrower has complied to Agent's satisfaction), (h) Wholesale Accounts with respect to which the Wholesale Account Debtor is a creditor of any Borrower, has asserted a right of setoff, has disputed its liability, or has made any claim with respect to its obligation to pay the Wholesale Account, to the extent of such claim, right of setoff, or dispute, (i) Wholesale Accounts with respect to an Account Debtor whose total obligations owing to Borrowers exceed 15% (such percentage as applied to a particular Account Debtor being subject to reduction by Agent in its Permitted Discretion if the creditworthiness of such Account Debtor deteriorates) of all Eligible Wholesale Accounts, to the extent of the obligations owing by such Account Debtor in excess of such percentage, except for the Wholesale Account for Casual Male where 25% or more of such Wholesale Account owed by that Account Debtor (or its Affiliates), (j) Wholesale Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not Solvent, has gone out of business, or as to which a Borrower has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor, (k) Wholesale Accounts with respect to which the Account Debtor is located in the states of New Jersey, Minnesota, or West Virginia (or any other state that requires a creditor to file a business activity report or similar document in order to bring suit or otherwise enforce its remedies against such Account Debtor in the courts or through any judicial process of such state), unless the applicable Borrower has qualified to do business in New Jersey, Minnesota, West Virginia, or such other states, or has filed a business activities report with the applicable division of taxation, the department of revenue, or with such other state offices, as appropriate, for the then-current year, or is exempt from such filing requirement, (l) Wholesale Accounts, the collection of which, Agent, in its Permitted Discretion, believes to be doubtful by reason of the Account Debtor's financial condition, (m) Wholesale Accounts that are not subject to a valid and perfected first priority Agent's Lien, (n) Wholesale Accounts with respect to which (i) the goods giving rise to such Account have not been shipped and billed to the Account Debtor, or (ii) the services giving rise to such Wholesale Account have not been performed and billed to the Account Debtor, (o) Wholesale Accounts that represent the right to receive progress payments or other advance billings that are due prior to the completion of performance by the applicable Borrower of the subject contract for goods or services; or (p) Wholesale Accounts that Agent in its Permitted Discretion or otherwise determines to be ineligible, provided, however, Eligible Wholesale Accounts shall be deemed to be Zero (0) Dollars if the aggregate amount of Wholesale Accounts without regard to eligibility is less than $750,000." "First Unsecured Creditors Promissory Note" shall mean that promissory note issued to the Liquidating Agent for the benefit of the unsecured creditors of the Walking Company pursuant to the Walking Company Plan of Reorganization in the original face amount of $700,000. "Goods" shall have the same definition as in the Code. "IBD" means the Israel Discount Bank. "IBD Note" shall mean that promissory note dated as of March 1, 2004 executed by Parent in favor of IDB establishing an unsecured line of credit up to $3.0 million. "Junior Secured Creditors" means Stratford Capital Partners, L.P., Retail & Restaurant Growth Capital L.P., Provender Opportunities Fund L.P., Cornerstone Equity Investors IV, L.P., James P. Argyropoulos, Giles Bateman, Steve Nessim, Trent and Marilyn Merrill Trust, The Perlman Family Trust dtd 2/27/95, Montesano Family Trust dated March 17, 1998, Candice E. Appleton Family Trust, Pinney Family 1999 Trust UAD 5/2/99, Robert Taicher, Herbert Simon, Harry Adler, Greg Milne and Dan Zuckerman. "Junior Secured Creditors Note Put Reserve" means $1,320,000 or the outstanding amount owed to Junior Secured Creditors pursuant to the Parent's obligations pursuant to the Junior Secured Creditors Note Put Agreement at any given time, and $0 following irrevocable payment of all the Parent's obligations in respect of the Junior Secured Creditors Note Put Right Agreement on termination and/or expiry of such agreement. "Junior Secured Creditors Note Put Right Agreement" means that certain Note Put Right (Junior Secured Creditors Promissory Notes) Agreement dated March 3, 2004, by and between the Parent and the Junior Secured Creditors. "Junior Secured Creditors Promissory Note" means those promissory notes issued by the Borrower to the Junior Secured Creditors in the aggregate principal amount of $3.279 million pursuant to the Walking Company Plan of Reorganization. "Junior Secured Creditors Stock Put Right Agreement" means that certain the Stock Put Right (Junior Secured Creditors) dated March 3, 2004, by and between the Parent and the Junior Secured Creditors. "Liquidating Agent" means the Post-Confirmation Committee as defined in the Walking Company Plan of Reorganization. "Minimum Excess Availability Reserve" means One Million Dollars ($1,000,000.00). "Parent Capital Contribution" means the Parent Equity Contribution and the Parent Loan I. "Parent Equity Contribution" means an equity contribution by Parent to TWC Acquisition in an amount of not less than Six Million Four Hundred Fifty Thousand Dollars ($6,450,000.00). "Parent Loan I" means that unsecured line of credit established by Parent to Borrower pursuant to the Subordinated Intercompany Promissory Note dated as of March 3, 2004 in the face amount of up to One Million Fifty Thousand Dollars ($1,050,000.00), funded from the proceeds of the Big Dog Dividend. "Parent Loan II" means that unsecured line of credit established by Parent to Borrower pursuant to the Subordinated Intercompany Promissory Note dated as of March 3, 2004 in the face amount of up to Three Million Dollars ($3,000,000.00), funded from the proceeds of the IBD Note. "Parent Note Put Obligations" means the Junior Secured Creditors Note Put Agreement and the Second Unsecured Creditors Note Put Agreement. "Parent Stock Put Obligations" means the Junior Secured Creditors Stock Put Agreement. "Proceeding" means the Chapter 11 case of the Walking Company pending before the Bankruptcy Court as case number SV 03-44040 GM, jointly administered with Case No. SV 03-15932 GM. "Second Unsecured Creditors Promissory Note" means that promissory note issued by the Borrower to the Liquidating Agent in the original face amount of $21,000 pursuant to the Walking Company Plan of Reorganization. "Second Unsecured Creditors Note Put Agreement" means that certain Note Put Right (Second Unsecured Creditors Promissory Note) Agreement dated March 3, 2004, by and between the Parent and the Liquidating Agent for the benefit of the unsecured creditors of the Walking Company. "Shoes.com Administrative Claim" means any claim of Shoes.com, Inc. allowed by Final Order of the Bankruptcy Court as an administrative claim against the Borrower pursuant to Section 503 of the Bankruptcy Code in the Proceeding. "Shoes.com Loan" means an unsecured loan to be made by either (i) Parent to TWC Acquisition or (ii) by Fred Kayne and/or Andrew Feshbach to TWC Acquisition in an amount sufficient to satisfy the Shoes.com Administrative Claim after application of then available proceeds of Parent Loan II. "TWC Acquisition" shall have the respective meaning as set forth in the Recitals of this Third Amendment. "Walking Company" means The Walking Company, a California corporation, and Alan's Shoes, Inc., an Arizona corporation, both of which are debtors in possession in the Proceeding. "Walking Company Acquisition" means the acquisition of the Walking Company Assets by Borrower pursuant to the Walking Company Plan of Reorganization. "Walking Company Acquisition Orders" means, collectively, (a) a Final Order from the Bankruptcy Court confirming (i) the Walking Company Plan of Reorganization and (ii) the sale of the Walking Company Assets free and clear of all liens and encumbrances to Borrower pursuant to Section 1129 of the Bankruptcy Code and (b) such other Final Orders of the Bankruptcy Court required for the consummation of the Walking Company Acquisition, all of which are determined by Agent, in its Permitted Discretion, to be in form and substance acceptable to Agent. "Walking Company Assets" means all of the property and assets (tangible and intangible) of the Walking Company that (i) are proposed to be purchased by Borrower pursuant to the Walking Company Plan of Reorganization, or (ii) are acceptable to Agent in its Permitted Discretion. "Walking Company Plan of Reorganization" means the Plan of Reorganization of the Walking Company dated November 6, 2003, filed by the Walking Company in the Proceeding, as such plan may be modified, supplemented or amended from time to time with the prior written consent of Agent. "Warrants" shall have the respective meaning as set forth in the Recitals of this Third Amendment. "Wholesale Accounts" means those Accounts created by Borrowers in the ordinary course of Borrowers' business, that arise out of Borrowers' sale of goods or rendition of services to Borrowers' wholesale customers. (b) The definition of "Applicable Prepayment Premium" is hereby deleted in its entirety and replaced with the following: ""Applicable Prepayment Premium" means, as of any date of determination, an amount equal to (a) during the period of time from and after the date of the execution and delivery of this Agreement up to the date that is the first anniversary of the Closing Date of the Third Amendment, 0.50% times the Maximum Revolver Amount, (b) during the period of time from and including the date that is the first anniversary of the Closing Date of the Third Amendment up to the date that is the second anniversary of the Closing Date of the Third Amendment, 0.25% times the Maximum Revolver Amount, and (c) during the period of time from and including the date that is the second anniversary of the Closing Date of the Third Amendment up to the Maturity Date, zero (0)." (c) The definition of "Base Rate Standard Margin" is hereby deleted in its entirety and replaced with the following: ""Base Rate Standard Margin" means 0 basis points." (d) The definition of "Big Dog Borrowing Base" is hereby deleted in its entirety and replaced with the following: ""Big Dog Borrowing Base", as of any date of determination, shall mean the result of: (a) the lesser of: (i) $28,000,000, and (ii) 85% times Big Dog's then extant Net Liquidation Percentage times the value (at Cost) of Big Dog's Eligible Inventory, plus (iii) 85% times the Eligible Wholesale Accounts Receivables up to an aggregate amount of $1,500,000, minus (b) the sum of (i) the Bank Product Reserve, (ii) the portion of the Contractor Reserve attributable to Inventory of Big Dog, and (iii) the aggregate amount of reserves, if any, established by Agent under Section 2.1(a)(ii)." (e) The information set forth in Schedule B-1 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "Account number 4132-863689 of Big Dog maintained with the Big Dog Designated Account Bank, or such other deposit account of Big Dog (located within the United States) that has been designated as such in writing, by Big Dog to Agent." (f) The definition of "Big Dog Designated Account Bank" is hereby deleted in its entirety and replaced with the following: ""Big Dog Designated Account Bank" means Wells Fargo Bank, whose office located at 1036 Anacapa Street, Santa Barbara, CA 93101, and whose ABA number is 121-000248." (g) The definition of "Borrowers Collateral" is hereby deleted in its entirety and replaced with the following: ""Borrowers Collateral" means all of each Borrower's now owned or hereafter acquired right, title, and interest in and to each of the following: (a) Accounts, (b) Books, (c) Deposit Accounts, (d) Equipment, (e) General Intangibles, (f) Inventory, (g) Investment Property, (h) Negotiable Collateral, (i) Goods, (j) Commercial Tort Claims, (k) money or other assets of each such Borrower that now or hereafter come into the possession, custody, or control of any member of the Lender Group, (l) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the foregoing, and any and all Accounts, Books, Documents, Equipment, General Intangibles, Instruments, Inventory, Investment Property, Negotiable Collateral, real property, fixtures, leases and leasehold interests, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof, and (m) liens, guaranties, rights, remedies, and privileges pertaining to any of the foregoing, including the right of stoppage in transit." (h) The definition of "Equipment" is hereby deleted in its entirety and replaced with the following: ""Equipment" includes, without limitation, "equipment" as it is defined in the Code, and also all of Borrowers' now owned or hereafter acquired right, title, and interest with respect to equipment, machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), tools, parts, 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." (i) The definition of "General Intangibles" is hereby deleted in its entirety and replaced with the following: ""General Intangibles" includes, without limitation, "general intangibles" as defined in the Code; and also means all of Borrowers' now owned or hereafter acquired right, title, and interest with respect to general intangibles (including, but not limited to, payment intangibles, healthcare insurance receivables, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, judgments, payments under any settlement or other agreement, rights to performance, royalties, all means and vehicles of investment or hedging, including without limitation, options, warrants, and future contracts, goodwill, patents, patent applications, trade names, trademarks, servicemarks, trademark applications, copyrights, mask work rights and interests, and derivative works and interests, internet addresses and domain names, developmental ideas and concepts, proprietary processes, blueprints, drawings, designs, diagrams, plans, charts, purchase orders, customer lists, telephone numbers, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing or franchise agreements, rights to admission, infringement claims, computer programs, computer software, computer records, information contained on computer disks or tapes, software, literature, literary rights, reports, catalogs, manuals, technical data, money, trade secret rights, insurance premium rebates, warranties, warranty claims, tax refunds, and tax refund claims), and any and all supporting obligations in respect thereof, and any other personal property other than goods, Accounts, Investment Property, and Negotiable Collateral." (j) The definition of "Inventory" is hereby deleted in its entirety and replaced with the following: ""Inventory" includes, without limitation, "inventory" as defined in the Code and also means all Borrowers' now owned or hereafter acquired right, title, and interest with respect to inventory, including goods held for sale or lease or to be furnished under a contract of service, goods that are leased by a Borrower as lessor, goods that are furnished by a Borrower under a contract of service, and raw materials, work in process, or materials used or consumed in a Borrower's business." (k) The definition of "Intercompany Advances" is hereby deleted in its entirety and replaced with the following: ""Intercompany Advances" means loans or advances (i) from Borrower to Parent, any Subsidiary or any Affiliate, or (ii) from Parent, any Subsidiary or any Affiliate to Borrower, or (iii) from Parent to TWC Acquisition, or (iv) from Borrower to TWC Acquisition." (l) The definition of "Landlord Reserve" is hereby deleted in its entirety and replaced with the following: "Landlord Reserve" means with respect to each leased location (i) at which each Borrower stores Inventory in a state that has a landlord lien or similar statute with respect to commercial property, including without limitation, as of the Closing Date of the Third Amendment, the states of Pennsylvania, Texas, Virginia and Washington, and (ii) for which either (I) a Collateral Access Agreement has not been received by Agent, or (II) the underlying lease agreement does not contain a provision that waives the Lien rights that the landlord may have in and to the Inventory, including without limitation all rights of levy or distraint for rent; a reserve in an amount equal to the greater of (a) the number of months rent for which a landlord will have, under the applicable statutory lien, a Lien in the assets of the applicable Borrower to secure the payment of rent or other amounts under a lease, or (b) one (1) month rent under the lease." (m) The following section is added to the definition of "Permitted Dispositions": "; (g) following exercise by any Junior Secured Creditor of its put rights pursuant to the Junior Secured Creditors Note Put Agreement, transfer of such Junior Secured Creditor's Junior Secured Creditors Promissory Note to Fred Kayne and/or Andrew Feshbach for an amount equal to the Purchase Price (as defined in the Junior Secured Creditors Note Put Agreement) of such note; and (h) pledge of the Shoes.com Loan to Fred Kayne and/or Andrew Feshbach provided, that, Fred Kayne and/or Andrew Feshbach funded such loan." (n) The definition of "Permitted Distributions" is hereby deleted in its entirety and replaced with the following: "Permitted Distributions" means (a) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, cash Distributions by Borrowers to Parent for the sole purpose of permitting Parent to pay, and Parent shall pay, federal and state income taxes solely attributable to its ownership of Borrowers, (b) so long as no Event of Default has occurred and is continuing or would result therefrom, cash Distributions by Subsidiaries (other than Borrowers) to Parent, (c) so long as no Default or Event of Default has occurred and is continuing or would result therefrom and so long as Borrowers have Aggregate Availability of not less than $2,000,000 after giving effect thereto, redemptions of Parent's outstanding Stock in an aggregate amount not to exceed $250,000 in any fiscal year, (d) so long as (i) no Event of Default has occurred and is continuing or would result therefrom, (ii) Borrowers have at all times tested Aggregate Availability 30 days prior to the date of such cash Distribution and will maintain, on a pro forma basis, Aggregate Availability for 60 days after the date of such cash Distribution of not less than $3,500,000, after giving effect thereto, cash Distributions by Borrowers to Parent for the sole purpose of permitting Parent to pay Parent's obligations in respect of the Parent Note Put Obligation, and (iii) Borrower is Solvent, and (e) so long as no Event of Default has occurred and is continuing or would result therefrom, and as long as Borrowers have Aggregate Availability of not less than $5,000,000, after giving effect thereto, a cash Distribution by Borrowers to Parent in an amount of Seven Million Five Hundred Thousand Dollars ($7,500,000.00) for the sole purpose of permitting Parent to make the Parent Capital Contribution in connection with the consummation of the Walking Company Acquisition." (o) The definition of "Permitted Intercompany Advances" is hereby deleted in its entirety and replaced with the following: ""Permitted Intercompany Advances" means (A) Intercompany Advances so long as (a) no Default or Event of Default exists at the time of the making of any Intercompany Advance or would exist after giving effect thereto, (b) if the Borrower is acting as the lender, after giving effect to the making of such Intercompany Advance, the Borrower that is acting as the lender with respect thereto (i) has Availability of not less than Two Million Dollars ($2,000,000) and (ii) is Solvent, (c) the Intercompany Subordination Agreement is in full force and effect with respect to the proposed Intercompany Advance, and (d) after giving effect to the making of such Intercompany Advance, the Borrower that is acting as the borrower with respect thereto is Solvent; (B) advances made by Big Dog for actual overhead charges reasonably allocable to TWC Acquisition including, but not limited to, charges for general corporate shared administrative services and TWC Acquisition's occupancy of a portion of the warehouse or distribution centers operated by Big Dog in amounts not to exceed caps to be established by Agent, in its Permitted Discretion, based upon an allocation analysis to be furnished by TWC Acquisition to Agent within 90 days of the Closing Date for Third Amendment, provided, that an Intercompany Subordination Agreement is in full force and effect with respect to the proposed Intercompany Advance. In the event TWC Acquisition fails to provide Agent with such allocation analysis within 90 days of the Closing Date, TWC Acquisition shall pay Agent an extension fee equal to $10,000 per month (or any portion thereof) until such analysis is furnished to Agent; (C) Parent to TWC Acquisition in the amount of the Parent Loan I for the sole purpose of permitting the Parent to make the Parent Capital Contribution in connection with the consummation of the Walking Company Acquisition; (D) Parent to TWC Acquisition up to the amount of Parent Loan II, for the sole purposes of (i) permitting Parent to make the Parent Capital Contribution, (ii) to satisfy the Shoes.com Administrative Claim, and (iii) after satisfaction of the foregoing, for general working capital of TWC Acquisition; and (E) Parent to TWC Acquisition up to the amount of the Shoes.com Loan, for the sole purposes of satisfying any Shoes.com Administrative Claim, provided, that, the funding of such Intercompany Advance is as a consequence of a loan or equity infusion by Fred Kayne and Andrew Feshbach and such loan or equity infusion is made on such terms and conditions as is acceptable to Agent in its Permitted Discretion." 2.2 Amendment to Section 2.1. (i) Section 2.1(a)(ii) of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "(ii) Anything to the contrary in this Section 2.1(a) notwithstanding, Agent shall have the right to establish Landlord Reserves and such other reserves in such amounts, and with respect to such matters, as Agent in its Permitted Discretion shall deem necessary or appropriate, against the Big Dog Borrowing Base, including reserves with respect to (i) sums that Big Dog 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, (ii) amounts owing by Big Dog to any Person to the extent secured by a Lien on, or trust over, any of its 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), 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, (iii) the Minimum Excess Availability Reserve, (iv) shrinkage, markdowns (to the extent not taken into account in the calculation of "Cost"), seasonality and other such categories of reasons which the Agent may establish, in its Permitted Discretion, which reflect other factors which affect the market value of Eligible Inventory, (v) Customer Credit Liabilities, (vi) the Distribution Center Inventory Reserve, (vii) Junior Secured Creditors Note Put Reserve, and (viii) Account Reserves. In addition to the foregoing and subject to Section 2.11(c), Agent shall have the right to have Big Dog's Inventory reappraised by a qualified appraisal company selected by Agent from time to time after the Closing Date of the Third Amendment for the purpose of redetermining the Net Liquidation Percentage of Big Dog's Eligible Inventory portion of its Collateral and, as a result, redetermining the Big Dog Borrowing Base." (ii) The following subsection is hereby added to Section 2.1 of the Loan Agreement: "(e) Borrower shall not request and the Lender shall have no obligation to make any CSI Revolver Advances during the term of the Agreement. Furthermore, CSI's assets shall not be eligible for inclusion in the calculation of CSI Borrowing Base or otherwise available for borrowing hereunder. It being understood, however, that such assets shall constitute Collateral for the Obligations hereunder." 2.3 Amendment to Section 2.6. Section 2.6 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "(b) Letter of Credit Fees. Borrowers shall pay Agent (for the ratable benefit of the Lenders, subject to any letter agreement between Agent and individual Lenders), (i) a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(e)), which shall accrue at a rate equal to 1.00% per annum times the Daily Balance of the undrawn amount of all outstanding standby Qualified Import Letters of Credit, (ii) a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(e)), which shall accrue at a rate equal to 0.50% per annum times the Daily Balance of the undrawn amount of all outstanding documentary Qualified Import Letters of Credit, (iii) a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(e)) which shall accrue at a rate equal to 1.00% per annum times the Daily Balance of the undrawn amount of all outstanding standby Letters of Credit (other than Qualified Import Letters of Credit), and (iv) a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(e)) which shall accrue at a rate equal to 0.50% per annum times the Daily Balance of the undrawn amount of all outstanding documentary Letters of Credit (other than Qualified Import Letters of Credit)." 2.4 Amendment to Section 2.7. The following subsection is hereby added to Section 2.7 of the Loan Agreement: "(e) At the request of the Agent, the Borrowers shall deliver to the Agent notification, executed by the Borrowers, to each depository institution which any DDA (other than DDA's established for petty cash) is maintained, in form and substance satisfactory to the Agent in its Permitted Discretion of the Agent's Lien in such DDA and, instructs the depository institution, upon direction of the Agent, to remit all amounts deposited from time to time in the DDA to the Agent's Account or as otherwise directed from time to time by the Agent. The Borrowers shall not establish any DDA hereafter unless, contemporaneous with such establishment, Borrower notifies Agent and, if requested by Agent, delivers to such depository institution the notification described herein. The Borrowers shall not change such direction or designation except upon the prior written consent of the Agent." 2.5 Amendment to Section 2.11. (i) Section 2.11(c)(i) of the Loan Agreement is hereby deleted and replaced in its entirety with the following: "(i) so long as no Event of Default shall have occurred and be continuing, a Borrower shall be obligated to pay such fees and expenses for only 2 financial audits and 2 appraisals of such Borrower in any calendar year, provided that a Borrower shall be obligated to pay such fees and expenses for no more than 1 financial audit and 1 appraisal in any calendar year a Borrower at all times has maintained Excess Availability of at least $7,500,000 during such calendar year," (ii) The following subsection is added to Section 2.11 of the Loan Agreement: "(d) Servicing Fee. On the first (1st) day of each month, a service fee of $1,000 per month will be due and payable during the term of this Agreement. This Servicing Fee amends, restates and supercedes any prior agreement between the Borrowers and the Agent pursuant to that certain Fee Letter dated as of October 23, 2001." 2.6 Amendment to Section 3.4. Section 3.4 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "3.4 Term. This Agreement shall become effective upon the execution and delivery hereof by Parent, Borrowers, Agent, and the Lenders and shall continue in full force and effect for a term ending on March 3, 2007 (the "Maturity Date").The foregoing notwithstanding, the Lender Group, upon the election of the Required Lenders, shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default." 2.7 Amendment to Section 6.2. (i) Subsection 6.2(g) of the Loan Agreement is hereby deleted in its entirety. (ii) Subsection 6.2(i) of the Loan Agreement is hereby deleted in its entirety. (iii) Subsection 6.2(q) of the Loan Agreement is hereby deleted in its entirety. 2.8 Amendment to Section 7.1. The following subsections are hereby added to Section 7.1 of the Loan Agreement: "(k) Indebtedness of Parent to IDB in respect of the IBD Note; (l) Indebtedness of Parent Loan I and Parent Loan II. (m) Indebtedness of Parent to the Junior Secured Creditors on account of the Parent Note Put Obligations, Parent Stock Put Obligations and Warrants in respect of Junior Secured Creditors Promissory Note; (n) Indebtedness of Parent to the Liquidating Agent on account of the Warrants in respect of the First Unsecured Creditors Promissory Note; (o) Indebtedness of the Parent to the Liquidating Agent on account of the Second Unsecured Creditors Note Put Agreement and Warrants in respect of the Second Unsecured Creditors Promissory Note. (p) Indebtedness of the Parent in respect of the Shoes.com Administrative Claim in an amount not to exceed $2,900,000." 2.9 Amendment to Section 7.8. Section 7.8 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "7.8 Prepayments and Amendments. (a) Except in connection with a refinancing permitted by Section 7.1(d) or in connection with a Permitted Bond Financing, prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of any Borrower, other than the Obligations in accordance with this Agreement; (b) Except in connection with a refinancing permitted by Section 7.1(d) or in connection with a Permitted Bond Financing, directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Sections 7.1(b) or (c); (c) Parent may make regularly scheduled payments of interest and principal on account of the IBD Note, provided, that if a Borrower is providing the funds to make such payments (i) there does not exist an Event of Default and there would not exist an Event of Default after giving effect to any such payment and (ii) the Borrowers have certified to Agent that they have, at all times tested, maintained Excess Availability for 30 days prior to the date of such payment and, on a pro forma basis, will maintain Excess Availability for the 60 days after the date of such payment of at least $2,000,000, after giving effect to such payment; (d) Prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of Borrowers, other than the Obligations in accordance with this Agreement except Parent may (A)prepay Indebtedness in respect of the Parent Note Put Obligations, provided, that (i) there does not exist an Event of Default and there would not exist an Event of Default after giving effect to any such payment and (ii) the Borrowers have certified to Agent that they have, at all times tested, maintained Excess Availability for 30 days prior to the date of such payment and, on a pro forma basis, will maintain Excess Availability for the 60 days after the date of such payment of at least $4,500,000, after giving effect to such payment; and (B) prepay Indebtedness in respect of the IBD Note, provided, that (i) there does not exist an Event of Default and there would not exist an Event of Default after giving effect to any such payment and (ii) the Borrowers have certified to Agent that they have, at all times tested, maintained Excess Availability for 30 days prior to the date of such payment and, on a pro forma basis, will maintain Excess Availability for the 60 days after the date of such payment of at least $4,500,000, after giving effect to such payment." (e) Amend, modify, alter, increase, or change (directly or indirectly) any of the terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Sections 7.1(b), (c), (g), (h), (i), (j), (k), (l), (m), (n), (o) or (p)." 2.6 Amendment to Section 7.16. Section 7.16 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "7.16 IDB Note. Use any of the proceeds of the IDB Note provided that, TWC Acquisition may use proceeds of the IDB Note to (i) fund the initial draw by TWC Acquisition under Parent Loan II in the amount of $1.45 million to fund, in part, the Acquisition Proceeds, (ii) fund the payment of any portion of the Shoes.com Administrative Claim, and (iii) after satisfaction of the obligations pursuant to Section 7.16(i) and (ii), above, for general corporate purposes." 2.7 Amendment to Section 7.21. (i) Section 7.21(a) of the Loan Agreement is hereby deleted in its entirety. (ii) Section 7.21(b) of the Loan Agreement is hereby deleted in its entirety. (iii) Section 7.21(c)(i) of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "(i) Capital Expenditures. Capital expenditures, measured on a consolidated basis in excess of $1,000,000 for the 2004 fiscal year. Capital expenditure covenants for each succeeding fiscal year following 2004 shall be established by mutual agreement between the Borrowers and Agent on or before January 15th of each succeeding year. In the absence of such mutual agreement, the Agent may establish a Minimum Excess Availability Reserve at any time of $5,000,000." 2.8 Amendment to Section 8.4. Section 8.4 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "8.4 If an Insolvency Proceeding is commenced by Parent or Big Dog and/or the initiation by or on behalf of Big Dog of the liquidation or wind up of all or any part of a Big Dog's business or operations. To the extent that CSI has meaningful business operations, if any Insolvency Proceeding is commenced by CSI and/or the initiation by or on behalf of CSI of the liquidation or wind up of all or any part of CSI's business or operations." 2.9. Amendment to Section 8.9. Section 8.9 of the Loan Agreement is hereby deleted in its entirety and replaced with the following: "8.9 If there is a default in (A) any agreement involving an aggregate amount of, in Agent's sole discretion, $1,000,000, or (B) the Junior Secured Creditors Note Put Right Agreement, to which Parent, any Borrower or any of their Subsidiaries is a party and such default (i) occurs at the final maturity of the obligations thereunder, or (ii) results in a right by the other party thereto, irrespective of whether exercised, to accelerate the maturity of Parent's, any Borrower's or their Subsidiaries' obligations thereunder, to terminate such agreement, or to refuse to renew such agreement pursuant to any automatic renewal right therein;" SECTION 3. REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGEMENTS. 3.1 Representations. Big Dog and Parent hereby represents and warrants to Agent and Lenders that: (a) Big Dog and Parent are corporations duly organized and existing and in good standing under the laws of their respective jurisdiction of formation and are duly qualified to do business and in good standing in every jurisdiction in which the nature of the business done or the property owned by it would make such qualification necessary; (b) Big Dog and Parent have all requisite power and authority to own and operate their properties, and to conduct their business as currently conducted and as currently proposed to be conducted. Big Dog and Parent have all requisite power and authority necessary to enter into this Third Amendment and to perform their respective obligations under this Third Amendment; (c) Big Dog and Parent have taken all corporate action necessary to be taken to authorize the execution and delivery of this Third Amendment. This Third Amendment has been duly executed and delivered by each of Big Dog and Parent and constitutes legal, valid and binding obligations of each of Big Dog and Parent, enforceable against each of Big Dog and Parent in accordance with its terms; (d) After giving effect to the amendments and consent herein, no event has occurred and no condition exists which constitutes a Default or an Event of Default under the Loan Agreement or the other Loan Documents; and (e) The Loan Agreement and all other Loan Documents and all representations, warranties, terms and conditions therein remain in full force and effect, and Big Dog and Parent hereby confirm and ratify each of the provisions of the Loan Agreement and the other Loan Documents SECTION 4. MISCELLANEOUS 4.1 Conditions of Effectiveness. The amendments contained in Section 2 above shall become effective when, and only when, the following conditions have been satisfied as determined in Agent's Permitted Discretion: (i) Agent shall have received the reaffirmation and consent of Guarantor attached hereto as Exhibit A, duly executed and delivered by an authorized officer of Guarantor; and (ii) all conditions precedent to the effectiveness of the TWC Acquisition Loan and Security Agreement have been satisfied by TWC Acquisition or waived by Agent thereunder. 4.2 Cross-References. References in this Third Amendment to any Section of ("ss.") are, unless otherwise specified, to such Section (or "ss.") of this Third Amendment. 4.3 Successors and Assigns. This Third Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 4.4 Counterparts. This Third Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of this Third Amendment by facsimile transmission shall be as effective as delivery of an originally executed counterpart hereof. 4.5 Fees, Costs and Expenses. Each Borrower agrees to pay on demand all reasonable fees, costs and expense in connection with the preparation, execution, delivery, administration, modification and amendment of this Third Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent and Lenders with respect thereto and with respect to advising the Agent and Lenders as to their rights and responsibilities hereunder and thereunder. 4.6 Governing Law. THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPALS. 4.7 Ratification. Except as expressly amended herein, all of the representations, warranties, terms, covenants and conditions of the Loan Agreement and the other Loan Documents shall remain unamended and unwaived and shall continue to be, and shall remain, in full force and effect in accordance with their respective terms. The amendments and consent set forth herein shall be limited precisely as provided for herein to the provisions expressly amended and consented to herein and shall not be deemed to be a waiver of, amendment of, consent to or modification of any other term or provision of any other document or of any transaction or further action on the part of either Borrower or Guarantor which would require the consent of Lenders or Agent under the Loan Agreement. 4.8 Release. In consideration of Lender entering into this Third Amendment, Borrowers hereby release and forever discharge Lender, and its successors, assigns, agents, shareholders, directors, officers, employees, agents, attorneys, parent corporations, subsidiary corporations, affiliated corporations, affiliates, and each of them, from any and all claims, debts, Obligations, demands, obligations, costs, expenses, actions and causes of action, of every nature and description, known and unknown, whether or not related to the subject matter of this Third Amendment or the other Loan Documents, which Borrowers now have or at any time may have held, by reason of any matter, cause or thing occurred, done, omitted or suffered to be done prior to the date of this Third Amendment. Borrowers waive the benefits of any law, which may provide in substance: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Borrowers understand that the facts which it believes to be true at the time of making the release provided for herein may later turn out to be different than they now believe, and that information which is not know known or suspected may later be discovered. Borrowers accept this possibility, and Borrowers assume the risk of the facts turning out to be different and new information being discovered; and Borrowers further agree that the release provided for herein shall in all respects continue to be effective and not subject to termination or rescission because of any difference in such facts or any new information. This release is fully effective on the date hereof. Lender is not releasing Borrowers from any claims, debts, Obligations, demands, obligations, costs, expenses, actions or causes of action. [Remainder of page intentionally left blank] Signature Page to Third Amendment IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be executed and delivered as of the date first above written. BIG DOG HOLDINGS, INC., a Delaware corporation By: Name: Title: BIG DOG USA, INC., a California corporation By: Name: Title: CSI ACQUISITION CORPORATION, a California corporation By: Name: Title: WELLS FARGO RETAIL FINANCE II, LLC, a Delaware corporation as Agent and as a Lender By: Name: Title: EXHIBIT A Reaffirmation and Consent All capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to them in that certain Loan and Security Agreement between and among, on the one hand, the lenders identified on the signature pages thereof (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lender"), WELLS FARGO RETAIL FINANCE II , LLC (formerly known as Wells Fargo Retail Finance, LLC), a Delaware limited liability company, as the arranger and administrative agent for the Lenders ("Agent"), and, on the other hand, BIG DOG HOLDINGS, INC., A Delaware corporation ("Parent" or "Guarantor"), BIG DOG USA, INC., a California corporation ("Big Dog"), and CSI ACQUISITION CORPORATION, a California corporation ("CSI" together with Big Dog collectively, the "Borrowers"), dated as of October 23, 2001 (as the same may be further amended, restated, supplemented, or otherwise modified from time to time, the "Loan Agreement"), or in the First Amendment to Loan and Security Agreement, dated as of June 5, 2003 (the "First Amendment"), among Borrowers, Parent, Agent and the Lenders, or in the Second Amendment to Loan and Security Agreement dated as of November 1, 2003, among Borrowers, Parent, Agent and the Lenders (the "Second Amendment"), or in the Third Amendment to Loan and Security Agreement, dated as of March 3, 2004 (the "Third Amendment"), among Borrowers, Parent, Agent and the Lenders. The undersigned hereby (a) represents and warrants to the Lenders that the execution, delivery, and performance of this Reaffirmation and Consent are within its powers, have been duly authorized by all necessary action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or governmental authority, or of the terms of its charter or bylaws, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected; (b) consents to the transactions contemplated by the Third Amendment and the execution and delivery thereof; (c) acknowledges and reaffirms its obligations owing to the Lenders under the Guaranty and any other Loan Documents to which it is a party; and (d) agrees that each of the Loan Documents to which it is a party is and shall remain in full force and effect. Although the undersigned has been informed of the matters set forth herein and has acknowledged and agreed to same, it understands that the Lenders have no obligation to inform it of such matters in the future or to seek its acknowledgment or agreement to future amendments, and nothing herein shall create such a duty. Delivery of an executed counterpart of this Reaffirmation and Consent by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Reaffirmation and Consent. Any party delivering an executed counterpart of this Reaffirmation and Consent by telefacsimile also shall deliver an original executed counterpart of this Reaffirmation and Consent but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Reaffirmation and Consent. The Reaffirmation and Consent shall be governed by the laws of the State of California. [REMAINDER OF PAGE INTENTIONALLY BLANK] Signature Page to Ratification and Consent for Third Amendment IN WITNESS WHEREOF, the undersigned has caused this Reaffirmation and Consent to be executed as of the date of the Third Amendment. Reaffirmation and Consent of Guarantor: BIG DOG HOLDINGS, INC. A Delaware corporation By: _______________________ Name: Title: EX-99.1LOAN AND SECU 4 exhibit99-1newversion.txt EXHIBIT 99.1 LOAN&SEC. AGREEMENT NEW VERSION EXHIBIT 99.1 Execution Copy LOAN AND SECURITY AGREEMENT by and among TWC ACQUISITION CORP. (THE WALKING COMPANY) the Borrower, THE LENDERS THAT ARE SIGNATORIES HERETO, as the Lenders, and WELLS FARGO RETAIL FINANCE II, LLC, as the Arranger and Administrative Agent Dated as of March 3, 2004 -50- LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of March 3, 2004, between and among, on the one hand, the lenders identified on the signature pages hereof (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), WELLS FARGO RETAIL FINANCE II, LLC, a Delaware limited liability company, as the arranger and administrative agent for the Lenders ("Agent"), and, on the other hand, TWC ACQUISITION CORP., a Delaware corporation ("Borrower") . 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 Debtor" means any Person who is or who may become obligated under, with respect to, or on account of, an Account, chattel paper, or a General Intangible. "Account Reserves" means such reserves as Agent determines from time to time in its Permitted Discretion as being appropriate to reflect impediments to the Agent's ability to realize upon the Collateral. Without limiting the generality of the foregoing, Account Reserves may include (but are not limited to) reserves based upon the following: (a) any Account or parties thereof is past due, delinquent or otherwise at risk of non-payment, (b) any Account or portion thereof which is subject to counterclaim, defense, or dispute, (c) any Account or portion thereof which is subject to setoff or chargeback, (d) any facts, events or circumstances which impair the validity, enforceability or collectibility of such Account or reduce the amount payable or delay payment thereunder, (e) any material adverse change in the financial condition of the Credit Card Processor or Agent no longer deems the Credit Card Processor as credit worthy, (f) any event of default under any Credit Card Agreement which event of default gives the Credit Card Processor the right to setoff against amounts otherwise payable to a Borrower or the right to establish reserves or establish or demand collateral. "Accounts" means all of Borrower's now owned or hereafter acquired right, title, and interest with respect to "accounts" (as that term is defined in the Code), and any and all supporting obligations in respect thereof. "ACH Transactions" means any cash management or related services (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) provided by Wells Fargo or its Affiliates for the account of Borrower or its Subsidiaries. "Acquisition Proceeds" means net cash proceeds, in immediately available funds, of not less than $8.95 million, which shall be comprised of $1.05 million of the proceeds of Parent Loan I and $1.45 million of the proceeds of Parent Loan II and the full amount of the Parent Equity Contribution. "Acquisition" means any purchase or other acquisition by Borrower or any Subsidiary of Borrower of the Stock or substantially all of the assets of any other Person. "Additional Documents" has the meaning set forth in Section 4.4. "Advances" means advances made to Borrower, pursuant to the provisions of Section 2.1. "Affiliate" means, as applied to any Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" means the possession, directly or indirectly, 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 Section 7.14 hereof: (a) any Person which owns directly or indirectly 10% or more of the securities 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 to control 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 to be an Affiliate of such Person. "Agent" means WFRF, solely in its capacity as agent for the Lenders hereunder, and any successor thereto. "Agent's Account" means an account at a bank designated by Agent from time to time as the account into which Borrower shall make all payments to Agent for the benefit of the Lender Group and into which the Lender Group shall make all payments to Agent under this Agreement and the other Loan Documents; unless and until Agent notifies Borrower and the Lender Group to the contrary, Agent's Account shall be that certain deposit account listed on Schedule A-1. "Agent Advances" has the meaning set forth in Section 2.3(e)(i). "Agent's Liens" means the Liens granted by Borrower to Agent for the benefit of the Lender Group under this Agreement or the other Loan Documents. "Agent-Related Persons" means Agent together with its Affiliates, officers, directors, employees, and agents. "Agreement" has the meaning set forth in the preamble hereto. "Applicable Prepayment Premium" means, as of any date of determination, an amount equal to (a) during the period of time from and after the date of the execution and delivery of this Agreement up to the date that is the first anniversary of the Closing Date, 0.50% times the Maximum Revolver Amount, (b) during the period of time from and including the date that is the first anniversary of the Closing Date up to the date that is the second anniversary of the Closing Date, 0.25% times the Maximum Revolver Amount, and (c) during the period of time from and including the date that is the second anniversary of the Closing Date up to the Maturity Date, zero (0). "Assignee" has the meaning set forth in Section 14.1. "Assignment and Acceptance" means an Assignment and Acceptance in the form of Exhibit A-1. "Authorized Person" means any officer or other employee of any Borrower. "Availability" means, as of any date of determination, if such date is a Business Day, and determined at the close of business on the immediately preceding Business Day, if such date of determination is not a Business Day, the amount that Borrower is entitled to borrow as Advances under Section 2.1(a) (after giving effect to all then outstanding Obligations and all sublimits and reserves applicable hereunder). "Average Excess Availability" means the average daily Excess Availability for the monthly period ending the last day of each month. "Bank Products" means any one or more of the following types of services or facilities extended to Borrower or its Subsidiaries by Wells Fargo or any Affiliate of Wells Fargo: (a) credit cards, (ii) debit cards, (iii) purchase cards, (iv) ACH Transactions, (v) cash management, including controlled disbursement, accounts or services, and (vi) Hedge Agreements. "Bank Product Agreements" means those certain cash management service agreements entered into from time to time by Borrower or its Subsidiaries in connection with any of the Bank Products. "Bank Product Obligations" means all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by Borrower or its Subsidiaries to Wells Fargo or its Affiliates pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all such amounts that Borrower is obligated to reimburse to Agent or any member of the Lender Group as a result of Agent or such member of the Lender Group purchasing participations or executing indemnities or reimbursement obligations with respect to the Bank Products provided to Borrower or its Subsidiaries pursuant to the Bank Product Agreements. "Bank Product Reserves" means, as of any date of determination, the amount of reserves that Agent has established (based upon Wells Fargo's or its Affiliate's reasonable determination of the credit exposure in respect of then extant Bank Products) for Bank Products then provided or outstanding. "Bankruptcy Code" means the United States Bankruptcy Code, as in effect from time to time. "Bankruptcy Court" means the United States Bankruptcy Court for Central District of California (San Fernando Valley) before which the Proceeding is pending. "Base Advance Rate" means the following percentages during the periods of each calendar year during the term of this Agreement indicated in the chart below: -------------------------------------------- ------------------------------------ Period Base Advance Rate -------------------------------------------- ------------------------------------ -------------------------------------------- ------------------------------------ December 16 through March 31 62% -------------------------------------------- ------------------------------------ -------------------------------------------- ------------------------------------ April 1 through June 15 65% -------------------------------------------- ------------------------------------ -------------------------------------------- ------------------------------------ June 16 through July 31 60% -------------------------------------------- ------------------------------------ -------------------------------------------- ------------------------------------ August 1 through September 30 65% -------------------------------------------- ------------------------------------ -------------------------------------------- ------------------------------------ October 1 through December 15 68% -------------------------------------------- ------------------------------------
"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 1/16%), on the basis of the rates at which Dollar deposits are offered to major banks in the London interbank market on or about 11:00 a.m. (California time) 2 Business Days prior to the commencement of the applicable Interest Period, for a term and in amounts comparable to the Interest Period and amount of the LIBOR Rate Loan requested by the 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 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 publication or publications as Wells Fargo may designate. "Base Rate Margin" as determined pursuant to the applicable section of the Margin Pricing Grid set forth in Section 2.6(a)(ii) for loans initiated on or after the date when so set. "Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35) of ERISA) for which any Borrower or any Subsidiary or ERISA Affiliate of any Borrower has been an "employer" (as defined in Section 3(5) of ERISA) within the past six years. "Big Dog" means Big Dog USA, Inc., a California corporation. "Big Dog Dividend" means the dividend by Big Dog to Parent in the amount of $1.05 million. "Books" means Borrower and its Subsidiaries 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 Borrower or its Subsidiaries' Records relating to its or their business operations or financial condition, and all of its or their goods or General Intangibles related to such information). "Borrower" has the meaning set forth in the preamble to this Agreement. "Borrower Collateral" means all of Borrower's now owned or hereafter acquired right, title, and interest in and to each of the following: (a) Accounts, (b) Books, (c) Deposit Accounts, (d) Equipment, (e) General Intangibles, (f) Inventory, (g) Investment Property, (h) Negotiable Collateral, (i) Goods, (j) money or other assets of each such Borrower that now or hereafter come into the possession, custody, or control of any member of the Lender Group, (k) all Commercial Tort Claims, (l) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the foregoing, and any and all Accounts, Books, Documents, Equipment, General Intangibles, Instruments, Inventory, Investment Property, Negotiable Collateral, real property, fixtures, leases and leasehold interests, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof, and (m) liens, guaranties, rights, remedies and privileges pertaining to any of the foregoing, including the right of stoppage in transit. "Borrowing" means a borrowing hereunder consisting of Advances made on the same day by the Lenders (or Agent on behalf thereof), or by Swing Lender in the case of a Swing Loan, or by Agent in the case of an Agent Advance, in each case to the applicable Borrower. "Borrowing Base", as of any date of determination, shall mean the result of: (a) the lesser of: (i) the Base Advance Rate times the value (at Cost) of the Eligible Inventory, and (ii) the Maximum Advance Rate times Borrower's then extant Net Liquidation Percentage times the value (at Cost) of Eligible Inventory, plus (b) 85% of Eligible Credit Card Receivables, up to a maximum amount of $2,000,000 minus (c) the sum of (i) the Bank Product Reserve and (ii) the aggregate amount of reserves, if any, established by Agent under Section 2.1(a)(ii). "Business Day" means any day that is not a Saturday, Sunday, or other day on which national banks are authorized or required to close, 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 Lease" means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. "Capitalized Lease Obligation" means any Indebtedness represented by obligations under a Capital Lease. "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b)marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's, (c) commercial paper maturing no more than 270 days from the date of acquisition thereof and, at the time of acquisition, having a rating of A-1 or P-1, or better, from S&P or Moody's, and (d)certificates of deposit or bankers' acceptances maturing within 1 year from the date of acquisition thereof either (i)issued by any bank organized under the laws of the United States or any state thereof which bank has a rating of A or A2, or better, from S&P or Moody's, or (ii)certificates of deposit less than or equal to $100,000 in the aggregate issued by any other bank insured by the Federal Deposit Insurance Corporation. "Cash Management Account" has the meaning set forth in Section 2.7(a). "Cash Management Agreements" means those certain cash management service agreements, in form and substance satisfactory to Agent, each of which is among the Borrower, Agent, and one of the Cash Management Banks. "Cash Management Bank" has the meaning set forth in Section 2.7(a). "Change of Control" means (a) any Person becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 50%, or more, of the Stock of Borrower having the right to vote for the election of members of the Board of Directors, or (b), Parent ceases to directly own and control at least 75% of the outstanding capital Stock of Borrower. "Closing Date" means the date of the making of the initial Advance (or other extension of credit) hereunder. "Closing Date Business Plan" means the set of Projections of Borrower for the 1 year period following the Closing Date (on a yearly and month by month basis), in form and substance (including as to scope and underlying assumptions) satisfactory to Agent. "Code" means the Massachusetts Uniform Commercial Code, as in effect from time to time. "Collateral" means any and all assets and rights and interests in or to property pledged from time to time as security for the Obligations pursuant to any pledge or security agreement that constitutes a Loan Document. "Collateral Access Agreement" means a landlord waiver, bailee letter, contractor letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, contractor, or other Person in possession of, having a Lien upon, or having rights or interests in the Equipment or Inventory, in each case, in form and substance satisfactory to Agent. "Collections" means all cash, checks, notes, instruments, and other items of payment (including insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds) of Borrower. "Commercial Tort Claims" shall have the same definition as in the Code. "Commitment" means, with respect to each Lender, its Commitment and, with respect to all Lenders, their Commitments, in each case as such Dollar amounts are set forth beside such Lender's name on Schedule C-1 or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. "Compliance Certificate" means a certificate substantially in the form of Exhibit C-1 delivered by the chief financial officer of Borrower to Agent. "Control Agreement" means a control agreement, in form and substance satisfactory to Agent, executed and delivered by the Borrower, Agent, and the applicable securities intermediary with respect to a Securities Account or bank with respect to a deposit account. "Copyright" shall have the meaning ascribed to such term in the United States Copyright Act of 1976, as amended, and includes unregistered copyrights. "Copyright Security Agreement" means a copyright security agreement executed and delivered by Parent and the Borrower, as applicable, and Agent, the form and substance of which is satisfactory to Agent. "Cost" means the lower of (a) the calculated cost of purchases, based upon the Borrower's accounting practices, on a first-in, first-out (FIFO) basis, in accordance with GAAP, which practices are in effect on the date on which this Agreement was executed as such calculated cost is determined from invoices received by the Borrower; such Borrower's purchase journal; or such Borrower's stock ledger; and (b) the cost equivalent of the lowest ticketed price at which the subject Inventory is offered to the public, after all ticketed mark-downs (whether or not such price is then reflected on the Borrower's accounting system), determined in accordance with the cost method of accounting and reflecting the Borrower's practices in the ordinary course of the Borrower's business; provided that "Cost" may include costs of freight from vendors to the Borrower's warehouse or distribution center and import duty costs but does not include Inventory capitalization costs or other non-purchase price charges (such as other freight charges and UNICAP) used in the Borrower's calculation of cost of goods sold. "Custom Brokers Agreement" means a tri-party agreement in form and substance satisfactory to the Agent in its Permitted Discretion among the Borrower, Agent and customs broker or carrier, in which the customs broker or carrier acknowledges that it has control over and holds the documents evidencing ownership of the subject Inventory for the benefit of the Agent and agrees, upon notice from the Agent, to hold and dispose of the subject Inventory solely as directed by the Agent. "Customer Credit Liabilities" means gift certificates, customer deposits, merchandise credits, layaway obligations, frequent shopper programs, and similar liabilities of Borrower to its retail customers and prospective customers. "Daily Balance" means, with respect to each day during the term of this Agreement, the amount of an Obligation owed at the end of such day. "DDA" means any checking or other demand deposit account maintained by Borrower. "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) the Base Rate for the first 3 days from and after the date the relevant payment is due, and (b) thereafter, at the interest rate then applicable to Advances that are Base Rate Advances. "Deposit Accounts" shall have the same definition as in the Code. "Designated Account" means that certain account designated as such on Schedule D-1. "Designated Account Bank" means Wells Fargo Bank, whose office is located at 1036 Anacapa Street, Santa Barbara, CA 93101, and whose ABA number is 121-000248. "Disbursement Letter" means an instructional letter executed and delivered by the 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. "Distribution" means, with respect to any Person, (a) the declaration or payment of any dividend on or in respect of any shares of any class of capital Stock of such Person, other than dividends payable solely in shares of common Stock of such Person, (b) the purchase, redemption, or other retirement of any shares of any class of capital Stock of such Person, directly or indirectly, (c) the return of capital by such Person to its shareholders or other interest holders, or (d) any other distribution on or in respect of any shares of any class of capital Stock of such Person. "Dollars" or "$" means United States dollars. "EBITDA" means, with respect to any fiscal period, Borrower's and its Subsidiaries consolidated net earnings (or loss), minus extraordinary gains, plus interest expense, income taxes, and depreciation and amortization for such period, as determined in accordance with GAAP. "Eligible Credit Card Receivables" means Accounts due on a non-recourse basis from major credit card processors, which accounts have been outstanding for no more than four (4) Business Days. For the purposes of this provision, major credit card processors shall include, without limitation, Visa, MasterCard, Discover and American Express. "Eligible Inventory" means Inventory (including, without duplication, Eligible Letter of Credit Inventory) in which the Borrower has good, valid, and marketable title thereto, at such locations, and of such types, character, quality and quantities, as the Agent in its Permitted Discretion from time to time determines to be acceptable for inclusion in the calculation of the Borrowing Base, as to which the Agent has a perfected security interest that is prior and superior to all claims and all Liens (other than Permitted Liens, subject to the Agent's rights to establish reserves therefore); provided, however, that such criteria may be fixed and revised from time to time by Agent in Agent's Permitted Discretion to address the results of any audit or appraisal performed by Agent from time to time after the Closing Date. In no event shall "Eligible Inventory" include: (i) any non-merchandise inventory (such as labels, bags, and packaging materials); (ii) damaged or defective goods (including without limitation), return to vendor merchandise, packaways, consigned inventory, and other similar categories of goods; (iii) any Inventory located in any store of the Borrower which has been closed for business for more than 20 days in any fiscal quarter; and (iv) any pre-sold Inventory for which a customer has paid a deposit equal to 100% of the purchase price of such Inventory. "Eligible Letter of Credit Inventory" means those items of Inventory (without duplication of other Eligible Inventory) as to which (A)(a) such Inventory is the subject of a Qualified Import Letter of Credit, (b) such Inventory currently is in transit (whether by vessel, air, or land) from a location outside of the continental United States and to be received by the Borrower within 50 days of the issuance date of the Qualified Import Letter of Credit at a location set forth on Schedule E-1 that is the subject of a Collateral Access Agreement, (c) title to such Inventory shall pass to the Borrower within 50 days of the issuance date of the Qualified Import Letter of Credit, (d) such Inventory is insured against types of loss, damage, hazards, and risks, and in amounts, satisfactory to Agent in its Permitted Discretion, (e) such Inventory either (1) is the subject of a negotiable bill of lading (x) that is consigned to Agent (either directly or by means of endorsements), (y) that was issued by the carrier respecting the subject Inventory, and (z) that either is (I) in the possession of Agent or a customs broker that has executed a Customs Broker Agreement with Agent, or (II) the subject of a telefacsimile copy that Agent has received from the Underlying Issuer which issued the Underlying Letter of Credit and as to which Agent also has received a confirmation from such Underlying Issuer that such document is in-transit by air-courier to Agent or a customs broker, or (2) is the subject of a negotiable cargo receipt and is not the subject of a bill of lading (other than a negotiable bill of lading consigned to, and in the possession of, a consolidator or Agent, or their respective agents) and such negotiable cargo receipt is (x) consigned to Agent (either directly or by means of endorsements), (y) that was issued by a consolidator respecting the subject Inventory, (z) that either is (I) in the possession of Agent or a customs broker that has executed a Customs Broker Agreement with Agent, or (II) the subject of a telefacsimile copy that Agent has received from the Underlying Issuer which issued the Underlying Letter of Credit and as to which Agent also has received a confirmation from such Underlying Issuer that such document is in-transit by air-courier to Agent or a customs broker that has executed a Customs Broker Agreement with Agent, (f) the Borrower has provided a certificate to Agent that certifies that, to the best knowledge of the Borrower, such Inventory meets all of the Borrower's representations and warranties contained in the Loan Documents concerning Eligible Inventory, that it knows of no reason why such Inventory would not be accepted by the Borrower when it is delivered to Borrower, and that the shipment as evidenced by the documents conforms to the related order documents or (B) (a) meets all of the foregoing criteria except that the Underlying Letter of Credit has been drawn upon in full and the Underlying Issuer has honored such drawing and Agent has honored its obligations to the Underlying Issuer of the Qualified Import Letter of Credit and (b) title has irrevocably passed to the Borrower. Notwithstanding anything contained herein to the contrary, Eligible Letter of Credit Inventory shall not at any time exceed $1,500,000, at Cost. "Eligible Transferee" means (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 that was party hereto as of the Closing Date, (e) so long as no Event of Default has occurred and is continuing, any other Person approved by Agent and Borrower, and (f)during the continuation of an Event of Default, any other Person approved by Agent. "Environmental Actions" means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter, or other communication from any Governmental Authority, or any third party involving violations of Environmental Laws or releases of Hazardous Materials from (a) any assets, properties, or businesses of Borrower or any predecessor in interest, (b) from adjoining properties or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by the Borrower or any predecessor 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 or hereafter 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, to the extent binding on Borrower, relating to the environment, employee health and safety, or Hazardous Materials, including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 USC SS 1251 et seq; the Toxic Substances Control Act, 15 USC, SS 2601 et seq; the Clean Air Act, 42 USC SS 7401 et seq.; the Safe Drinking Water Act, 42 USC. SS 3803 et seq.; the Oil Pollution Act of 1990, 33 USC. SS 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 USC. SS 11001 et seq.; the Hazardous Material Transportation Act,49 USC SS 1801 et seq.; and the Occupational Safety and Health Act, 29 USC. SS 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" includes, without limitation, "equipment" as it is defined in the Code, and also all of Borrower's now owned or hereafter acquired right, title, and interest with respect to equipment, machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), tools, parts, 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 the Borrower 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 the Borrower 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 the Borrower 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 the Borrower and whose employees are aggregated with the employees of the Borrower under IRC Section 414(o). "Event of Default" has the meaning set forth in Section 8. "Excess Availability" means the amount, as of the date any determination thereof is to be made, equal to Availability minus the aggregate amount, if any, of all trade payables of Borrower aged in excess of 60 days from the invoice date and all book overdrafts in excess of the Borrower's customary practices with respect thereto utilized in the ordinary course of the Borrower's business, as determined by Agent in its Permitted Discretion. "Exchange Act" means the Securities Exchange Act of 1934, as in effect from time to time. "Exempt Copyright" means any Obsolete Copyright. "Existing Lender" means Wells Fargo Retail Finance II, LLC. "Family Member" means, with respect to any individual, any other individual having a relationship by blood (to the second degree of consanguinity), marriage, or adoption to such individual. "Family Trusts" means, with respect to any individual, trusts or other estate planning vehicles established for the benefit of Family Members of such individual and in respect of which such individual serves as trustee or in a similar capacity. "FEIN" means Federal Employer Identification Number. "Final Order" means an order of the Bankruptcy Court entered in the Proceeding upon the application of the Borrower in form and substance satisfactory to the Agent in its Permitted Discretion, which order (i) is not subject to an appeal and (ii) has not been modified, stayed, vacated, or rescinded or subject to a motion to modify, stay, vacate or rescind. "First Unsecured Creditors Promissory Note" shall mean that promissory note issued to the Liquidating Agent for the benefit of the unsecured creditors of the Walking Company pursuant to the Walking Company Plan of Reorganization in the original face amount of $700,000. "First Unsecured Creditors Note Put Right" shall mean the right of the Liquidating Agent to cause the Borrower to prepay all or such portion of the then outstanding principal amount of the First Unsecured Creditors Promissory Note as designated by the Liquidating Agent pursuant to that certain Note Put Right (First Unsecured Creditors Promissory Note) dated as of March 3, 2004 by and between the Liquidating Agent and the Borrower. "Funding Conditions" means that Agent shall have received (a) duly executed originals of all documents evidencing the Walking Company Acquisition certified as true, correct, and complete by an appropriate officer of Borrower, the form and substance of which shall be satisfactory to Agent in its Permitted Discretion; (b) a certificate by an appropriate officer of the Borrower that all conditions to the Walking Company Acquisition shall have been satisfied or the fulfillment of such conditions shall have been duly waived by the Agent; (c) evidence satisfactory to Agent in its Permitted Discretion that all documents evidencing the Walking Company Acquisition have been duly executed and delivered by each of the parties thereto and, in each case, remain in full force and effect; (d) evidence satisfactory to Agent in its Permitted Discretion that the security interests granted in favor of Agent pursuant hereto have been duly perfected and are senior in priority to all other liens, claims, security interests, or encumbrances, except for Permitted Liens; (e) evidence satisfactory to Agent in its Permitted Discretion that Parent has contributed the Acquisition Proceeds to the Borrower; (f) evidence satisfactory to the Agent in its Permitted Discretion that all Walking Company Acquisition Orders have been duly entered by the Bankruptcy Court; (g) evidence satisfactory to the Agent in its Permitted Discretion that neither the Walking Company Plan of Reorganization nor any Walking Company Acquisition Order has been amended, supplemented, restated, or otherwise modified, whether pursuant to Section 1127 of the Bankruptcy Code, court order, or otherwise, without the prior written consent of Agent; (h) evidence satisfactory to Agent in its Permitted Discretion that, the Walking Company Acquisition will be consummated substantially in accordance with the terms and provisions of the (i) documents evidencing the Walking Company Acquisition, (ii) the Walking Company Plan of Reorganization, and (iii) the Walking Company Acquisition Orders; (i) evidence satisfactory to the Agent in its Permitted Discretion that the Effective Date (as defined in the Walking Company Plan of Reorganization) shall have occurred; (j) evidence satisfactory to the Agent in its Permitted Discretion that the Walking Company Plan of Reorganization shall have been substantially consummated in accordance with the terms of the Walking Company Plan of Reorganization and the terms of the Walking Company Acquisition Orders; and (k) evidence satisfactory to Agent, in its Permitted Discretion, that the Designated Account has been established. "Funding Date" means the date on which a Borrowing occurs. "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" includes, without limitation, "general intangibles' as defined in the Code; and also means all of Borrower's now owned or hereafter acquired right, title, and interest with respect to general intangibles (including, but not limited to, payment intangibles, health care insurance receivables, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, judgments, payments under any settlement or other agreement, rights to performance, royalties, all means and vehicles of investment or hedging, including without limitation, options, warrants and future contracts, goodwill, patents, patent applications, trade names, trademarks, trademark applications, servicemarks, copyrights, mask work rights and interests and derivative works and interests, internet addresses and domain names, developmental ideas and concepts, proprietary processes, blueprints, drawings, designs, diagrams, plans, charts, purchase orders, customer lists, telephone numbers, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing or franchise agreements, rights to admission, infringement claims, computer programs, computer software, computer records, information contained on computer disks or tapes, software, literature, literary rights, reports, catalogs, manuals, technical data, money, trade secrets rights, insurance premium rebates, warranties, warranty claims, tax refunds, and tax refund claims), and any and all supporting obligations in respect thereof, and any other personal property other than goods, Accounts, Investment Property, and Negotiable Collateral. "Goods" shall have the same definition as in the Code. "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. "Guarantor Security Agreement" means that certain Guarantor Security Agreement executed and delivered by Parent and Agent, the form and substance of which is satisfactory to Agent. "Guaranty" means that certain general continuing guaranty executed and delivered by Parent in favor of Agent, for the benefit of the Lender Group, in form and substance satisfactory to Agent. "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 transactions, agreements, or documents now existing or hereafter entered into between the Borrower or its Subsidiaries and Wells Fargo or its Affiliates, which 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 the Borrower's or its Subsidiaries' exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices. "IDB" means the Israel Discount Bank. "IDB Note" means that promissory note in the original face amount of $3 million executed by Parent in favor of IDB. "Indebtedness" means (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 under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of Borrower or its Subsidiaries, irrespective of whether such obligation or liability is assumed, (e) all obligations for the deferred purchase price of assets (other than trade debt incurred in the ordinary course of business and repayable in accordance with customary trade practices), and (f) 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. "Indemnified Liabilities" has the meaning set forth in Section 11.3. "Indemnified Person" has the meaning set forth in Section 11.3. "Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief. "Interest Period" means, with respect to each LIBOR Rate Loan, a period commencing on the date of the making of such LIBOR Rate Loan and ending 1, 2, or 3 months thereafter; 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) the Borrower may not elect an Interest Period which will end after the Maturity Date. "Intercompany Advances" means loans or advances (i) from Borrower to Parent, any Subsidiary or any Affiliate or (ii) from Parent, any Subsidiary or any Affiliate, to the Borrower or (iii) from Big Dog to Borrower. "Intercompany Subordination Agreement" means a subordination agreement, in form and substance satisfactory to Agent in its Permitted Discretion executed and delivered by Borrower; Parent, Subsidiary or Affiliate, as applicable; and Agent in which Parent, Subsidiary or Affiliate, as applicable, subordinate the obligations of the Borrower to Parent, Subsidiary or Affiliate, as applicable, to the Obligations of the Borrower to Agent and Lenders hereunder. "Inventory" includes, without limitation, "inventory" as defined in the Code and also means all Borrower's now owned or hereafter acquired right, title, and interest with respect to inventory, including goods held for sale or lease or to be furnished under a contract of service, goods that are leased by the Borrower as lessor, goods that are furnished by the Borrower under a contract of service, and raw materials, work in process, or materials used or consumed in the Borrower's business. "Inventory Reserves" means reserves (determined from time to time by Agent in its Permitted Discretion) for (a) the estimated costs relating to unpaid freight charges, warehousing or storage charges, taxes, duties, and other similar unpaid costs associated with the acquisition of Eligible Letter of Credit Inventory by the Borrower, plus (b) the estimated reclamation claims of unpaid sellers of Eligible Letter of Credit Inventory, which is not the subject of a Qualified Import Letter of Credit, sold to the Borrower. "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 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 arising in the ordinary course of business consistent with past practices), purchases or other acquisitions for consideration of Indebtedness or Stock, and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Investment Property" means all of Borrower's now owned or hereafter acquired right, title, and interest with respect to "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 other Lender that, at the request of the 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. "Junior Secured Creditors" means Stratford Capital Partners, L.P., Retail & Restaurant Growth Capital L.P., Provender Opportunities Fund L.P., Cornerstone Equity Investors IV, L.P., James P. Argyropoulos, Giles Bateman, Steve Nessim, Trent and Marilyn Merrill Trust, The Perlman Family Trust dtd 2/27/95, Montesano Family Trust dated March 17, 1998, Candice E. Appleton Family Trust, Pinney Family 1999 Trust UAD 5/2/99, Robert Taicher, Herbert Simon, Harry Adler, Greg Milne and Dan Zuckerman. "Junior Secured Creditors Promissory Note" means those promissory notes issued by the Borrower to the Junior Secured Creditors in the aggregate principal amount of $3.279 million pursuant to the Walking Company Plan of Reorganization. "Junior Secured Creditors Stock Put Right" means the right of the Junior Secured Creditors to cause the Borrower to purchase such creditors stock of the Borrower for cash pursuant to the Junior Secured Creditors Stock Put Right Agreement. "Junior Secured Creditors Stock Put Right Agreement" means that certain Stock Put Right (Junior Secured Creditors Stock) dated as of March 3, 2004 by and between the Borrower and the Junior Secured Creditors. "Landlord Reserve" means with respect to each leased location (i) at which the Borrower stores Inventory in a state that has a landlord lien or similar statute with respect to commercial property, including without limitation, as of the Closing Date, the states of Alabama, Arizona, Florida, Georgia, Illinois, Iowa, Kentucky, Louisiana, Maryland, Mississippi, Nevada, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, South Carolina, Texas, Utah, Virginia, Washington, and West Virginia, and in the District of Columbia, and (ii) for which either (I) a Collateral Access Agreement has not been received by Agent, or (II) the underlying lease agreement does not contain a provision that waives the Lien rights that the landlord may have in and to the Inventory, including without limitation all rights of levy or distraint for rent; a reserve in an amount equal to the greater of (a) the number of months rent for which a landlord will have, under the applicable statutory lien, a Lien in the assets of the applicable Borrower to secure the payment of rent or other amounts under a lease, or (b) 2 months rent under the lease. "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). "Leasehold Threshold" shall mean, as of the date of determination, a default by Borrower under (a) any lease related to a distribution center or warehouse, or (b) 3 or more leases related to retail stores. "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, individually and collectively, each of the Lenders (including the Issuing Lender) and Agent. "Lender Group Expenses" means all (a) costs or expenses (including taxes, and insurance premiums) required to be paid by the Borrower under any of the Loan Documents that are paid or incurred by the Lender Group, (b) fees or charges paid or incurred by Agent in connection with the Lender Group's transactions with Borrower, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and UCC searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles), 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) contained in this Agreement), real estate surveys, real estate title policies and endorsements, and environmental audits, (c) costs and expenses incurred by Agent in the disbursement of funds to or for the account of Borrower (by wire transfer or otherwise), (d) charges paid or incurred by Agent resulting from the dishonor of checks, (e) reasonable 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) 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) contained in this Agreement, (g) reasonable 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 the Borrower or any guarantor of the Obligations, (h) Agent's and each Lender's reasonable fees and expenses (including attorneys fees) incurred in advising, structuring, drafting, reviewing, administering, or amending the Loan Documents, and (i) Agent's and each Lender's reasonable fees and expenses (including attorneys fees) incurred in terminating, enforcing (including attorneys fees and expenses incurred in connection with a "workout," a "restructuring," or an Insolvency Proceeding concerning the Borrower 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, and the officers, directors, employees, and agents of such Lender. "Letter of Credit" means an L/C or an L/C Undertaking, as the context requires. "Letter of Credit Usage" means, as of any date of determination thereof, the aggregate undrawn amount of all outstanding Letters of Credit issued for the account of Borrower plus 100% of the amount of outstanding time drafts accepted by an Underlying Issuer as a result of drawings under Underlying Letters of Credit issued for the account of Borrower. "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 1/16%) 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. "LIBOR Rate Margin" as determined pursuant to the Margin Pricing Grid set forth in section 2.6(a)(ii) for loans initiated on or after the date when so set, that is to say LIBOR contracts in effect at the time of increases/decreases in margin will remain in effect at the margin originally utilized when the contract was opened. The margin in effect at a given time will apply to contacts opened at that time, and shall be based upon the Margin Pricing Grid. "License" has the meaning set forth in Section 4.1 "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, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including 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 including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting real property. "Liquidating Agent" means the Post-Confirmation Committee as defined in the Walking Company Plan of Reorganization. "Loan Account" and "Loan Accounts" have the respective meanings set forth in Section 2.10. "Loan Account" means the Loan Account respecting the Borrower maintained on the books of Agent pursuant to Section 2.10. "Loan Documents" means this Agreement, the Bank Product Agreements, the Cash Management Agreements, the Control Agreements, the Copyright Security Agreement, the Disbursement Letter, the Intercompany Subordination Agreement, the Letters of Credit, the Officers' Certificate, the Stock Pledge Agreement, the Trademark Security Agreement, any note or notes executed by the 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 the Borrower and the Lender Group in connection with this Agreement. "Margin Adjustment Date" has that meaning set forth in Section 2.6(a)(ii). "Margin Pricing Grid" means the pricing grid set forth in Section 2.6(a). "Material Adverse Change" means (a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrower, taken as a whole, (b) a material impairment of the Borrower's ability to perform its respective obligations under the Loan Documents to which it is a party 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 the Borrower. "Maturity Date" means March 3, 2007. "Maximum Advance Rate" means 85%, except that (i) during the months of August and September calendar year 2004, such percentage shall be increased to 90% provided, that, there does not exist an Event of Default and an Event of Default would not exist after giving effect to the increased percentage and (ii) during the months of August and September calendar year 2005, such percentage shall be increased to 90% provided, that, (x) there does not exist an Event of Default and an Event of Default would not exist after giving effect to the increased percentage, (y) the Borrower was in compliance with the EBITDA Financial Covenant for the period ending December 31, 2004, and (iii) during the months of August and September calendar year 2006, such percentage shall be increased to 90% provided, that, (x) there does not exist an Event of Default and an Event of Default would not exist after giving effect to the increased percentage, (y) the Borrower was in compliance with the EBITDA Financial Covenant for the period ending December 31, 2005. "Maximum Revolver Amount" means $17,500,000, provided, however, at the Borrower's option, effective upon five (5) Business Days' prior written notice by Borrower to the Agent, the "Maximum Revolver Amount" may be increased to $20,000,000 at any time prior to June 30, 2006, provided, that there does not exist an Event of Default at the time of such exercise and an Event of Default would not exist after giving effect to such increase. "Minimum Excess Reserve" means $1,500,000. "Negotiable Collateral" means all of Borrower's now owned and hereafter acquired right, title, and interest with respect to 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. "Net Liquidation Percentage" means the net percentage of the Cost of the Borrower's Inventory that is estimated to be recoverable in an orderly liquidation of such Inventory, such percentage to be as determined from time to time by a qualified appraisal company selected by Agent. "Obligations" means (a) all loans, Advances, debts, principal, interest (including any interest that, but for the provisions of the Bankruptcy Code, 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, fees, charges, costs, Lender Group Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, and duties of any kind and description owing by Borrower 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 Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise, and (b) all Bank Product Obligations. Any reference in this Agreement or in the Loan Documents to the Obligations shall include all amendments, changes, extensions, modifications, renewals replacements, substitutions, and supplements, thereto and thereof, as applicable, both prior and subsequent to any Insolvency Proceeding. "Obsolete Copyright" means any copyright of a Person that, in such Person's good faith determination (a) is no longer sold or marketed by such Person, (b) is not generating any material amount of revenues of such Person, or (c) does not have a material fair market value. "Officers' Certificate" means the representations and warranties of officers form submitted by Agent to Borrower, together with Borrower's completed responses to the inquiries set forth therein, the form and substance of such responses to be satisfactory to Agent. "Originating Lender" has the meaning set forth in Section 14.1(e). "Overadvance" means the amount, if any, by which (a) the outstanding principal amount of the Revolver Usage exceeds (b) the lesser of (i) the Borrowing Base, or (ii) the Maximum Revolver Amount. "Parent" means Big Dog Holdings, Inc., a Delaware corporation. "Parent Equity Contribution" means an equity contribution by Parent to Borrower in an amount of not less than $6.45 million. "Parent IP License" has the meaning set forth in Section 5.16. "Parent Loan I" means that unsecured line of credit established by Parent to Borrower pursuant to the terms of that certain Subordinated Intercompany Promissory Note dated as of March 3, 2004 in the face amount of $1.05 million, funded from proceeds of the Big Dog Dividend. "Parent Loan II" means that unsecured line of credit established by Parent to Borrower pursuant to the terms of that certain Subordinated Intercompany Promissory Note dated as of March 3, 2004 in the face amount of up to $3.0 million, funded from proceeds of the IDB Note. "Participant" has the meaning set forth in Section 14.1(e). "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 the Walking Company owing to Existing Lender and obtain a release or assignment of all of the Liens existing in favor of Existing Lender in and to the assets of the Walking Company. "Permitted Acquisitions" means, during the term of this Agreement, one or more Acquisitions so long as: (a) no Default or Event of Default shall have occurred and be continuing or would result from the consummation of such proposed Acquisition, (b) such Acquisition, if consummated prior to December 31, 2004, is such that the assets being acquired or the Person whose Stock is being acquired is engaged in the business of selling shoes or accessories or other merchandise of a brand carried by the Borrower following consummation of the Walking Company Acquisition, or, such Acquisition, if consummated after December 31, 2004, is such that the assets being acquired or the Person whose Stock is being acquired is engaged in the business of the Borrower or a business reasonably related thereto, (c) the consideration payable in respect of such Acquisition shall be composed solely of net proceeds from the issuance of common Stock of Borrower, warrants for common Stock of Parent, preferred Stock of Parent (so long as such preferred Stock does not require any current cash payment until after the Obligations have been paid in full and the Commitments terminated hereunder), (d) Borrower has provided to Agent written notice thereof not less than 15 days prior to the anticipated closing date of such subject Acquisition together with such documentation that Agent may require demonstrating that after giving effect to such subject Acquisition, Borrower and its Subsidiaries (taken as a whole) would not suffer a Material Adverse Change as a result of such proposed Acquisition, (e) the subject Stock is being acquired in such Acquisition directly by Borrower, or the subject assets are being acquired in such Acquisition directly by Borrower or a new Subsidiary formed for the purposes of such Acquisition, (f) Borrower shall have caused such acquired Person to execute and deliver a guaranty of the Obligations hereunder, together with any and all security agreements, UCC-1 financing statements, fixture filings, and other documentation reasonably requested by Agent to cause such acquired Person to be obligated with respect to the Obligations and to include the assets of the acquired Person within the Collateral, provided, that, such assets shall not be included in the calculation of the Borrowing Base, except to the extent such assets are deemed acceptable for borrowing by the Agent, in its sole discretion, and (g) Following consummation of such Acquisition, those Persons comprising senior management of the Person whose assets are being acquired or the Person whose Stock is being acquired do not perform any of the functions of senior management of the Borrower unless such Person is acceptable to the Agent, in its Permitted Discretion . "Permitted Discretion" means a determination made in good faith and in the exercise of reasonable (from the perspective of a secured asset-based lender) business judgment. "Permitted Dispositions" means (a) sales or other dispositions by Borrower or its Subsidiaries of Equipment that is substantially worn, damaged, or obsolete in the ordinary course of the Borrower's business, (b) sales by Borrower or its Subsidiaries of Inventory to buyers in the ordinary course of business, (c) the use or transfer of money or Cash Equivalents by Borrower or its Subsidiaries in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents, (d) the licensing by Borrower or its Subsidiaries, on an exclusive or non-exclusive basis, and for fair market value, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of their business, provided, however, that Borrower or its Subsidiaries, as applicable, must retain or obtain sufficient rights to use the subject intellectual property as to enable Borrower or its Subsidiaries, as applicable, to continue to conduct its business in the ordinary course and such rights shall be assignable to Agent, for the benefit of the Lender Group, (e) charitable donations by Borrower of Inventory that is old or obsolete and has a retail value of not more than $200,000, in the aggregate, during any fiscal year, and (f) transfer or assignment of Borrower's patents, trademarks, copyrights, and other intellectual property rights to Parent, provided, however, that Parent has simultaneously executed and delivered a fully paid, non-cancelable, worldwide, exclusive license to Borrower enabling Borrower to use and exploit each of the Parent's trademarks, trade names, copyrights, patents, patent rights, and licenses used in the Borrower's business. "Permitted Distributions" means (a) redemptions of Borrower's outstanding Stock held by the Junior Secured Creditors in accordance with the terms of the Junior Secured Creditors Stock Put Right Agreement, provided, that, (i) no Default or Event of Default has occurred and is continuing or would result therefrom, (ii) at all times tested, Borrower, has maintained Excess Availability for 30 days prior to date of such cash Distribution and, on a pro forma basis, will maintain Excess Availability for 60 days after the date of such cash Distribution of not less than $1,500,000 after giving effect to such cash Distribution and (iii) and the Borrower is Solvent; and (b) cash Distributions to Parent after July 31, 2004, provided, that, (i) no Default or Event of Default has occurred and is continuing or would result therefrom, (ii) at all times tested, Borrower, has maintained Excess Availability for 60 days prior to date of such cash Distribution and, on a pro forma basis, will maintain Excess Availability for 90 days after the date of such cash Distribution of not less than $4,000,000 after giving effect to such cash Distribution, and (iii) the Borrower is Solvent. "Permitted Holder" means Fred Kayne, Andrew Feshbach, and their Family Members and Family Trusts. "Permitted Intercompany Advances" means Intercompany Advances made by (a) Parent to the Borrower pursuant to the Parent Loan I, Parent Loan II, and Shoes.com Loan (if funded by Parent) and (b) advances made by Big Dog for actual overhead charges reasonably allocable to the Borrower including, but not limited to, charges for general corporate shared administrative services and Borrower's occupancy of a portion of the warehouse or distribution centers operated by Big Dog in amounts not to exceed caps to be established by Agent, in its Permitted Discretion, based upon an allocation analysis to be furnished by Borrower to Agent within 90 days of the Closing Date, provided, that an Intercompany Subordination Agreement is in full force and effect with respect to the proposed Intercompany Advance. In the event Borrower fails to provide Agent with such allocation analysis within 90 days of the Closing Date, Borrower shall pay Agent an extension fee equal to $10,000 per month (or any portion thereof) until such analysis is furnished to Agent. "Permitted Investments" means (a) investments in 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, and (d) investments in connection with Permitted Acquisitions. "Permitted Liens" means (a) Liens held by Agent for the benefit of Agent and the Lenders, (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, (d) the interests of lessors under operating leases, (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 Borrower's business and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) 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 Borrower's 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 Borrower's 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 by Borrower and (l) Liens of the Junior Secured Creditors pursuant to the terms of Junior Secured Creditors Promissory Note, provided, that the Liens of the Junior Secured Creditors are at all time junior and subordinate to the Liens of the Agent created hereunder. Notwithstanding anything contained herein to the contrary, the inclusion of any of the foregoing as "Permitted Liens" shall not affect their respective relative priorities vis-a-vis the Liens of the Agent created herein. "Permitted Protest" means the right of Parent or the Borrower or its Subsidiaries to protest any Lien (other than any such 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 Parent or the Borrower or its Subsidiary, as applicable, in good faith, and (c) Agent is 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 $1,000,000. "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. "Proceeding" means the Chapter 11 case of the Walking Company pending before the Bankruptcy Court as case number SV 03-44040 GM, jointly administered with Case No. SV 03-15932 GM. "Projections" means Borrower's forecasted (a) balance sheets, (b) profit and loss statements, and (c) cash flow statements, all prepared on a basis consistent with Borrower's historical financial statements (if any), together with appropriate supporting details and a statement of underlying assumptions. "Pro Rata Share" means: (a) with respect to a Lender's obligation to make Advances and receive payments of principal, interest, fees, costs, and expenses with respect thereto, the percentage obtained by dividing (i) such Lender's Commitment, by (ii) the aggregate Revolver of all Lenders, (b) with respect to a Lender's obligation to participate in Letters of Credit, to reimburse the Issuing Lender, and to receive payments of fees with respect thereto, the percentage obtained by dividing (i) such Lender's Commitment, by (ii) the aggregate Commitments of all Lenders, (c) with respect to all other matters (including the indemnification obligations arising under Section 16.7), the percentage obtained by dividing (i) such Lender's Commitment, by (ii) the aggregate amount of Commitments of all Lenders; provided, however, that, in each case, in the event all Commitments have been terminated, Pro Rata Share shall be determined according to the Commitments in effect immediately prior to such termination. "Purchase Money Indebtedness" means Indebtedness (other than the Obligations, but including Capitalized Lease Obligations), incurred at the time of, or within 20 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof. "Qualified Cash" means cash of the Walking Company on deposit in local store level accounts of up to $250,000. "Qualified Import Letter of Credit" means a Letter of Credit that (a) is issued to facilitate the purchase by Borrower of Eligible Inventory, (b) is in form and substance acceptable to Agent, and (c) is issued to support an Underlying Letter of Credit that only is drawable by the beneficiary thereof by the presentation of, among other documents, either (i) a negotiable bill of lading that is consigned to Agent (either directly or by means of endorsements) and that was issued by the carrier respecting the subject Eligible Inventory, or (ii) a negotiable cargo receipt that is consigned to Agent (either directly or by means of endorsements) and that was issued by a consolidator respecting the subject Eligible Inventory; provided, however, that, in the latter case, no bill of lading shall have been issued by the carrier (other than a bill of lading consigned to the consolidator or to Agent). "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 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 ss. 9601. "Report" has the meaning set forth in Section 16.17. "Required Availability" means Excess Availability in an amount of not less than $3,500,000, after giving effect to the first funding hereunder, all payments required to be made pursuant to the Walking Company Plan of Reorganization on the effective date of such plan, all post-petition accounts payable of the Walking Company which are beyond credit terms then accorded the Walking Company, overdrafts, any charges to the Loan Account made in connection with the establishment of the credit facility contemplated hereby; any Letters of Credit requested by the Borrower hereunder to be issued at, or immediately subsequent to, such establishment; and any Letters of Credit to be assumed by the Borrower upon consummation of the Walking Company Acquisition; plus Qualified Cash. "Required Lenders" means, at any time, (a) Agent, and (b) Lenders whose Pro Rata Shares aggregate 50.1% of the Commitments, or if the Commitments have been terminated irrevocably, 50.1% of the Obligations (other than Bank Product Obligations) then outstanding. "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. "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 the 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 the Borrower, whether by the making of an Advance or otherwise, and (c) all accrued and unpaid interest, fees, and expenses payable with respect thereto. "SEC" means the United States Securities and Exchange Commission and any successor thereto. "Second Unsecured Creditors Promissory Note" means that promissory note issued by the Borrower to the Liquidating Agent in the original face amount of $21,000 pursuant to the Walking Company Plan of Reorganization. "Securities Account" means a "securities account" as that term is defined in the Code. "Settlement" has the meaning set forth in Section 2.3(f)(i). "Settlement Date" has the meaning set forth in Section 2.3(f)(i). "Shoes.com Administrative Claim" means any claim of Shoes.com, Inc. allowed by Final Order of the Bankruptcy Court as an administrative claim against the Borrower pursuant to Section 503 of the Bankruptcy Code in the Proceeding. "Shoes.com Loan" means an unsecured loan to be made by either (i) Parent to Borrower or (ii) by Fred Kayne and/or Andrew Feshbach to Borrower in an amount sufficient to satisfy the Shoes.com Administrative Claim after application of then available proceeds of Parent Loan II. "Solvent" means, with respect to any Person on a particular date, that such Person is not insolvent (as such term is defined in the Uniform Fraudulent Transfer Act). "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). "Stock Pledge Agreement" means a stock pledge agreement, in form and substance satisfactory to Agent, executed and delivered by Parent and Borrower to Agent with respect to the pledge of the Stock owned by Parent and Borrower. "Subordinated Indebtedness" means any Indebtedness of Borrower that contains terms and conditions (including subordination terms) acceptable to Agent in the exercise of its Permitted Discretion. "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. "Swing Lender" means WFRF or any other Lender that, at the request of a Borrower and with the consent of Agent agrees, in such Lender's sole discretion, to become the Swing Lender hereunder. "Swing Loan" has the meaning set forth in Section 2.3(d)(i). "Taxes" has the meaning set forth in Section 16.11. "Trademark Security Agreement" means a trademark security agreement executed and delivered by Parent, the Borrower, and Agent, the form and substance of which is satisfactory to Agent. "TWC Acquisition" has the meaning set forth in the preamble to this Agreement. "Underlying Issuer" means a third Person which is the beneficiary of an L/C Undertaking and which has issued a letter of credit at the request of the Issuing Lender for the benefit of Borrower and, in the case of a proposed Qualified Import Letter of Credit, has agreed, in writing, to hold documents of title as agent for Agent. "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 17.7. "Walking Company" means The Walking Company, a California corporation and Alan's Shoes, Inc., an Arizona corporation, both of which are debtors in possession in the Proceeding. "Walking Company Acquisition" means the acquisition of the Walking Company Assets by Borrower pursuant to the Walking Company Plan of Reorganization. "Walking Company Acquisition Orders" means, collectively, (a) a Final Order from the Bankruptcy Court (i) confirming the Walking Company Plan of Reorganization and the sale of the Walking Company Assets free and clear of all liens and encumbrances to Borrower pursuant to Section 1129 of the Bankruptcy Code and (b) such other Final Orders of the Bankruptcy Court required for the consummation of the Walking Company Acquisition, all of which are determined by Agent, in its Permitted Discretion, to be in form and substance acceptable to Agent. "Walking Company Assets" means all of the property and assets (tangible and intangible) of the Walking Company that (i) are proposed to be purchased by Borrower pursuant to the Walking Company Plan of Reorganization, or (ii) are acceptable to Agent in its Permitted Discretion. "Walking Company Plan of Reorganization" means the Plan of Reorganization of the Walking Company dated November 6, 2003, filed by the Walking Company in the Proceeding, as such plan may be modified, supplemented or amended from time to time with the prior written consent of Agent. "Warehouse Sublicense" has the meaning set forth in Section 5.17. "Wells Fargo" means Wells Fargo Bank, National Association, a national banking association. "WFRF" means Wells Fargo Retail Finance II, 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 "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 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 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) (i) 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 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 least of (A) the Maximum Revolver Amount less the then extant Revolver Usage and the aggregate amount of reserves, if any, established by Agent under Section 2.1(a)(ii), or (B) the Borrowing Base less the Revolver Usage and the aggregate amount of the aggregate amount of reserves imposed under Section 2.1(a)(ii)). (ii) Anything to the contrary in this Section 2.1(a) notwithstanding, Agent shall have the right to establish Landlord Reserves and such other reserves in such amounts, and with respect to such matters, as Agent in its Permitted Discretion shall deem necessary or appropriate, against the Borrowing Base, including (without duplication) reserves with respect to (i) sums that Borrower 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, (ii) amounts owing by Borrower to any Person to the extent secured by a Lien on, or trust over, any of its 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), 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 (iii) Customer Credit Liabilities; (iv) shrinkage, markdowns (to the extent not taken into account in the calculation of "Cost"), seasonality and other such categories of reasons which the Agent may establish, in its Permitted Discretion, which reflect other factors which affect the market value of Eligible Inventory; (v) Account Reserves; (vi) the Minimum Excess Reserve. In addition to the foregoing and subject to Section 2.11(c), Agent shall have the right to have Borrower's Inventory reappraised by a qualified appraisal company selected by Agent from time to time after the Closing Date for the purpose of redetermining the Net Liquidation Percentage of Eligible Inventory portion of its Collateral and, as a result, redetermining the Borrowing Base. (b) 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 be in excess of the formula limitations set forth in Section 2.1(a)(i) and which are not permitted pursuant to Section 2.3(i). (c) Amounts borrowed pursuant to this Section 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 [Intentionally Omitted] 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 (which notice must be received by Agent no later than 10:00 a.m. (California time) on the Business Day prior to the date that is the requested Funding Date in the case of a request for an Advance specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day; provided, however, that in the case of a request for Swing Loan in an amount of $2,000,000, or less, such notice will be timely received if it is received by Agent no later than 10:00 a.m. (California time) on the Business Day that is the requested Funding Date) specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day. At Agent's election, in lieu of delivering the above-described written request, any Authorized Person may give Agent telephonic notice of such request by the required time, with such telephonic notice to be confirmed in writing within 24 hours of the giving of such notice. (b) Agent's Election. Promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a), Agent shall elect, in its discretion, (i) to have the terms of Section 2.3(c) apply to such requested Borrowing, or (ii) if the Borrowing is for a Base Rate Advance, to request Swing Lender to make a Swing Loan pursuant to the terms of Section 2.3(d) in the amount of the requested Borrowing; provided, however, that if Swing Lender declines in its sole discretion to make a Swing Loan pursuant to Section 2.3(d), Agent shall elect to have the terms of Section 2.3(c) apply to such requested Borrowing. (c) Making of Advances. (i) In the event that Agent shall elect to have the terms of this Section 2.3(c) apply to a requested Borrowing as described in Section 2.3(b), then promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a), Agent shall notify the Lenders, not later than 1:00 p.m. (California 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 10:00 a.m. (California time) on the Funding Date applicable thereto. After Agent's receipt of the proceeds of such Advances, upon satisfaction of the applicable conditions precedent set forth in Section 3 hereof, Agent shall make the proceeds thereof available to the applicable Borrower on the applicable Funding Date by transferring immediately available funds equal to such proceeds received by Agent to 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, at least 1 Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to Agent for the account of the applicable 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 such 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 the applicable Borrower such amount, that 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 the applicable Borrower of such failure to fund and, upon demand by Agent, such 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 the Borrower 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 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 a Borrower and if no Default or 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 such Borrower as if such Defaulting Lender had made Advances to such Borrower. Subject to the foregoing, Agent may hold and, in its Permitted Discretion, re-lend to a Borrower for the account of such Defaulting Lender the amount of all such payments received and retained by it 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 Lender's 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 Borrower 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 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 Borrower 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 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 Agreement 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 Bank Product Obligations) (including an assumption of its Pro Rata Share of the Risk Participation Liability) without any premium or penalty of any kind whatsoever; provided further, however, that any such assumption of the Commitment of such Defaulting Lender shall not be deemed to constitute a waiver of any of the Lender Groups' or Borrower's rights or remedies against any such Defaulting Lender arising out of or in relation to such failure to fund. (d) Making of Swing Loans. (i) In the event Agent shall elect, with the consent of Swing Lender, as a Lender, to have the terms of this Section 2.3(d) apply to a requested Borrowing as described in Section 2.3(b), Swing Lender as a Lender shall make such Advance in the amount of such Borrowing (any such Advance made solely by Swing Lender as a Lender pursuant to this Section 2.3(d) being referred to as a "Swing Loan" and such Advances being referred to collectively as "Swing Loans") available to the applicable Borrower on the Funding Date applicable thereto by transferring immediately available funds to Borrower's Designated Account. Each Swing Loan is an Advance hereunder and shall be subject to all the terms and conditions applicable to other Advances, except that no such Swing Loan shall be eligible for the LIBOR Option and all payments on any Swing Loan shall be payable to Swing Lender as a Lender solely for its own account (and for the account of the holder of any participation interest with respect to such Swing Loan). Subject to the provisions of Section 2.3(i), Agent shall not request Swing Lender as a Lender to make, and Swing Lender as a Lender shall not make, any Swing Loan if Agent has actual knowledge that (i) 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 (ii) the requested Borrowing would exceed the Availability on such Funding Date. Swing Lender as a Lender shall not otherwise be required to determine whether the applicable conditions precedent set forth in Section 3 have been satisfied on the Funding Date applicable thereto prior to making, in its sole discretion, any Swing Loan. (ii) The Swing Loans shall be secured by the Agent's Liens, shall constitute Advances and Obligations hereunder, and shall bear interest at the rate applicable from time to time to Advances that are Base Rate Seasonal Advances. (e) Agent Advances. (i) Agent hereby is authorized by the Borrower and the Lenders, from time to time in Agent's sole discretion, (1) after the occurrence and during the continuance of a Default or an Event of Default, or (2) at any time that any of the other applicable conditions precedent set forth in Section 3 have not been satisfied, to make Advances to the Borrower on behalf of the Lenders that Agent, in its Permitted Discretion deems necessary or desirable (A) to preserve or protect the Collateral, or any portion thereof, (B) to enhance the likelihood of repayment of the Obligations (other than the Bank Product Obligations), or (C) to pay any other amount chargeable to each Borrower pursuant to the terms of this Agreement, including Lender Group Expenses and the costs, fees, and expenses described in Section 10 (any of the Advances described in this Section 2.3(e) shall be referred to as "Agent Advances"). Each Agent Advance is an Advance hereunder and shall be subject to all the terms and conditions applicable to other Advances, except that no such Agent Advance shall be eligible for the LIBOR Option and all payments thereon shall be payable to Agent solely for its own account (and for the account of the holder of any participation interest with respect to such Agent Advance). (ii) The Agent Advances shall be repayable on demand and secured by the Agent's Liens granted to Agent under the Loan Documents, shall constitute Advances and Obligations hereunder, and shall bear interest at the rate applicable from time to time to Advances that are Base Rate Advances. (f) 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, Swing Lender, and the other Lenders agree (which agreement shall not be for the benefit of or enforceable by any Borrower) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Advances, the Swing Loans, and the Agent 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, (1) on behalf of Swing Lender, with respect to each outstanding Swing Loan, (2) for itself, with respect to each Agent Advance, and (3) with respect to Collections received, as to each by notifying the Lenders by telecopy, telephone, or other similar form of transmission, of such requested Settlement, no later than 2:00 p.m. (California 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, Swing Loans, and Agent 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, Swing Loans, and Agent Advances exceeds such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date, then Agent shall, by no later than 12:00 p.m. (California time) on the Settlement Date, transfer in immediately available funds to the 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, Swing Loans, and Agent Advances, and (z) if a Lender's balance of the Advances, Swing Loans, and Agent Advances is less than such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date, such Lender shall no later than 12:00 p.m. (California 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, Swing Loans, and Agent Advances. Such amounts made available to Agent under clause (z) of the immediately preceding sentence shall be applied against the amounts of the applicable Swing Loan or Agent Advance and, together with the portion of such Swing Loan or Agent Advance representing Swing Lender's Pro Rata Share thereof, shall constitute Advances of such Lenders. 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, Swing Loans, and Agent Advances is less than, equal to, or greater than such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent 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 Borrower 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. (iii)Between Settlement Dates, Agent, to the extent no Agent Advances or Swing Loans are outstanding, may pay over to Swing Lender any payments received by Agent, that in accordance with the terms of this Agreement would be applied to the reduction of the Advances, for application to Swing Lender's Pro Rata Share of the Advances. If, as of any Settlement Date, Collections received since the then immediately preceding Settlement Date have been applied to Swing Lender's Pro Rata Share of the Advances other than to Swing Loans, as provided for in the previous sentence, Swing Lender shall pay to Agent for the accounts of the Lenders, and Agent shall pay to the Lenders, to be applied to the outstanding Advances of such Lenders, an amount such that each Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Advances. During the period between Settlement Dates, Swing Lender with respect to Swing Loans, Agent with respect to Agent Advances, and each Lender (subject to the effect of letter agreements between Agent and individual Lenders) with respect to the Advances other than Swing Loans and Agent Advances, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the daily amount of funds employed by Swing Lender, Agent, or the Lenders, as applicable. (g) Notation. Agent shall record on its books the principal amount of the Advances owing to each Lender, including the Swing Loans owing to Swing Lender, and Agent Advances owing to Agent, and the interests therein of each Lender, from time to time. 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. (h) Lenders' Failure to Perform. All Advances (other than Swing Loans and Agent 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 Commitment 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. (i) Optional Overadvances. Any contrary provision of this Agreement notwithstanding, the Lenders hereby authorize Agent or Swing Lender, as applicable, and Agent or Swing Lender, as applicable, may, but is not obligated to, knowingly and intentionally, continue to make Advances (including Swing Loans) to Borrower notwithstanding that an Overadvance exists or thereby would be created, so long as (i) after giving effect to such Advances (including a Swing Loan), the outstanding Adjusted Revolver Usage does not exceed the Borrowing Base by more than $1,500,000, (ii) after giving effect to such Advances (including a Swing Loan), the outstanding Revolver Usage (except for and excluding amounts charged to the Loan Accounts for interest, fees, or Lender Group Expenses) does not exceed the Maximum Revolver Amount, and (iii) at the time of the making of any such Advance (including any Swing Loan), Agent does not believe, in good faith, that the Overadvance created by such Advance will be outstanding for more than 90 days. The foregoing provisions are for the exclusive benefit of Agent, Swing Lender, and the Lenders and are not intended to benefit Borrower in any way. The Advances and Swing Loans, as applicable, that are made pursuant to this Section 2.3(i) shall be subject to the same terms and conditions as any other Advance or Swing Loan, as applicable, except that they shall not be eligible for the LIBOR Option and the rate of interest applicable thereto shall be the rate applicable to Advances that are Base Rate Seasonal Advances under Section 2.6(c) hereof without regard to the presence or absence of a Default or Event of Default. (i) In the event Agent obtains actual knowledge that the Revolver Usage exceeds the amounts permitted by the preceding paragraph, regardless of the amount of, or reason for, such excess, Agent shall notify Lenders as soon as practicable (and prior to making any (or any additional) intentional Overadvances (except for and excluding amounts charged to the Loan Accounts for interest, fees, or Lender Group Expenses) unless Agent determines that prior notice would result in imminent harm to the Collateral or its value), and the Lenders thereupon shall, together with Agent, jointly determine the terms of arrangements that shall be implemented with Borrower intended to reduce, within a reasonable time, the outstanding principal amount of the Advances to Borrower to an amount permitted by the preceding paragraph. In the event Agent or any Lender disagrees over the terms of reduction or repayment of any Overadvance, the terms of reduction or repayment thereof shall be implemented according to the determination of the Required Lenders. (ii) Each Lender shall be obligated to settle with Agent as provided in Section 2.3(f) for the amount of such Lender's Pro Rata Share of any unintentional Overadvances by Agent reported to such Lender, any intentional Overadvances made as permitted under this Section 2.3(i), and any Overadvances resulting from the charging to the Loan Accounts of interest, fees, or Lender Group Expenses. 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 11:00 a.m. (California time) on the date specified herein. Any payment received by Agent later than 11:00 a.m. (California 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 the Borrower prior to the date on which any payment is due to the Lenders that the Borrower will not make such payment in full as and when required, Agent may assume that the 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 the 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 Commitment or Obligation to which a particular fee relates. All payments shall be remitted to Agent and all such payments (other than payments received while no Event of Default has occurred and is continuing and which relate to the payment of principal or interest of specific Obligations or which relate to the payment of specific fees), and all proceeds of Accounts or other Collateral received by Agent, shall be applied as follows: (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 accounts, 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, to pay interest due in respect of all Agent Advances, until paid in full, (F) sixth, ratably to pay interest due in respect of all other Advances (other than Agent Advances) and the Swing Loans until paid in full, (G) seventh, to pay the principal of all Agent Advances until paid in full, (H) eighth, to pay the principal of all Swing Loans until paid in full, (I) ninth, so long as no Event of Default has occurred and is continuing, and at Agent's election (which election Agent agrees will not be made if an Overadvance would be created thereby), to pay amounts then due and owing by Borrower or its Subsidiaries in respect of Bank Products, until paid in full, (J) tenth, so long as no Event of Default has occurred and is continuing, to pay the principal of all Advances until paid in full, (K) eleventh, if an Event of Default has occurred and is continuing, to Agent, to be held by Agent, for the benefit of Wells Fargo or its Affiliates, as applicable, as cash collateral in an amount up to the amount of the Bank Products Reserve established prior to the occurrence of, and not in contemplation of, the subject Event of Default until Borrower's and its Subsidiaries' obligations in respect of the then extant Bank Products have been paid in full or the cash collateral amount has been exhausted, (L) twelfth, if an Event of Default has occurred and is continuing, to Agent to pay the principal of all Advances until paid in full, (M) thirteenth, if an Event of Default has occurred and is continuing, to Agent, to be held by Agent, for the ratable benefit of Issuing Lender and the Lenders, as cash collateral in an amount up to 105% of the then extant Letter of Credit Usage until paid in full, (N) fourteenth, to pay any other Obligations (including Bank Product Obligations) until paid in full, and (O) fifteenth, 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(h). (iii) In each instance, so long as no Event of Default has occurred and is continuing, 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 the same 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, (a) the amount of Obligations (other than Bank Product Obligations) owed by Borrower to the Lender Group pursuant to Sections 2.1 and 2.12 is greater than either the Dollar or percentage limitations set forth in Sections 2.1 or 2.12, or (b) the Obligations (other than Bank Product Obligations) exceed Availability (in each case, 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 to Agent, on behalf of the Lender Group, as and when due and payable under the terms of this Agreement and the other Loan Documents. 2.Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations. (a) Interest Rates. (i) Except as provided in clause (c) below, all Obligations (except for undrawn Letters of Credit and except for Bank Product Obligations) 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 a Advance that is a LIBOR Rate Loan, at a per annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin, and (ii) if the relevant Obligation is a Advance that is a Base Rate Advance, at a per annum rate equal to the Base Rate plus the Base Rate Margin. (ii) The applicable interest rate shall be reset monthly, on the first day of each month (the "Margin Adjustment Date"), commencing with the first day following the last day of the third calendar month following the Closing Date, based upon the Margin Pricing Grid set forth below, subject to the provisions in the definitions of "Base Rate Margin" and "LIBOR Rate Margin": Margin Pricing Grid -------------- ----------------- --------------- -------------- ------------- ------------- Average Excess Availability Base Rate LIBOR Rate Standby LC's Import LC's Tier Margin Margin -------------- ----------------- --------------- -------------- ------------- ------------- -------------- ----------------- --------------- -------------- ------------- ------------- I =$3,000,000 .50% 2.75% 2.75% 2.25% -------------- ----------------- --------------- -------------- ------------- ------------- -------------- ----------------- --------------- -------------- ------------- ------------- II >$3,000,000 and .25% 2.50% 2.50% 2.00% =$6,000,000 -------------- ----------------- --------------- -------------- ------------- ------------- -------------- ----------------- --------------- -------------- ------------- ------------- III >$6,000,000 0% 2.25% 2.25% 2.00% -------------- ----------------- --------------- -------------- ------------- -------------
Average Excess Availability will be determined based upon a certificate by an Authorized Person delivered to the Agent no later than the Margin Adjustment Date certifying Average Excess Availability for the prior month. In the absence of the Borrower's timely delivery of such certificate, Agent may determine the applicable pricing by its calculation of the Borrower's Average Excess Availability, which determination shall be conclusive, absent manifest error. (iii) Notwithstanding anything contained herein to the contrary, for the period between the Closing Date and the first Margin Adjustment Date, the applicable interest rate shall be that rate associated with Tier II pricing. (b) Letter of Credit Fees. Borrower shall pay Agent (for the ratable benefit of the Lenders, subject to any letter agreement between Agent and individual Lenders), (i) a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(e)), which shall accrue at a rate equal to the applicable percentage set forth in the Margin Pricing Grid per annum times the Daily Balance of the undrawn amount of all outstanding Qualified Import Letters of Credit, and (ii) a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(e)) which shall accrue at a rate equal to the applicable percentage set forth in the Margin Pricing Grid per annum times the Daily Balance of the undrawn amount of all outstanding Letters of Credit (other than Qualified Import Letters of Credit). (c) Default Rate. Upon the occurrence and during the continuation of an Event of Default (and at the election of Agent or the Required Lenders), (i) all Obligations (except for undrawn Letters of Credit and except for Bank Product Obligations) that have been charged to the Loan Accounts pursuant to the terms hereof shall bear interest on the Daily Balance thereof at the applicable per annum rate equal to the pricing set forth in the Margin Pricing Grid plus 2 percentage points, and (ii) the Letter of Credit fee provided for above shall be increased to the applicable pricing set forth in the Margin Pricing Grid plus 2 percentage points. (d) Payment. 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 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 under any Loan Document (including any amounts due and payable to Wells Fargo or its Affiliates in respect of Bank Products up to the amount of the then extant Bank Products Reserve) to the 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 the Loan Account and shall thereafter constitute Advances hereunder and shall accrue interest at the rate then applicable to either Base Rate Advances. (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 are 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. (a) Borrower shall (i) 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 shall request in writing and otherwise take such reasonable steps to ensure that all of its Account Debtors forward payment of the amounts owed by them directly to such Cash Management Bank, and (ii) deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all Collections (including those sent directly by Account Debtors to a Cash Management Bank) into a bank account in Agent's name (a "Cash Management Account") at one of the Cash Management Banks. (b) Each Cash Management Bank shall establish and maintain Cash Management Agreements with Agent and Borrower, in form and substance acceptable to Agent. Each such Cash Management Agreement shall provide, among other things, that (i) all items of payment deposited in such Cash Management Account and proceeds thereof are held by such Cash Management Bank as agent or bailee-in-possession for Agent, (ii) the Cash Management Bank has no rights of setoff or recoupment or any other claim against the applicable Cash Management Account other than for payment of its service fees and other charges directly related to the administration of such Cash Management Account and for returned checks or other items of payment, and (iii) it immediately will forward by daily sweep all amounts in the applicable Cash Management Account to the Agent's Account. (c) So long as no Default or Event of Default has occurred and is continuing, Borrower may amend Schedule 2.7(a) to add or replace a Cash Management Bank or Cash Management Account; provided, however, that (i) such prospective Cash Management Bank shall be 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, and (ii) prior to the time of the opening of such Cash Management Account, Borrower and such prospective Cash Management Bank shall have executed and delivered to Agent a Cash Management Agreement. Borrower shall close any of their Cash Management Accounts (and establish replacement cash management accounts in accordance with the foregoing sentence) promptly and in any event within 30 days of notice from Agent 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 that the operating performance, funds transfer, or availability procedures or performance of the Cash Management Bank with respect to Cash Management Accounts or Agent's liability under any Cash Management Agreement with such Cash Management Bank is no longer acceptable in Agent's reasonable judgment. (d) 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 Borrower are hereby deemed to have granted a Lien to Agent. (e) At the request of the Agent, the Borrower shall deliver to the Agent notification, executed by the Borrower, to each depository institution which any DDA (other than DDA's established for petty cash) is maintained, in form and substance satisfactory to the Agent in its Permitted Discretion of the Agent's Lien in such DDA and, instructs the depository institution, upon direction of the Agent, to remit all amounts deposited from time to time in the DDA to the Agent's Account or as otherwise directed from time to time by the Agent. The Borrower shall not establish any DDA hereafter unless, contemporaneous with such establishment, Borrower notifies Agent and, if requested by Agent, delivers to such depository institution the notification described herein. The Borrower shall not change such direction or designation except upon the prior written consent of the Agent. (f) The Borrower shall deliver to Agent, as a condition to the effectiveness of this Agreement, notification, executed by the Borrower, to each of the Borrower's credit card clearinghouses and processors, a notice (in form and substances satisfactory to the Agent in its Permitted Discretion), which notice shall provide that payment of all credit card charges submitted by the Borrower to that clearinghouse or other processor and any other amount payable to the Borrower by such clearinghouse or other processor shall be directed to the Agent's Account or as otherwise directed from time to time by the Agent. The Borrower shall not change such direction or designation except upon the prior written consent of the 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 Borrower 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 11:00 a.m. (California time). If any payment item is received into the Agent's Account on a non-Business Day or after 11:00 a.m. (California 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 its Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Advances requested by the Borrower and made by Agent or the Lenders hereunder. Unless otherwise agreed by Agent and the Borrower, any Advance, Agent Advance, or Swing Loan 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 the Borrower (each, a "Loan Account", and collectively, the "Loan Accounts") on which the Borrower will be charged with all Advances (including Agent Advances and Swing Loans) made by Agent, Swing Lender, or the Lenders to Borrower or for Borrower's account, the Letters of Credit issued by Issuing Lender for the Borrower's account, and with all other payment Obligations of Borrower hereunder or under the other Loan Documents (except for Bank Product Obligations), including, accrued interest, fees and expenses, and Lender Group Expenses. In accordance with Section 2.8, Borrower's 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 attributable to Borrower. 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 shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrower and the Lender Group unless, within 90 days after receipt thereof by the 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 0.375% per annum times the result of (a) the Maximum Revolver Amount, less (b) the average Daily Balance of the Revolver Usage for the immediately preceding month, (b) Other Fees. (i) Closing Fee: In addition any other fee or expense to be paid by the Borrower, the Borrower shall pay the Agent, for the benefit of the Lenders, a "Closing Fee" of $100,000, which has been fully earned by the Agent and shall be payable by the Borrower as of the Closing Date. (ii) Agent's Fee: In addition to any other fee or expense to be paid by the Borrower, the Borrower shall pay the Agent, for the benefit of the Agent, a "Facility Fee" of $1,500, per month so long as this Agreement remains in effect. The Facility Fee shall be paid to the Agent on the Closing Date (pro rated for the balance of such month) and on the first day of each month thereafter. (c) Audit, Appraisal, and Valuation Charges. For the separate account of Agent, audit, appraisal, and valuation fees and charges, provided, however, that, so long as no Event of Default shall have occurred and be continuing, Borrower shall not be obligated to pay such fees and expenses in respect of more than (i) 3 financial audits of Borrower in any calendar year or (ii) more than 3 appraisals of the Collateral in any calendar year. 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 the 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 the 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), the 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, the date of issuance, amendment, renewal, or extension, 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, the 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 requested Letter of Credit: (i) the Letter of Credit Usage would exceed the Borrowing Base less the amount of outstanding Advances, or (ii) the Letter of Credit Usage would exceed $3,000,000, or (iii) the Letter of Credit Usage would exceed the Maximum Revolver Amount less the 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 11:00 a.m., California time, on the date that such L/C Disbursement is made, if the Borrower shall have received written or telephonic notice of such L/C Disbursement prior to 10:00 a.m., California time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 11:00 a.m., California time, on the Business Day that the Borrower receives such notice, if such notice is received prior to 10:00 a.m., California 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 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 the 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 interest may appear. (b) Promptly following receipt of a notice of L/C Disbursement pursuant to Section 2.12(a), each Lender 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 the 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, the Issuing Lender shall be deemed to have granted to each Lender, and each Lender 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 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 the Borrower on the date due as provided in clause (a) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender 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 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 any payments made by the Issuing Lender in respect of such Letter of Credit as provided in this Section, 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 that is caused by the gross negligence or willful misconduct of the 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 that is caused by the gross negligence or willful misconduct of the 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 each Borrower that, as of the Closing Date, the issuance charge imposed by the prospective Underlying Issuer is .825% per annum times the face amount of each Underlying Letter of Credit, that such issuance charge may be changed from time to time, and that the Underlying Issuer also imposes a schedule of charges for amendments, extensions, drawings, and renewals. (f) If by reason of (i) any change 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, 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 Advances 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. (h) Letters of Credit issued on account of the Walking Company set forth in Schedule 2.12(h) hereof shall be deemed to have been issued hereunder and shall be treated as Obligations hereunder. 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 occurrence of an Event of Default in consequence of which the Required Lenders or Agent on behalf thereof elect to accelerate the maturity of the all or any portion of the Obligations, or (iii) termination of this Agreement pursuant to the terms hereof. On the last day of each applicable Interest Period, unless Borrower properly has exercised the LIBOR Option with respect thereto, the interest rate applicable to such LIBOR Rate Loan automatically shall convert to the rate of interest then applicable to Base Rate Advances hereunder. At any time that an Event of Default has occurred and is continuing with respect to Borrower, such Borrower no longer shall have the option to request that Advances bear interest at the LIBOR Rate and Agent shall have the right to convert the interest rate on all outstanding LIBOR Rate Loans to the rate then applicable to Base Rate Advances hereunder. (b) LIBOR Election. (i) Borrower may, at any time and from time to time, so long as no Event of Default has occurred and is continuing, elect to exercise the LIBOR Option by notifying Agent prior to 11:00 a.m. (California time) at least 3 Business Days prior to the commencement of the proposed Interest Period (the "LIBOR Deadline"). Notice of Borrower's election of the LIBOR Option for a permitted portion of the Advances and an Interest Period pursuant to this Section shall be made by delivery to Agent of a LIBOR Notice received by Agent before the LIBOR Deadline, or by telephonic notice received by Agent before the LIBOR Deadline (to be confirmed by delivery to Agent of a LIBOR Notice received by Agent prior to 5:00 p.m. (California time) on the same day. Promptly upon its receipt of each such LIBOR Notice, Agent shall provide a copy thereof to each of the Lenders. (ii) Each LIBOR Notice shall be irrevocable and binding on Borrower. In connection with each LIBOR Rate Loan, Borrower shall indemnify, defend, and hold Agent and the Lenders harmless against any loss, cost, or expense incurred by Agent or any Lender as a result of (a) the payment of any principal of any LIBOR Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any LIBOR Rate Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure to borrow, convert, continue or prepay any LIBOR Rate Loan on the date specified in any LIBOR Notice delivered pursuant hereto (such losses, costs, and expenses, collectively, "Funding Losses"). Funding Losses shall, with respect to Agent or any Lender, be deemed to equal the amount determined by Agent or such Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such LIBOR Rate Loan had such event not occurred, at the LIBOR Rate that would have been applicable thereto, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert, or continue, for the period that would have been the Interest Period therefor), minus (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate which Agent or such Lender would be offered were it to be offered, at the commencement of such period, Dollar deposits of a comparable amount and period in the London interbank market. A certificate of Agent or a Lender delivered to Borrower setting forth any amount or amounts that Agent or such Lender is entitled to receive pursuant to this Section shall be conclusive absent manifest error. (iii) Borrower shall have not more than 5 LIBOR Rate Loans in effect at any given time. Borrower only may exercise the LIBOR Option for LIBOR Rate Loans of at least $1,000,000 and integral multiples of $500,000 in excess thereof. (c) Prepayments. Borrower may prepay LIBOR Rate Loans at any time; provided, however, that in the event that LIBOR Rate Loans are prepaid on any date that is not the last day of the Interest Period applicable thereto, including as a result of any automatic prepayment through the required application by Agent of proceeds of Collections in accordance with Section 2.4(b) or for any other reason, including early termination of the term of this Agreement or acceleration of all or any portion of the Obligations pursuant to the terms hereof, Borrower shall indemnify, defend, and hold Agent and the Lenders and their Participants harmless against any and all Funding Losses in accordance with clause (b)(ii) above. (d) Special Provisions Applicable to LIBOR Rate. (i) The LIBOR Rate may be adjusted by Agent with respect to any Lender on a prospective basis to take into account any additional or increased costs to such Lender of maintaining or obtaining any eurodollar deposits or increased costs due to changes in applicable law occurring subsequent to the commencement of the then applicable Interest Period, including changes in tax laws (except changes of general applicability in corporate income tax laws) and changes in the reserve requirements imposed by the Board of Governors of the Federal Reserve System (or any successor), excluding the Reserve Percentage, which additional or increased costs would increase the cost of funding loans bearing interest at the LIBOR Rate. In any such event, the affected Lender shall give Borrower and Agent notice of such a determination and adjustment and Agent promptly shall transmit the notice to each other Lender and, upon its receipt of the notice from the affected Lender, Borrower may, by notice to such affected Lender (y) require such Lender to furnish to Borrower a statement setting forth the basis for adjusting such LIBOR Rate and the method for determining the amount of such adjustment, or (z) repay the LIBOR Rate Loans with respect to which such adjustment is made (together with any amounts due under clause (b)(ii) above). (ii) In the event that any change in market conditions or any law, regulation, treaty, or directive, or any change therein or in the interpretation of application thereof, shall at any time after the date hereof, in the reasonable opinion of any Lender, make it unlawful or impractical for such Lender to fund or maintain LIBOR Advances or to continue such funding or maintaining, or to determine or charge interest rates at the LIBOR Rate, such Lender shall give notice of such changed circumstances to Agent and the Borrower and Agent promptly shall transmit the notice to each other Lender and (y) in the case of any LIBOR Rate Loans of such Lender that are outstanding, the date specified in such Lender's notice shall be deemed to be the last day of the Interest Period of such LIBOR Rate Loans, and interest upon the LIBOR Rate Loans of such Lender thereafter shall accrue interest at the rate then applicable to Base Rate Advances, and (z) the Borrower shall not be entitled to elect the LIBOR Option until such Lender determines that it would no longer be unlawful or impractical to do so. (e) No Requirement of Matched Funding. Anything to the contrary contained herein notwithstanding, neither Agent, nor any Lender, nor any of their Participants, is required actually to acquire eurodollar deposits to fund or otherwise match fund any Obligation as to which interest accrues at the LIBOR Rate. The provisions of this Section shall apply as if each Lender or its Participants had match funded any Obligation as to which interest is accruing at the LIBOR Rate by acquiring eurodollar deposits for each Interest Period in the amount of the LIBOR Rate Loans. 2.14 Capital Requirements. If, after the date hereof, any Lender determines that (i) the adoption of or change in any law, rule, regulation or guideline regarding capital requirements for banks or bank holding companies, or any change in the interpretation or application thereof by any Governmental Authority charged with the administration thereof, or (ii) compliance by such Lender or its parent bank holding company with any guideline, request, or directive of any such entity regarding capital adequacy (whether or not having the force of law), the effect of reducing the return on such Lender's or such holding company's capital as a consequence of such Lender's Commitments hereunder to a level below that which such Lender or such holding company could have achieved but for such adoption, change, or compliance (taking into consideration such Lender's or such holding company's then existing policies with respect to capital adequacy and assuming the full utilization of such entity's capital) by any amount deemed by such Lender to be material, then such Lender may notify Borrower and Agent thereof. Following receipt of such notice, Borrower agrees to pay such Lender on demand the amount of such reduction of return of capital as and when such reduction is determined, payable within 90 days after presentation by such Lender of a statement in the amount and setting forth in reasonable detail such Lender's calculation thereof and the assumptions upon which such calculation was based (which statement shall be deemed true and correct absent manifest error). In determining such amount, such Lender may use any reasonable averaging and attribution methods. 3. CONDITIONS; TERM OF AGREEMENT. 3.1 Conditions Precedent to the Initial Extension of Credit. The obligation of the Lender Group (or any member thereof) to make the initial Advance (or otherwise to extend any credit provided for hereunder), is subject to the fulfillment, to the satisfaction of Agent, of each of the conditions precedent set forth below: (a) the Closing Date shall occur on or before March 31, 2004; (b) Agent shall have received all financing statements required by Agent and Borrower shall have duly authorized Agent to record such financing statements. Agent shall have received searches reflecting the filing of all such financing statements; (c) Agent shall have received each of the following documents, in form and substance satisfactory to Agent, duly executed, and each such document shall be in full force and effect: (i) a certified copy of all Walking Company Acquisition Orders, (ii) a certified copy of the docket of the Bankruptcy Court showing no appeals of any Walking Company Acquisition Orders, (iii) a certificate of an officer of the Borrower that (i) all Funding Conditions have been satisfied by the Borrower or waived by the Agent and (ii) that all representation and warranties made by the Borrower to the Agent in the Loan Documents are true and complete as of the date of such certificate, and that no event has occurred which is or which, solely with the giving of notice or passage of time (or both), would be an Event of Default; (iv) the Copyright Security Agreement, (v) the Disbursement Letter, (vi) the Guarantor Security Agreement, (vii) the Guaranty, (viii) the Intercompany Subordination Agreement, (ix) the Officers' Certificate, (x) the Pay-Off Letter, together with UCC termination statements and other documentation evidencing the termination by Existing Lender of its Liens in and to the properties and assets of the Walking Company, and (xi) the Stock Pledge Agreement, together with all certificates representing the shares of Stock pledged thereunder, as well as Stock powers with respect thereto endorsed in blank, (xii) the Trademark Security Agreement, (xiii) all Cash Management Agreements and related notifications; and (d) Each of the representations made by or on behalf of the Borrower in this Agreement or any other Loan Document or in any report, statement, document, or paper provided by or on behalf of the Borrower shall be true and complete as of the date as of which such representation or warranty was made and the date hereof. (e) All filings, recordings, deliveries of instruments and other actions necessary or desirable in the opinion of the Agent to protect and preserve its Liens shall have been duly effected. The Agent shall have received evidence thereof in form and substance satisfactory to Agent in its Permitted Discretion. (f) Agent shall have received a certificate from the Secretary of Borrower attesting to the resolutions of such Borrower's Board of Directors authorizing its execution, delivery, and performance of this Agreement and the other Loan Documents to which Borrower is a party and authorizing specific officers of Borrower to execute the same; (g) Agent shall have received copies of Borrower's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of Borrower; (h) Agent shall have received a certificate of status with respect to Borrower, dated within 30 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of Borrower, which certificate shall indicate that Borrower is in good standing in such jurisdiction; (i) Agent shall have received certificates of status with respect to Borrower, each dated within 30 days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of such Borrower) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that Borrower is in good standing in such jurisdictions; (j) Agent shall have received a certificate of insurance, together with the endorsements thereto, as are required by Section 6.8, the form and substance of which shall be satisfactory to Agent; (k) Agent shall have received an opinion of Borrower's outside counsel in form and substance satisfactory to Agent; (l) Agent shall have received satisfactory evidence (including a certificate of the chief financial officer of Borrower) that all tax returns required to be filed by Borrower have been timely filed and all taxes upon Borrower or its properties, assets, income, and franchises (including real property taxes and payroll taxes) have been paid prior to delinquency, except such taxes that are the subject of a Permitted Protest; (m) Borrower shall have the Required Availability after giving effect to the initial extensions of credit hereunder; (n) Agent shall have received Borrower's Closing Date Business Plan; (o) Borrower shall pay all Lender Group Expenses incurred in connection with the transactions evidenced by this Agreement; (p) Borrower shall have received all licenses, approvals or evidence of other actions required by any Governmental Authority in connection with the execution and delivery by Borrower of this Agreement or any other Loan Document or with the consummation of the transactions contemplated hereby and thereby; (q) Borrower shall have designated a deposit account of Borrower (located within the United States) as the Borrower's concentration account, such designation to be in writing by Borrower to Agent; such deposit account to be subject to a Cash Management Agreement and otherwise shall be satisfactory to Agent in its sole discretion; (r) All Funding Conditions have been satisfied by the Borrower or waived by the Agent; and (s) all other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance satisfactory to Agent. (t) Big Dog shall have made the Big Dog Dividend. 3.2 Conditions Subsequent to the Initial Extension of Credit. The obligation of the Lender Group (or any member thereof) to continue to make Advances (or otherwise extend credit hereunder) is subject to the fulfillment, on or before the date applicable thereto, of each of the conditions subsequent set forth below (the failure by Borrower to so perform or cause to be performed constituting an Event of Default): (a) within 90 days of the Closing Date, deliver to the Agent a Collateral Access Agreement for the Big Dog warehouses; (b) within 10 days of the Closing Date, have vacated its warehouse located at 9453 Owensmouth Avenue, Chatsworth, California 91311 and relocated its warehouse operations to the Big Dog warehouse located at 15614 Shoemaker Avenue, Santa Fe Springs, California 90670; (c) within 30 days of the Closing Date, have vacated its warehouse located at 103 South Acres, Sikeston, Missouri 63801, and relocated its warehouse operations to the Big Dog warehouse located at 15614 Shoemaker Avenue, Santa Fe Springs, California 90670 (d) within 30 days of the Closing Date, deliver to Agent certified copies of the policies of insurance, together with the endorsements thereto, as are required by Section 6.8, the form and substance of which shall be satisfactory to Agent and its counsel; (e) within 30 days of the Closing Date, deliver to Agent executed copies of the Credit Card Notifications as set forth in Section 5.23 of the Loan Agreement in form and substance of which shall be satisfactory to Agent and its counsel; (f) within 15 days of the Closing Date, deliver to Agent executed copies of the DDA Notifications as set forth in Section 5.18 of the Loan Agreement in form and substance of which shall be satisfactory to Agent and its counsel; (g) within 15 days of the Closing Date, deliver to Agent a certified copy of the Borrower's name change with the Delaware Secretary of State's office and all accompanying documents related thereto; and (h) within 90 days of the Closing Date, deliver to Agent the Allocation Agreement, in form and substance satisfactory to Agent and its counsel, executed by Big Dog and the Borrower for the Borrower's use of Big Dog's warehouse located at 15614 Shoemaker Avenue, Santa Fe Springs, California 90670. 3.3 Conditions Precedent to all Extensions of Credit. The obligation of the Lender Group (or any member thereof) to make all Advances (or to extend any other credit hereunder) shall be subject to the following conditions precedent: (a) the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date), (b) no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof, (c) no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against any Borrower, Agent, any Lender, or any of their Affiliates. (d) no Material Adverse Change shall have occurred. 3.4 Term. This Agreement shall become effective upon the execution and delivery hereof by Borrower, Agent, and the Lenders and shall continue in full force and effect for a term ending the Maturity Date. The foregoing notwithstanding, the Lender Group, upon the election of the Required Lenders, shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default. 3.5 Effect of Termination. On the date of termination of this Agreement, all Obligations (including contingent reimbursement obligations of Borrower with respect to outstanding Letters of Credit and including all Bank Products Obligations) immediately shall become due and payable without notice or demand (including (a) either (i) providing cash collateral to be held by Agent for the benefit of the Lenders in an amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Issuing Lender, and (b) providing cash collateral to be held by Agent for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Products Obligations). No termination of this Agreement, however, shall relieve or discharge Borrower of its duties, Obligations, or covenants hereunder and the Agent's Liens in the Collateral shall remain in effect until all Obligations have been fully and finally discharged and the Lender Group's obligations to provide additional credit hereunder have been terminated. When this Agreement has been terminated and all of the Obligations have been fully and finally discharged and the Lender Group's obligations to provide additional credit under the Loan Documents have been terminated irrevocably, Agent will, at Borrower's sole expense, execute and deliver any UCC termination statements, lien releases, mortgage releases, re-assignments of trademarks, discharges of security interests, and other similar discharge or release documents (and, if applicable, in recordable form) as are reasonably necessary to release, as of record, the Agent's Liens and all notices of security interests and liens previously filed by Agent with respect to the Obligations. 3.6 Early Termination by Borrower. Borrower has the option, at any time upon 30 days prior written notice by Borrower to Agent, to terminate this Agreement by paying to Agent, for the benefit of the Lender Group, in cash, the Obligations (including (a) either (i) providing cash collateral to be held by Agent for the benefit of the Lenders in an amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Issuing Lender, and (b) providing cash collateral to be held by Agent for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Products Obligations), in full, together with the Applicable Prepayment Premium (to be allocated based upon letter agreements between Agent and individual Lenders). If Borrower have sent a notice of termination pursuant to the provisions of this Section, then the Commitments shall terminate and Borrower shall be obligated to repay the Obligations (including (a) either (i) providing cash collateral to be held by Agent for the benefit of the Lenders in an amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Issuing Lender, and (b) providing cash collateral to be held by Agent for the benefit of Wells Fargo or its Affiliates with respect to the then extant Bank Products Obligations), in full, together with the Applicable Prepayment Premium, on the date set forth as the date of termination of this Agreement in such notice. In the event of the termination of this Agreement and repayment of the Obligations at any time prior to the Maturity Date, for any other reason, including (a) termination upon the election of the Required Lenders to terminate after the occurrence of an Event of Default, (b) foreclosure and sale of Collateral, (c) sale of the Collateral in any Insolvency Proceeding, or (iv) restructure, reorganization, or compromise of the Obligations by the confirmation of a plan of reorganization or any other plan of compromise, restructure, or arrangement in any Insolvency Proceeding, then, in view of the impracticability and extreme difficulty of ascertaining the actual amount of damages to the Lender Group or profits lost by the Lender Group as a result of such early termination, and by mutual agreement of the parties as to a reasonable estimation and calculation of the lost profits or damages of the Lender Group, Borrower shall pay the Applicable Prepayment Premium to Agent (to be allocated based upon letter agreements between Agent and individual Lenders), measured as of the date of such termination. 4. CREATION OF SECURITY INTEREST. 4.1 Grant of Security Interest. Borrower hereby grants to Agent, for the benefit of the Lender Group, a continuing security interest in all of its right, title, and interest in all currently existing and hereafter acquired or arising Borrower Collateral in order to secure prompt repayment of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and in order to secure prompt performance by Borrower of each of their covenants and duties under the Loan Documents. The Agent's Liens in and to the Borrower Collateral shall attach to all Borrower Collateral without further act on the part of Agent or Borrower. Anything contained in this Agreement or any other Loan Document to the contrary notwithstanding, except for Permitted Dispositions, Borrower has no authority, express or implied, to dispose of any item or portion of the Collateral. 4.2 Negotiable Collateral. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, and if and to the extent that perfection or priority of Agent's security interest is dependent on or enhanced by possession, the Borrower, immediately upon the request of Agent, shall endorse and deliver physical possession of such Negotiable Collateral to Agent. 4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral. At any time after the occurrence and during the continuation of an Event of Default, Agent or Agent's designee may (a) notify Account Debtors of Borrower that the Accounts, chattel paper, or General Intangibles have been assigned to Agent or that Agent has a security interest therein, or (b) collect the Accounts, chattel paper, or General Intangibles directly and charge the collection costs and expenses to the Loan Account. Borrower agrees that it will hold in trust for the Lender Group, as the Lender Group's trustee, any Collections that they receive and immediately will deliver said Collections to Agent or a Cash Management Bank in their original form as received by them. 4.4 Delivery of Additional Documentation Required. At any time upon the request of Agent, Borrower shall execute and deliver to Agent, any and all financing statements, original financing statements in lieu of continuation statements, fixture filings, security agreements, pledges, assignments, endorsements of certificates of title, and all other documents (the "Additional Documents") that Agent may request in its Permitted Discretion, in form and substance satisfactory to Agent, to perfect and continue perfected or better perfect the Agent's Liens in the Collateral (whether now owned or hereafter arising or acquired), to create and perfect Liens in favor of Agent in any real property acquired after the Closing Date, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. To the maximum extent permitted by applicable law, Borrower authorizes Agent to execute any such Additional Documents in the Borrower's name and authorize Agent to file such executed Additional Documents in any appropriate filing office. In addition, on such periodic basis as Agent shall require, Borrower shall (a) provide Agent with a report of all new patentable materials and trademarkable materials acquired or generated by Borrower during the prior period, (b) cause all patents and trademarks acquired or generated by Borrower that are not already the subject of a registration with the appropriate filing office (or an application therefor diligently prosecuted) to be registered with such appropriate filing office in a manner sufficient to impart constructive notice of Borrower's ownership thereof, (c) cause to be prepared, executed, and delivered to Agent supplemental schedules to the applicable Loan Documents to identify such patents and trademarks as being subject to the security interests created thereunder, (d) provide Agent with the information required under Section 6.16 in respect of copyrights and copyrightable materials. 4.5 Power of Attorney. Borrower hereby irrevocably makes, constitutes, and appoints Agent (and any of Agent's officers, employees, or agents designated by Agent) as Borrower's true and lawful attorney, with power to (a) if Borrower refuses to, or fails timely to execute and deliver any of the documents described in Section 4.4, sign the name of Borrower on any of the documents described in Section 4.4, (b) at any time that an Event of Default has occurred and is continuing, sign such Borrower's name on any invoice or bill of lading relating to the Collateral, drafts against Account Debtors, or notices to Account Debtors, (c) send requests for verification of Accounts, (d) endorse Borrower's name on any Collection item that may come into the Lender Group's possession, (e) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under such Borrower's policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (f) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts, chattel paper, or General Intangibles directly with Account Debtors, for amounts and upon terms that Agent determines to be reasonable, and Agent may cause to be executed and delivered any documents and releases that Agent determines to be necessary. The appointment of Agent as each Borrower's attorney, and each and every one of its rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed and the Lender Group's obligations to extend credit hereunder are terminated. 4.6 Right to Inspect. Agent and each Lender (through any of their respective officers, employees, or agents) shall have the right, from time to time hereafter to inspect the Books and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral. 4.7 Control Agreements. Borrower agrees that it will not transfer assets out of any Securities Accounts other than as permitted under Section 7.19 and, if to another securities intermediary, unless each of the applicable Borrower, Agent, and the substitute securities intermediary have entered into a Control Agreement. No arrangement contemplated hereby or by any Control Agreement in respect of any Securities Accounts or other Investment Property shall be modified by Borrower without the prior written consent of Agent. Upon the occurrence and during the continuance of a Default or Event of Default, Agent may notify any securities intermediary to liquidate the applicable Securities Account or any related Investment Property maintained or held thereby and remit the proceeds thereof to the Agent's Account. 5. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender Group to enter into this Agreement, Borrower make the following representations and warranties to the Lender Group which shall be true, correct, and complete, in all material respects, as of the date hereof, and shall be true, correct, and complete, in all material respects, as of the Closing Date, and at and as of the date of the making of each Advance (or other extension of credit) made thereafter, as though made on and as of the date of such Advance (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement: 5.1 No Encumbrances. Borrower has good and indefeasible title to the Collateral free and clear of Liens except for Permitted Liens. 5.2 Eligible Credit Card Accounts. The Eligible Credit Card Accounts are bona fide existing payment obligations of Account Debtors created by the sale and delivery of Inventory or the rendition of services to such Account Debtors in the ordinary course of the Borrower's business, owed to Borrower without defenses, disputes, offsets, counterclaims, or rights of return or cancellation, other than rights of return of retail customers of the Borrower's in the ordinary course of Borrower's business. 5.3 Eligible Inventory. All Eligible Inventory is of good and merchantable quality, free from defects. As to each item of Inventory that is identified by Borrower as Eligible Inventory in a borrowing base report submitted to Agent, such Inventory is not excluded as ineligible by virtue of one or more of the excluding criteria set forth in the definition of Eligible Inventory. 5.4 Equipment. All of the Equipment is used or held for use in Borrower's business and is fit for such purposes. 5.5 [Intentionally Omitted]. 5.6 Inventory Records. Borrower keeps correct and accurate records itemizing and describing the type, quality, and quantity of its Inventory and the book value thereof. 5.7 Location of Chief Executive Office; FEIN. The chief executive office of Borrower is located at the address indicated in Schedule 5.7 and Borrower's FEIN is identified in Schedule 5.7. 5.8 Due Organization and Qualification; Subsidiaries. (a) Borrower is duly organized and existing and in good standing under the laws of the jurisdiction of its organization and qualified to do business in any state where the failure to be so qualified reasonably could be expected to have a Material Adverse Change. (b) Set forth on Schedule 5.8(b), is a complete and accurate description of the authorized capital Stock of Borrower, by class, and, as of the Closing Date, a description of the number of shares of each such class that are issued and outstanding. Other than as described on Schedule 5.8(b), there are no subscriptions, options, warrants, or calls relating to any shares of Borrower's capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. Borrower is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable for any of its capital Stock, other than the capital Stock held by the Junior Secured Creditors pursuant to the terms of the Junior Secured Creditors Put Right Agreement. (c) Set forth on Schedule 5.8(c), is a complete and accurate list of Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of their organization, (ii) the number of shares of each class of common and preferred Stock authorized for each of such Subsidiaries, and (iii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by Borrower. All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and non-assessable. (d) Except as set forth on Schedule 5.8(c), there are no subscriptions, options, warrants, or calls relating to any shares of Borrower's Subsidiaries' capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. Neither Borrower nor any of its Subsidiaries is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of capital Stock of any Subsidiaries of Borrower or any security convertible into or exchangeable for any such capital Stock. 5.9 Due Authorization; No Conflict. (a) The execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of such Borrower. (b) The execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which it is a party do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to Borrower, the Governing Documents of Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of any Borrower, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of Borrower's interest holders or any approval or consent of any Person under any material contractual obligation of any Borrower. (c) Other than the filing of financing statements, the execution, delivery, and performance by Borrower of this Agreement and the Loan Documents to which Borrower is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person. (d) This Agreement and the other Loan Documents to which each Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by Borrower will be the legally valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally. (e) The Agent's Liens are validly created, perfected, and first priority Liens, subject only to Permitted Liens which are identified by Borrower potentially senior to Agent's Liens in Schedule P-1. 5.10 Litigation. Other than those matters disclosed on Schedule 5.10, there are no actions, suits, or proceedings pending or, to the best knowledge of Borrower, threatened against Borrower, or any of their Subsidiaries, as applicable, except for (a) matters that are fully covered by insurance (subject to customary deductibles), and (b) matters arising after the Closing Date that, if decided adversely to Borrower, or any of their Subsidiaries, as applicable, reasonably could not be expected to result in a Material Adverse Change. 5.11 No Material Adverse Change. All financial statements relating to Borrower that have been delivered by Borrower to the Lender Group have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and present fairly in all material respects, Borrower's financial condition as of the date thereof and results of operations for the period then ended. There has not been a Material Adverse Change with respect to Borrower since the date of the latest financial statements submitted to the Lender Group on or before the Closing Date. 5.12 Fraudulent Transfer. (a) Borrower is Solvent. (b) No transfer of property is being made by Borrower and no obligation is being incurred by Borrower in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of Borrower. 5.13 Employee Benefits. Neither the Borrower nor any of its Subsidiaries, or any of their ERISA Affiliates maintain or contribute to any Benefit Plan. 5.14 Environmental Condition. Except as set forth on Schedule 5.14, (a) to Borrower's knowledge, none of Borrower's assets has ever been used by Borrower or by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such production, storage, handling, treatment, release or transport was in violation, in any material respect, of applicable Environmental Law, (b) to Borrower's knowledge, none of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, (c) Borrower has not received notice that a Lien arising under any Environmental Law has attached to any revenues or to any real property owned or operated by Borrower, and (d) Borrower has not received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by Borrower resulting in the releasing or disposing of Hazardous Materials into the environment. 5.15 Brokerage Fees. Borrower has not utilized the services of any broker or finder in connection with Borrower's obtaining financing from the Lender Group under this Agreement and no brokerage commission or finders fee is payable by Borrower in connection herewith. 5.16 Intellectual Property. Borrower owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of Borrower's business as currently conducted. Attached hereto as Schedule 5.16 is a true, correct, and complete listing as of the Closing Date of all material patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which Borrower is the owner or a licensee. From and after the consummation of a Permitted Disposition of such intellectual property to Parent, Parent has executed and delivered a fully paid, non-cancelable, worldwide, exclusive license to Borrower enabling Borrower to use and exploit each of the Parent's trademarks, trade names, copyrights, patents, patent rights, and licenses used in the Borrower's business (the "Parent IP License"). 5.17 Leases/Warehouse. Borrower enjoys peaceful and undisturbed possession under all leases material to the business of Borrower and to which it is a party or under which it is operating. All of such leases are valid and subsisting and no material default by Borrower exists under any of them. From and after the date Borrower moves its warehouse operations to the Big Dog warehouse located at 15614 Shoemaker Avenue, Santa Fe Springs, California 90670, Borrower shall enjoy peaceful and undisturbed possession of such warehouse pursuant to that certain written sublicense agreement between Big Dog and Borrower (the "Warehouse Sublicense") and such Warehouse Sublicense is valid and subsisting and no material default by Borrower exists under such license. Borrower has and shall continue to ensure that Inventory of the Borrower is separate, segregated and readily identifiable from other inventory or items stored at such warehouse location. 5.18 DDAs. Set forth on Schedule 5.18 are all of Borrowers' DDAs, including, with respect to each depository (i) the name and address of such depository, and (ii) the account numbers of the accounts maintained with such depository. 5.19 Complete Disclosure. All factual information (taken as a whole) furnished by or on behalf of Borrower in writing to Agent or any Lender (including all information contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection with this Agreement, the other Loan Documents, or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of Borrower in writing to Agent or any Lender will be, true and accurate, in all material respects, on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. On the Closing Date, the Closing Date Projections represent, and as of the date on which any other Projections are delivered to Agent, such additional Projections represent Borrower's good faith best estimate of its future performance for the periods covered thereby. 5.20 Indebtedness. Set forth on Schedule 5.20 is a true and complete list of all Indebtedness of Borrower and its Subsidiaries outstanding immediately prior to the Closing Date that is to remain outstanding after the Closing Date and a true and complete list of all Indebtedness of Borrower and its Subsidiaries which shall exist immediately following the consummation of the Walking Company Acquisition, and such Schedule accurately reflects the aggregate principal amount of such Indebtedness and the principal terms thereof. 5.21 Reserved. 5.22 Material Agreements. Neither the consummation of the Walking Company Acquisition pursuant to any documents evidencing the Walking Company Acquisition nor the grant by Borrower or its Subsidiaries of security interests in the Collateral as contemplated hereunder and under the other Loan Documents will conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation or material lease of Borrower or any of its Subsidiaries. 5.23 Credit Card Processors.. Set forth on Schedule 5.22 are all of Borrower's credit card clearinghouses or other processors, including, with respect to each clearinghouse or processor (i) the name and address of such clearinghouse or processor, and (ii) the account numbers of the accounts maintained with such clearinghouse or processor. 6. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, Borrower shall and shall cause of its Subsidiaries to do all of the following: 6.1 Accounting System. Maintain a system of accounting that enables Parent and Borrower to produce financial statements in accordance with GAAP and maintain records pertaining to the Collateral that contain information as from time to time reasonably may be requested by Agent. Borrower also shall keep an inventory reporting system that shows all additions, sales, claims, returns, and allowances with respect to the Inventory. 6.2 Collateral Reporting. Provide Agent (and if so requested by Agent, with copies for each Lender) with the following documents at the following times in form satisfactory to Agent: ========================== ===================================================== Weekly (not later than (a) a borrowing base certificate with summary Tuesday of the following backup information. week) - -------------------------- ---------------------------------------------------- - -------------------------- ---------------------------------------------------- - -------------------------- ---------------------------------------------------- - -------------------------- ---------------------------------------------------- Monthly (not later than (b) a monthly sales report, the 20th day of each month) (c) a monthly comparable sales report, (d) a Statement of Store Activity (on Agent's form), (e) a report of Inventory by location, (f) an open-to buy-report, (g) Stock Ledger by Department, (h) an open payables report (an accounts payable report by due date), (i) an Inventory certificate (on Agent's form) inclusive of sales to stock percentages, and (j) a purchases and accounts payable aging analysis form with account payable aging (on Agent's form). - -------------------------- ----------------------------------------------------- Monthly (not later than (k) a reconciliation of the stock ledger to Borrower's availability and to the general the last day of each ledger, and month for the immediately preceding (l) an officer's compliance certificate consistent with Section 6.3(a)(ii) and (iii) month) hereof and in respect of rent, tax and insurance compliance (on Agent's form), - -------------------------- ---------------------------------------------------- - -------------------------- ----------------------------------------------------- Upon request by Agent (m) such other reports as to the Collateral, or the financial condition of Borrower, as Agent may request. ========================== ===================================================== In addition, Borrower agrees to cooperate fully with Agent to facilitate and implement a system of electronic collateral reporting in order to provide electronic reporting of each of the items set forth above. 6.3 Financial Statements, Reports, Certificates. Deliver to Agent, with copies to each Lender: (a) as soon as available, but in any event within 30 days (45 days in the case of a month that is the end of one of the first 3 fiscal quarters in a fiscal year) after the end of each month during each of Borrower's fiscal years, (i) a company prepared consolidated balance sheet, income statement, and statement of cash flow covering Borrower's and its Subsidiaries' operations during such period, (ii) a certificate signed by the chief financial officer of Borrower to the effect that: (A) the financial statements delivered hereunder have been prepared in accordance with GAAP (except for the lack of footnotes and being subject to year-end audit adjustments) and fairly present in all material respects the financial condition of Borrower and its Subsidiaries, (B) the representations and warranties of Borrower contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of such certificate, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date), and (C) there does not exist any condition or event that constitutes a Default or Event of Default (or, to the extent of any non-compliance, describing such non-compliance as to which he or she may have knowledge and what action Borrower has taken, are taking, or propose to take with respect thereto), and (iii) for each month that is the date on which a financial covenant in Section 7.21 is to be tested, a Compliance Certificate demonstrating, in reasonable detail, compliance at the end of such period with the applicable financial covenants contained in Section 7.21, and (b) as soon as available, but in any event within 90 days after the end of each of Borrower's fiscal years, (i) financial statements of Borrower and its Subsidiaries for each such fiscal year, audited by independent certified public accountants reasonably acceptable to Agent and certified, without any qualifications, by such accountants to have been prepared in accordance with GAAP (such audited financial statements to include a balance sheet, income statement, and statement of cash flow and, if prepared, such accountants' letter to management), (ii) a certificate of such accountants addressed to Agent and the Lenders stating that such accountants do not have knowledge of the existence of any Default or Event of Default under Section 7.21, (c) as soon as available, but in any event within 30 days prior to the start of each of Borrower's fiscal years, (i) copies of Borrower's Projections, in form and substance (including as to scope and underlying assumptions) satisfactory to Agent, in its sole discretion, for the forthcoming fiscal year, on a yearly and month by month basis, certified by the chief financial officer of Borrower as being such officer's good faith best estimate of the financial performance of Borrower during the period covered thereby, (d) if and when filed by Parent, (i) Form 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current reports, (ii) any other filings made by Parent with the SEC, (iii) copies of Parent's federal income tax returns, and any amendments thereto, filed with the Internal Revenue Service, and (iv) any other information that is provided by Parent and Borrower to their respective shareholders generally, (e) if and when filed by Borrower and as requested by Agent, satisfactory evidence of payment of applicable excise taxes in each jurisdictions in which (i) Borrower conducts business or is required to pay any such excise tax, (ii) where the failure to pay any such applicable excise tax would result in a Lien on the properties or assets of Borrower, or (iii) where Borrower's failure to pay any such applicable excise tax reasonably could be expected to result in a Material Adverse Change, (f) as soon as Borrower has knowledge of any event or condition that constitutes a Default or an Event of Default, notice thereof and a statement of the curative action that Borrower proposes to take with respect thereto, and (g) upon the request of Agent, any other report reasonably requested relating to the financial condition of Borrower. In addition to the financial statements referred to above, Borrower agrees to deliver financial statements prepared on both a consolidated and consolidating basis and agrees that no Subsidiary of Borrower will have a fiscal year different from that of Parent. Borrower agrees that its independent certified public accountants are authorized (and Borrower shall so instruct its independent certified public accountant) to communicate with Agent and to release to Agent whatever financial information concerning Borrower Agent reasonably may request. Borrower waives the right to assert a confidential relationship, if any, it may have with any accounting firm or service bureau in connection with any information requested by Agent pursuant to or in accordance with this Agreement, and agrees that Agent may contact directly any such accounting firm or service bureau in order to obtain such information, provided, that, Agent agrees that no Event of Default shall be deemed to have occurred under this Agreement if any such accounting firm or service bureau refuses to provide any such financial information, it being understood that Borrower shall not thereby be relieved of its obligation to provide such financial information. 6.4 [Intentionally Omitted]. 6.5 Return. Cause returns and allowances, as between Borrower and its Account Debtors, to be on the same basis and in accordance with the usual customary practices of the Borrower, as they exist at the time of the execution and delivery of this Agreement. If any Account Debtor returns any Inventory to Borrower, Borrower promptly shall determine the reason for such return and, if the Borrower accepts such return, issue a credit memorandum in the appropriate amount to such Account Debtor. 6.6 Maintenance of Properties. Maintain and preserve all of its properties which are necessary or useful in the proper conduct to its business in good working order and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all leases to which it is a party as lessee so as to prevent any loss or forfeiture thereof or thereunder. Borrower shall segregate Borrower's Inventory from inventory of Parent or any Affiliate maintained at 15614 Shoemaker Ave., Santa Fe Springs, California. 6.7 Taxes. Cause all assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against Borrower or any of its assets to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Borrower will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Agent with proof satisfactory to Agent indicating that Borrower has made such payments or deposits. Borrower shall deliver satisfactory evidence of payment of applicable excise taxes in each jurisdictions in which any Borrower is required to pay any such excise tax. 6.8 Insurance. (a) At Borrowers' expense, maintain insurance respecting their assets wherever located, covering loss or damage by fire, theft, explosion, and all other hazards and risks as ordinarily are insured against by other Persons engaged in the same or similar businesses. Borrower also shall maintain business interruption, public liability, and product liability insurance, as well as insurance against larceny, embezzlement, and criminal misappropriation. All such policies of insurance shall be in such amounts and with such insurance companies as are reasonably satisfactory to Agent. Borrower shall deliver copies of all such policies to Agent with a satisfactory lender's loss payable endorsement naming Agent as sole loss payee or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to Agent in the event of cancellation of the policy for any reason whatsoever. (b) Borrower shall give Agent prompt notice of any loss in excess of $250,000 covered by such insurance. Agent shall have the exclusive right to adjust, in its reasonable discretion, any losses payable under any such insurance policies in excess of $250,000, without any liability to Borrower whatsoever in respect of such adjustments. Any monies received as payment for any loss under any insurance policy mentioned above (other than liability insurance policies) or as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid over to Agent to be applied at the option of the Required Lenders either to the prepayment of the Obligations or shall be disbursed to the Borrower under staged payment terms reasonably satisfactory to the Required Lenders for application to the cost of repairs, replacements, or restorations. Any such repairs, replacements, or restorations shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items of property destroyed prior to such damage or destruction. 6.9 [Intentionally Omitted]. 6.10 Compliance with Laws. Comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental Authority, including the Fair Labor Standards Act and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not result in and reasonably could not be expected to result in a Material Adverse Change. 6.11 Leases. Pay when due all rents and other amounts payable under any leases to which Borrower is a party or by which Borrower's properties and assets are bound, unless such payments are the subject of a Permitted Protest. Notwithstanding the foregoing, Borrower shall not be deemed to have violated this Section unless Borrower, has leases that are not in compliance with the foregoing and such leases have reached the Leasehold Threshold. 6.12 Brokerage Commissions. Pay any and all brokerage commission or finders fees contracted for by Borrower and incurred in connection with or as a result of Borrower's obtaining financing from the Lender Group under this Agreement. Borrower agrees and acknowledges that payment of all such brokerage commissions or finders fees shall be the sole responsibility of Borrower, and Borrower, agrees to indemnify, defend, and hold Agent and the Lender Group harmless from and against any claim of any broker or finder contracted for by Borrower arising out of Borrower's obtaining financing from the Lender Group under this Agreement. 6.13 Existence. At all times preserve and keep in full force and effect Borrower's valid existence and good standing and any rights and franchises material to Borrower's business. 6.14 Environmental. (a) Keep any property either owned or operated by Borrower free of any Environmental Liens or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such Environmental Liens, (b) comply, in all material respects, with Environmental Laws and provide to Agent documentation of such compliance which Agent reasonably requests, (c) promptly notify Agent of any release of a Hazardous Material in any reportable quantity from or onto property owned or operated by Borrower and take any Remedial Actions required to abate said release or otherwise to come into compliance with applicable Environmental Law, and (d) promptly provide Agent with written notice within 10 days of the receipt of any of the following: (i) notice that an Environmental Lien has been filed against any of the real or personal property of Borrower, (ii) commencement of any Environmental Action or notice that an Environmental Action will be filed against Borrower, and (iii) notice of a violation, citation, or other administrative order which reasonably could be expected to result in a Material Adverse Change. 6.15 Disclosure Updates. Promptly and in no event later than 5 Business Days after obtaining knowledge thereof, (a) notify Agent if any written information, exhibit, or report furnished to the Lender Group contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and (b) correct any defect or error that may be discovered therein or in any Loan Document or in the execution, acknowledgement, filing, or recordation thereof. 7. NEGATIVE COVENANTS. Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, Borrower will not and will not permit any of its respective Subsidiaries extant as of the Closing Date to do any of the following: 7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except: (a) Indebtedness evidenced by this Agreement and the other Loan Documents, together with Indebtedness owed to Underlying Issuers with respect to Underlying Letters of Credit, (b) Indebtedness set forth on Schedule 5.20, (c) Permitted Purchase Money Indebtedness, and (d) refinancings, renewals, or extensions of Indebtedness permitted under clauses (b) and (c) of this Section 7.1 (and continuance or renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancings, renewals, or extensions do not, in Agent's judgment, materially impair the prospects of repayment of the Obligations by Borrower or materially impair Borrower's creditworthiness, (ii) such refinancings, renewals, or extensions do not result in an increase in the principal amount of, or interest rate with respect to, the Indebtedness so refinanced, renewed, or extended, (iii) such refinancings, renewals, or extensions do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions that, taken as a whole, are materially more burdensome or restrictive to Borrower's, and (iv) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension Indebtedness must include subordination terms and conditions that are at least as favorable to the Lender Group as those that were applicable to the refinanced, renewed, or extended Indebtedness; (e) Indebtedness composing Permitted Investments; (f) Indebtedness of Borrower in respect of Permitted Intercompany Advances from Big Dog; (g) Indebtedness of Parent Loan I and Parent Loan II. (h) Indebtedness of Borrower to Junior Secured Creditor in respect of the Junior Secured Creditors Stock Put Right. (i) Indebtedness of Borrower to the Junior Secured Creditors in respect of any Junior Secured Creditors Promissory Note; (j) Indebtedness of the Borrower to the Liquidating Agent in respect of the First Unsecured Creditors Promissory Note and First Unsecured Creditors Note Put Right; (k) Indebtedness of the Borrower to the Liquidating Agent in respect of the Second Unsecured Creditors Promissory Note; (l) Indebtedness of the Borrower in respect of the Shoes.com Administrative Claim in an amount not to exceed $2.9 million. (m) Indebtedness of the Borrower in respect of the Shoes.com Loan. 7.2 Liens. Create, incur, assume, or permit to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced, renewed, or extended under Section 7.1(d) and so long as the replacement Liens only encumber those assets that secured the refinanced, renewed, or extended Indebtedness), and Liens of the Junior Secured Creditors to secure the Indebtedness of Borrower in respect of the Junior Secured Creditors Promissory Notes, provided, that such Liens are at all times junior and subordinate to the Liens of Agent on terms and conditions acceptable to Agent in its Permitted Discretion. 7.3 Restrictions on Fundamental Changes. (a) Except for the consummation of any Permitted Acquisitions, enter into any merger, consolidation, reorganization, or recapitalization, or reclassify its Stock, provided, that the Borrower shall be permitted to merge with and into a wholly-owned Subsidiary of Parent, with such Subsidiary being the surviving corporation. (b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution). (c) Convey, sell, lease, license, assign, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its assets. 7.4 Disposal of Assets. Other than Permitted Dispositions, convey, sell, lease, license, assign, transfer, or otherwise dispose of the assets of Borrower. 7.5 Change Name. Change Borrower's name, FEIN, corporate structure, or identity, or add any new fictitious name; provided, however, that (i) a Borrower may change its name upon at least 30 days prior written notice to Agent of such change and so long as, at the time of such written notification, Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected the Agent's Liens. 7.6 Guarantee. Guarantee or otherwise become in any way liable with respect to the obligations of any third Person except by endorsement of instruments or items of payment for deposit to the account of Borrowers or which are transmitted or turned over to Agent. 7.7 Nature of Business. Make any change in the principal nature of Borrower's business. 7.8 Payments, Prepayments and Amendments. (a) Make any payment on account of the Junior Secured Notes, the First Unsecured Creditors Promissory Note or the Second Unsecured Creditors Promissory Note, except (x) Borrower may make regularly scheduled payments of interest and principal pursuant to the terms of Junior Secured Notes, the First Unsecured Creditors Promissory Note and the Second Unsecured Creditors Promissory Note in effect as of the date hereof, provided, that (i) there does not exist an Event of Default and there would not exist an Event of Default after giving effect to any such payment and (ii) the Borrower has certified to Agent that it, at all times tested, maintained Excess Availability for the 30 days prior to the date of such payment and, on a pro forma basis, will maintain Excess Availability for the 60 days after the date of such payment of at least $1,500,000, after giving effect to such payment, and (ii) Borrower is Solvent, and (y) Borrower may make prepayments on such Indebtedness as permitted by Section 7.8(c), provided, that (i) Borrower shall not make any prepayments on such Indebtedness other than Indebtedness in respect of the First Unsecured Creditors Note Put Right prior to July 31, 2004. (b) Make any payment on account of the Parent Loan I, Parent Loan II and the Shoes.com Loan, except (x) Borrower may make regularly scheduled payments of interest and principal pursuant to the terms of Parent Loan I, Parent Loan II, and the Shoes.com Loan in effect as of the date hereof, provided, that (i) there does not exist an Event of Default and there would not exist an Event of Default after giving effect to any such payment and (ii) the Borrower has certified to Agent that it, at all times tested, maintained Excess Availability for the 30 days prior to the date of such payment and, on a pro forma basis, will maintain Excess Availability for the 60 days after the date of such payment of at least $1,500,000, after giving effect to such payment and (y) Borrower may make prepayments on such Indebtedness as permitted by Section 7.8(c), and (z) Borrower is Solvent. (c) Prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of Borrower, other than the Obligations in accordance with this Agreement except Borrower may (A) prepay any Junior Secured Creditors Promissory Note, the First Unsecured Creditors Promissory Note pursuant to the terms of the First Unsecured Creditors Note Put Right or otherwise or the Second Unsecured Creditors Promissory Note provided, that (i) there does not exist an Event of Default and there would not exist an Event of Default after giving effect to such payment, (ii) the Borrower has certified to Agent that it, at all times tested, maintained Excess Availability for the 30 days prior to the date of such payment and, on a pro forma basis, will maintain Excess Availability for the 60 days after the date of such payment of at least $1,500,000, after giving effect to such payment, and (iii) the Borrower is Solvent; (B) prepay the Parent Loan I, Parent Loan II and/or Shoes.com Loan provided, that (i) such payment does not occur within six months of the Closing Date; (ii) such payment does not exceed $500,000 in any calendar month; (iii) there does not exist an Event of Default and there would not exist an Event of Default after giving effect to such payment, (iv) the Borrower has certified to Agent that it, at all times tested, maintained Excess Availability for the 30 days prior to the date of such payment and, on a pro forma basis, will maintain Excess Availability for the 90 days after the date of such payment of at least $2,750,000, after giving effect to such payment, and (v) the Borrower is Solvent. (d) Make any payment on account of the Shoes.com Administrative Claim, except Borrower may pay such claim, provided, that (i) there does not exist an Event of Default and there would not exist an Event of Default after giving effect to any such payment; and (ii) the Borrower has certified to Agent that it, at all times tested, maintained Excess Availability for the 30 days prior to the date of such payment and, on a pro forma basis, will maintain Excess Availability for the 60 days after the date of such payment of at least $1,500,000, after giving effect to such payment. (e) Directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Sections 7.1(b), (c), (e), (f), (g), (h), (i), (j), (k), (l), or (m). (f) Any certifications of Excess Availability to be furnished by Borrower to lender in connection with payments to be made in accordance with Section 7.8 or Permitted Distributions shall be delivered no sooner than ten (10) days and no later than five (5) days prior to the date of the payment or Permitted Distribution. 7.9 Change of Control. Cause, permit, or suffer, directly or indirectly, any Change of Control. 7.10 Consignments. Consign any Inventory or sell any Inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale. 7.11 Distributions. Other than Permitted Distributions, make any Distribution (in cash or other property). 7.12 Accounting Methods. Modify or change its method of accounting (other than as may be required to conform to GAAP) or enter into, modify, or terminate any agreement currently existing, or at any time hereafter entered into with any third party accounting firm or service bureau for the preparation or storage of Borrower's accounting records without said accounting firm or service bureau agreeing to provide Agent information regarding the Collateral or Borrower's financial condition. 7.13 Investments. Except for Permitted Investments, directly or indirectly, make or acquire any Investment or incur any liabilities (including contingent obligations) for or in connection with any Investment; provided, however, that Borrower and its Subsidiaries shall not have Permitted Investments (other than in the Cash Management Accounts, and other than temporary (i.e., held for less than 2 Business Days) deposits of retail store receipts or petty cash accounts made by Borrower in deposit accounts maintained at banks that are physically proximate to the stores that generated such receipts) in deposit accounts or Securities Accounts unless the Borrower or its Subsidiary, as applicable, and the applicable securities intermediary or bank have entered into Control Agreements governing such Permitted Investments, as Agent shall determine in its Permitted Discretion, to perfect (and further establish) the Agent's Liens in such Permitted Investments. 7.14 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any transaction with any Affiliate of Borrower except for (i) transactions that are in the ordinary course of the Borrower's business, upon fair and reasonable terms, that are no less favorable to the Borrower than would be obtained in an arm's length transaction with a non-Affiliate, and for any transaction the book value of which is $50,000 or greater, that are fully disclosed to Agent; (ii) the Parent IP License; (iii) Warehouse Sublicense; (iv) Permitted Intercompany Advances; (v)transfer of the Borrower's intellectual property to Parent in accordance with Section 5.16 hereof and (vi) the Shoes.com Loan. 7.15 Suspension. Suspend or go out of a substantial portion of its business. 7.17 Use of Proceeds: Parent Loans and Shoes.com Loan. Use any of the proceeds of Parent Loan I provided that, Borrower may use proceeds of Parent Loan I to fund the Acquisition Proceeds. Use any of the proceeds of Parent Loan II provided that, Borrower may use proceeds of Parent Loan II to (i) fund up to $1.45 million part of the Acquisition Proceeds, (ii) fund the payment of any portion of the Shoes.com Administrative Claim, and (iii) after satisfaction of the obligations pursuant to Section 7.17(i) and (ii), above, for general corporate purposes. Use any of the proceeds of Shoes.com Loan provided that, Borrower may use proceeds of Shoes.com Loan solely for the purpose to fund the payment of any portion of the Shoes.com Administrative Claim. 7.18 Use of Proceeds: Advances. Use the proceeds of the Advances for any purpose other than (a) on the Closing Date, (i) to repay, in full, the outstanding principal, accrued interest, and accrued fees and expenses owing to Existing Lender, (ii) to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, and (iii) upon satisfaction of the Funding Conditions and after use of the proceeds of the Parent Loan I, proceeds of $1.45 million of Parent Loan II and all of the proceeds of the Parent Equity Contribution, to pay the balance of the cash purchase consideration payable by it for the Walking Company Acquisition provided such amounts do not exceed those amount set forth in the Walking Company Plan of Reorganization, (b) thereafter, consistent with the terms and conditions hereof, for its lawful and permitted purposes and (c) to pay the Shoes.com Administrative Expense Claim to the extent permitted pursuant to Section 7.8(d) hereof. 7.19 Change in Location of Chief Executive Office. Relocate its chief executive office to a new location without providing 30 days prior written notification thereof to Agent and so long as, at the time of such written notification, the Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected the Agent's Liens and also provides to Agent a Collateral Access Agreement with respect to such new location. 7.20 Securities Accounts. Establish or maintain any Securities Account unless Agent shall have received a Control Agreement in respect of such Securities Account. Borrower shall not transfer assets out of any Securities Account; provided, however, that, so long as no Event of Default has occurred and is continuing or would result therefrom, Borrower may use such assets (and the proceeds thereof) to the extent not prohibited by this Agreement. 7.21 Inactive Subsidiary. Permit the Inactive Subsidiaries to (a) own any material assets, or (b) engage in any business activity. 7.22 Financial Covenants. (a) Fail to maintain: (i) Minimum EBITDA. EBITDA of not less than the required amount set forth in the following table for the applicable period set forth opposite thereto: ------------------------------ ------------------------------------------------------- Applicable Amount Applicable Period ------------------------------ ------------------------------------------------------- ------------------------------ ------------------------------------------------------- $569,500 For the 3 month period ending June 30, 2004 ------------------------------ ------------------------------------------------------- ------------------------------ ------------------------------------------------------- $491,300 For the 6 month period ending September 30, 2004 ------------------------------ ------------------------------------------------------- ------------------------------ ------------------------------------------------------- $1,959,250 For the 9 month period ending December 31, 2004 ------------------------------ ------------------------------------------------------- ------------------------------ ------------------------------------------------------- As provided below Thereafter ------------------------------ ------------------------------------------------------- Agent, in its Permitted Discretion, shall establish EBITDA covenants on a month-end or quarterly basis for the trailing twelve month periods thereafter, which covenants shall be based upon Projections delivered to Agent pursuant to Section 6.3(c)(i) and utilizing criteria similar to the criteria that Agent used to establish the EBITDA covenants in the above table. If Borrower fails to timely deliver Projections pursuant to Section 6.3(c)(i), then the Minimum Excess Reserve shall on January 1st, be automatically increased to $3,000,000 until the Projections are delivered to the Agent. (b) Maintain: (i) Minimum Accounts Payable to Inventory. The ratio of Borrower's accounts payable to Inventory (valued at Cost) to actual EOM (End of Month) cost inventory, determined monthly (commencing with March 2004, shall not be less than the ratio set forth in the chart below for the corresponding periods: --------------------------------- ------------------------------ Month Ratio --------------------------------- ------------------------------ --------------------------------- ------------------------------ March 31, 2004 0.12 --------------------------------- ------------------------------ --------------------------------- ------------------------------ April 30, 2004 0.12 --------------------------------- ------------------------------ --------------------------------- ------------------------------ May 31, 2004 0.12 --------------------------------- ------------------------------ --------------------------------- ------------------------------ June 30, 2004 0.10 --------------------------------- ------------------------------ --------------------------------- ------------------------------ July 31, 2004 0.10 --------------------------------- ------------------------------ --------------------------------- ------------------------------ August 31, 2004 0.09 --------------------------------- ------------------------------
(c) Make: (i) Capital Expenditures. Capital expenditures of more than $700,000 during fiscal year 2004. Thereafter, Agent, in its Permitted Discretion, shall establish Capital Expenditures covenants on a quarterly and annual basis for each successive fiscal year, which covenants shall be based upon Projections delivered to Agent pursuant to Section 6.3(c)(i) and utilizing criteria similar to the criteria that Agent used to establish the Capital Expenditures covenants above. If Borrower fails to timely deliver Projections pursuant to Section 6.3(c)(i), then the Minimum Excess Reserve shall, on January 1st, be automatically increased to $3,000,000 until the Projections are delivered to the Agent. 7.23 Material Agreements. Directly or indirectly amend, modify, cancel or terminate, or permit the amendment, modification, cancellation or termination of the Walking Company Plan of Reorganization or any documents issued or order entered (including the confirmation order) without limitation, in connection therewith. 8. EVENTS OF DEFAULT. Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: 8.1 If Borrower fails to pay when due and payable, or when declared due and payable, all or any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due the Lender Group, reimbursement of Lender Group Expenses, or other amounts constituting Obligations), provided, however, that in the case of Overadvances that are caused by the charging of interest, fees, or Lender Expenses to the Loan Account, such event shall not constitute an Event of Default if, within 5 Business Days of Borrower's receipt of telephonic or other notice of such Overadvance, the Borrower eliminates such Overadvance; 8.2 If Borrower fails to (a) perform, keep, or observe any covenant or other provision contained in Sections 6.1, 6.3, 6.5, 6.6, 6.7, 6.10, 6.11, 6.13, 6.15, and 6.16 of this Agreement and such failure or neglect continues for a period of 15 days after the date on which such failure or neglect first occurs, or (b) perform, keep, or observe any covenant or other provision contained in any Section of this Agreement (other than a Section that is expressly dealt with elsewhere in Section 8 of this Agreement) or the other Loan Documents (other than a Section of such other Loan Documents dealt with elsewhere in Section 8 of this Agreement) and such failure or neglect is not cured within 15 days after the date on which such failure or neglect first occurs, or (c) perform, keep, or observe any covenant or other provision contained in Section 6.8 of this Agreement, or Section 7 of this Agreement or any comparable provision contained in any of the other Loan Documents, or (d) fails to perform, keep, or observe any covenant or other provision contained in Section 6.2 of this Agreement and such failure or neglect continues for a period of 1 day after the date on which Agent provides Borrower telephonic or written notice of such failure or neglect.. 8.3 If any material portion of Borrower's assets is attached, seized, subjected to a writ or distress warrant, levied upon, or comes into the possession of any third Person; 8.4 If an Insolvency Proceeding is commenced by Borrower and/or the imitation by or on behalf of the Borrower of the liquidation or winding up of all or any part of the Borrower's business or operations; 8.5 If an Insolvency Proceeding is commenced against Borrowers, and any of the following events occur: (a) Borrower consents to the institution of such Insolvency Proceeding against it, (b) the petition commencing the Insolvency Proceeding is not timely controverted, (c) the petition commencing the Insolvency Proceeding is not dismissed within 60 calendar days of the date of the filing thereof; provided, however, that, during the pendency of such period, Agent (including any successor agent) and each other member of the Lender Group shall be relieved of their obligations to extend credit hereunder, (d) an interim trustee is appointed to take possession of all or any substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, Borrower, or (e) an order for relief shall have been entered therein; 8.6 If Borrower or any of its Subsidiaries is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; 8.7 If (a) a notice of Lien is filed of record with respect to Borrower's or any of its Subsidiaries' assets by the United States or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency and such state, county, municipal, or governmental agency Lien has priority over the Liens of Agent in and to the Collateral or any portion thereof (a "Non-Federal Priority Lien"); or (b) a notice of Lien is filed of record with respect to Borrower's or any of its Subsidiaries' assets by any state, county, municipal, or governmental agency that is not a Non-Federal Priority Lien (a "Non-Federal Non-Priority Lien"); provided, however, that, if the aggregate amount claimed with respect to any such Non-Federal Non-Priority Liens, or the combination thereof, is less than $250,000, an Event of Default shall not occur under this section if the claims that are the subject of such Liens are the subject of Permitted Protests and if the Liens are released, discharged, or bonded against within 30 days of each such Lien first being filed of record or, if earlier, at least 5 days prior to the date on which assets that are subject to such Liens are subject to being sold or forfeited and, in any such case, Agent shall have the absolute right to establish and maintain a reserve against the Borrowing Base and the Maximum Revolver Amount in an amount equal to the aggregate amount of the underlying claims (determined by Agent, in its Permitted Discretion, and irrespective of any Permitted Protests with respect thereto and including any penalties or interest that are estimated by Agent, in its Permitted Discretion, to arise in connection therewith).; 8.8 If one or more judgments or other claims involving an aggregate amount of $250,000 or more becomes a Lien or encumbrance upon any material portion of Borrower's or any of its Subsidiaries' assets and the same is not discharged before the earlier of 30 days after the date it first arises or 5 days prior to the date on which such property or asset is subject to forfeiture, provided, however, that an Event of Default shall not occur if (a) such judgment is fully insured (without a reservation of rights), or (b) prior to the expiration of the 30-day period or 5-day period, as applicable, such judgment or claim is appealed and the applicable judgment debtor secured a bond covering the full amount of such judgment; 8.9 If there is a default in any agreement involving an aggregate amount of $250,000 to which Borrower or any of its Subsidiaries is a party and such default (a) occurs at the final maturity of the obligations thereunder, or (b) results in a right by the other party thereto, irrespective of whether exercised, to accelerate the maturity of Borrower's or its Subsidiaries' obligations thereunder, to terminate such agreement, or to refuse to renew such agreement pursuant to an automatic renewal right therein; 8.10 If Borrower or any of its Subsidiaries makes any payment on account of Indebtedness that has been contractually subordinated in right of payment to the payment of the Obligations, except to the extent such payment is permitted by the terms of this Agreement or the subordination provisions applicable to such Indebtedness; 8.11 If any material misstatement or misrepresentation exists now or hereafter in any warranty, representation, statement, or Record made to the Lender Group by Borrower any of its Subsidiaries, or any officer, employee, agent, or director of Borrower or any of its Subsidiaries; 8.12 If the obligation of Parent under the Guaranty is limited or terminated by operation of law or by Parent thereunder; or 8.13 If this Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on or security interest in the Collateral covered hereby or thereby, unless such failure is caused by Agent or the Lender Group; or 8.14 Any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by Borrower, or a proceeding shall be commenced by Borrower, or by any Governmental Authority having jurisdiction over Borrower, seeking to establish the invalidity or unenforceability thereof, or Borrower shall deny that Borrower has any liability or obligation purported to be created under any Loan Document. 8.15 Any default by Borrower on its obligations in respect of (i) Parent Loan I; (ii) Parent Loan II (iii) any Junior Secured Creditors Promissory Note; (iv) any first Unsecured Creditors Promissory Note; (v) any Second Unsecured Creditors Promissory Note; or (vi) any documents executed and/or delivered by the Borrower in connection with any of the foregoing. 8.16 Any Walking Company Acquisition Order (A) shall be supplemented, modified or amended in such a way that would constitute a Material Adverse Change, or (B) shall be revoked, remanded, vacated, reversed, stayed or rescinded in any way, or Borrower shall apply to the Bankruptcy Court for the authority to do so. 8.17 Any default by Borrower in respect of its obligations under the Walking Company Plan of Reorganization. 8.18 Any default by Fred Kayne or Andrew Feshbach in respect of their personal guaranty of the Shoes.com Administrative Claim. 8.19 Entry of an order by the Bankruptcy Court in the Proceeding allowing the Shoes.com Administrative Claim in an amount in excess of $2.9 million and Borrower has not made provisions (satisfactory to the Agent in its Permitted Discretion) for the payment of any amount in excess of $2.9 million. 9. THE LENDER GROUP'S RIGHTS AND REMEDIES. 9.1 Rights and Remedies. Upon the occurrence, and during the continuation, of an Event of Default, the Required Lenders (at their election but without notice of their election and without demand) may authorize and instruct Agent to do any one or more of the following on behalf of the Lender Group (and Agent, acting upon the instructions of the Required Lenders, shall do the same on behalf of the Lender Group), all of which are authorized by Borrower: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable; (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement, under any of the Loan Documents, or under any other agreement between Borrower and the Lender Group; (c) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of the Lender Group, but without affecting any of the Agent's Liens in the Collateral and without affecting the Obligations; (d) Settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Agent considers advisable, and in such cases, Agent will credit the Loan Accounts with only the net amounts received by Agent in payment of such disputed Accounts after deducting all Lender Group Expenses incurred or expended in connection therewith; (e) Cause Borrower to hold all returned Inventory in trust for the Lender Group, segregate all returned Inventory from all other assets of Borrower or in Borrower's possession and conspicuously label said returned Inventory as the property of the Lender Group; (f) Without notice to or demand upon Borrower, make such payments and do such acts as Agent considers necessary or reasonable to protect its security interests in the Collateral. Borrower agrees to assemble the Borrower Collateral if Agent so requires, and to make the Borrower Collateral available to Agent at a place that Agent may designate which is reasonably convenient to both parties. Borrower authorizes Agent to enter the premises where the Borrower Collateral is located, to take and maintain possession of the Borrower Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien that in Agent's determination appears to conflict with the Agent's Liens and to pay all expenses incurred in connection therewith and to charge Loan Account therefor. With respect to any of Borrower's owned or leased premises, Borrower hereby grants Agent a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of the Lender Group's rights or remedies provided herein, at law, in equity, or otherwise; (g) Without notice to Borrower (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within the meaning of the Code), set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by the Lender Group (including any amounts received in the Cash Management Accounts), or (ii) Indebtedness at any time owing to or for the credit or the account of Borrower held by the Lender Group; (h) Hold, as cash collateral, any and all balances and deposits of Borrower held by the Lender Group, and any amounts received in the Cash Management Accounts, to secure the full and final repayment of all of the Obligations; (i) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Borrower Collateral. Borrower hereby grants to Agent a license or other right to use, without charge, Borrower's labels, patents, copyrights, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Borrower Collateral, in completing production of, advertising for sale, and selling Borrower Collateral and such Borrower's rights under all licenses and all franchise agreements shall inure to the Lender Group's benefit; (j) Sell the Borrower Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Agent determines is commercially reasonable. It is not necessary that the Borrower Collateral be present at any such sale; (k) Agent shall give notice of the disposition of the Borrower Collateral as follows: (i) Agent shall give Borrower (for the benefit of the Borrower) a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Borrower Collateral, the time on or after which the private sale or other disposition is to be made; and (ii) The notice shall be personally delivered or mailed, postage prepaid, to Borrower as provided in Section 12, at least 10 days before the earliest time of disposition set forth in the notice; no notice needs to be given prior to the disposition of any portion of the Borrower Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market; (l) Agent, on behalf of the Lender Group may credit bid and purchase at any public sale; (m) Agent may seek the appointment of a receiver or keeper to take possession of all or any portion of the Collateral or to operate same and, to the maximum extent permitted by law, may seek the appointment of such a receiver without the requirement of prior notice or a hearing; (n) The Lender Group shall have all other rights and remedies available to it at law or in equity pursuant to any other Loan Documents; and (o) Any deficiency that exists after disposition of the Borrower Collateral as provided above will be paid immediately by Borrower. Any excess will be returned, without interest and subject to the rights of third Persons, by Agent to Borrower (for the benefit of the Borrower). 9.2 Remedies Cumulative. The rights and remedies of the Lender Group under this Agreement, the other Loan Documents, and all other agreements shall be cumulative. The Lender Group shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by the Lender Group of one right or remedy shall be deemed an election, and no waiver by the Lender Group of any Event of Default shall be deemed a continuing waiver. No delay by the Lender Group shall constitute a waiver, election, or acquiescence by it. 10. TAXES AND EXPENSES. If Borrower fails to pay any monies (whether taxes, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, Agent, in its sole discretion and without prior notice to Borrower, may do any or all of the following: (a) make payment of the same or any part thereof, (b) set up such reserves in Loan Account as Agent deems necessary to protect the Lender Group from the exposure created by such failure, or (c) in the case of the failure to comply with Section 6.8 hereof, obtain and maintain insurance policies of the type described in Section 6.8 and take any action with respect to such policies as Agent deems prudent. Any such amounts paid by Agent shall constitute Lender Group Expenses and any such payments shall not constitute an agreement by the Lender Group to make similar payments in the future or a waiver by the Lender Group of any Event of Default under this Agreement. Agent need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing. 11. WAIVERS; INDEMNIFICATION. 11.1 Demand; Protest; etc. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any time held by the Lender Group on which each such Borrower may in any way be liable. 11.2 The Lender Group's Liability for Collateral. Borrower hereby agrees that: (a) so long as the Lender Group complies with its obligations, if any, under the Code, Agent shall not in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the Collateral shall be borne by Borrower. 11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold the Agent-Related Persons, the Lender-Related Persons with respect to each Lender, each Participant, and each of their respective officers, directors, employees, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, and damages, and all reasonable attorneys fees and disbursements and other costs and expenses actually incurred in connection therewith (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a result of or related to the execution, delivery, enforcement, performance, or administration of this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby, and (b) with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner related thereto (all the foregoing, collectively, the "Indemnified Liabilities"). The foregoing to the contrary notwithstanding, Borrower shall have no obligation to any Indemnified Person under this Section 11.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person. This provision shall survive the termination of this Agreement and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which Borrower was required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by Borrower with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON. 12. NOTICES. Unless otherwise provided in this Agreement, all notices or demands by Borrower, on the one hand, or Agent, on the other hand, to the other relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, electronic mail (at such email addresses as the Borrower or Agent, as applicable, may designate to each other in accordance herewith), or telefacsimile to Borrower or Agent, as the case may be, at its address set forth below: If to Borrower: TWC ACQUISITION CORP 121 Gray Avenue Santa Barbara, California Attn: Andrew Feshbach Anthony Wall, Esq. Fax No. (805) 962-9460 Tel. No. (805) 963-8727 x1363 with copies to: BUCHALTER, NEMER, FIELDS & YOUNGER 601 South Figueroa Street, 24th Floor Los Angeles, CA 90017 Attn: William Schoenholz, Esq. Fax No. (213) 896-0400 Tel. No. (213) 891-5004 If to Agent: WELLS FARGO RETAIL FINANCE II, LLC 1 Boston Place Boston, Massachusetts 02108 Attn: Account Executive, The Walking Company Fax No. (617) 523-4032 Tel. No. (617) 854-7233 with copies to: BROWN RUDNICK BERLACK ISRAELS LLP One Financial Center Boston, MA 02111 Attn: Peter J. Antoszyk, Esquire Fax No. 617-856-8201 Tel. No. 617-856-8513 Agent, and Borrower may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other party. All notices or demands sent in accordance with this Section 12, other than notices by Agent in connection with enforcement rights against the Collateral under the provisions of the Code, shall be deemed received on the earlier of the date of actual receipt or 3 Business Days after the deposit thereof in the mail. Borrower acknowledges and agrees that notices sent by the Lender Group in connection with the exercise of enforcement rights against Collateral under the provisions of the Code shall be deemed sent when deposited in the mail or personally delivered, or, where permitted by law, transmitted by telefacsimile or any other method set forth above. 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. (a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. (b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SUFFOLK, COMMONWEALTH OF MASSACHUSETTS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH BORROWER AND THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13(b). (c) BORROWER AND THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH BORROWER AND THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS. 14.1 Assignments and Participations. (a) Any Lender may, with the written consent of Agent (provided that no written consent of Agent shall be required in connection with any assignment and delegation by a Lender to an Eligible Transferee), assign and delegate to one or more assignees (each an "Assignee") all, or any ratable part of all, of the Obligations, the Commitments and the other rights and obligations of such Lender hereunder and under the other Loan Documents, in a minimum amount of $5,000,000; provided, however, that Borrower and Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, have been given to Borrower and Agent by such Lender and the Assignee, (ii) such Lender and its Assignee have delivered to Borrower and Agent an Assignment and Acceptance in form and substance satisfactory to Agent, and (iii) the assignor Lender or Assignee has paid to Agent for Agent's separate account a processing fee in the amount of $5,000. Anything contained herein to the contrary notwithstanding, the consent of Agent shall not be required (and payment of any fees shall not be required) if such assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion of the business or loan portfolio of such Lender. (b) From and after the date that Agent notifies the assignor Lender (with a copy to Borrower) that it has received an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except with respect to Section 11.3 hereof) and be released from its obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto), and such assignment shall affect a novation between Borrower and the Assignee. (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (1) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto, (2) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or the performance or observance by Borrower of any of their obligations under this Agreement or any other Loan Document furnished pursuant hereto, (3) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance, (4) such Assignee will, independently and without reliance upon Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement, (5) such Assignee appoints and authorizes Agent to take such actions and to exercise such powers under this Agreement as are delegated to Agent, by the terms hereof, together with such powers as are reasonably incidental thereto, and (6) such Assignee agrees that it will perform all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance and receipt and acknowledgment by Agent of such fully executed Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto. (e) Any Lender may at any time, with the written consent of Agent, sell to one or more commercial banks, financial institutions, or other Persons not Affiliates of such Lender (a "Participant") participating interests in its Obligations, the Commitment, and the other rights and interests of that Lender (the "Originating Lender") hereunder and under the other Loan Documents (provided that no written consent of Agent shall be required in connection with any sale of any such participating interests by a Lender to an Eligible Transferee); provided, however, that (i) the Originating Lender shall remain a "Lender" for all purposes of this Agreement and the other Loan Documents and the Participant receiving the participating interest in the Obligations, the Commitments, and the other rights and interests of the Originating Lender hereunder shall not constitute a "Lender" hereunder or under the other Loan Documents and the Originating Lender's obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) Borrower, Agent, and the Lenders shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lender's rights and obligations under this Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant any participating interest under which the Participant has the right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such Participant is participating, (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating, (C) release all or a material portion of the Collateral or guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating, (D) postpone the payment of, or reduce the amount of, the interest or fees payable to such Participant through such Lender, or (E) change the amount or due dates of scheduled principal repayments or prepayments or premiums; and (v) all amounts payable by Borrower hereunder shall be determined as if such Lender had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. The rights of any Participant only shall be derivative through the Originating Lender with whom such Participant participates and no Participant shall have any rights under this Agreement or the other Loan Documents or any direct rights as to the other Lenders, Agent, Borrower, the Collections, the Collateral, or otherwise in respect of the Obligations. No Participant shall have the right to participate directly in the making of decisions by the Lenders among themselves. (f) In connection with any such assignment or participation or proposed assignment or participation, a Lender may disclose all documents and information which it now or hereafter may have relating to Borrower or Borrower's business. Prior to making any such disclosure of any such documents or information, the Lender shall cause such prospective assignee or participant to enter into a confidentiality agreement containing confidentiality provision substantially similar to those contained in Section 16.17(d). (g) Any other provision in this Agreement notwithstanding, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 14.2 Successors. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Borrower may not assign this Agreement or any rights or duties hereunder without the Lenders' prior written consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by the Lenders shall release Borrower from its Obligations. A Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder pursuant to Section 14.1 hereof and, except as expressly required pursuant to Section 14.1 hereof, no consent or approval by Borrower is required in connection with any such assignment. 15. AMENDMENTS; WAIVERS. 15.1 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by Agent at the written request of the Required Lenders) and Borrower and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all of the Lenders affected thereby and Borrower and acknowledged by Agent, do any of the following: (a) increase or extend any Commitment of any Lender, (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due hereunder or under any other Loan Document, (c) reduce the principal of, or the rate of interest on, any loan or other extension of credit hereunder, or reduce any fees or other amounts payable hereunder or under any other Loan Document, (d) change the percentage of the Commitments that is required to take any action hereunder, (e) amend this Section or any provision of the Agreement providing for consent or other action by all Lenders, (f) release Collateral other than as permitted by Section 16.12, (g) change the definition of "Required Lenders", (h) contractually subordinate any of the Agent's Liens, (i) release Borrower from any obligation for the payment of money, or (j) change the definitions of Borrowing Base, Eligible Credit Card Receivables, Eligible Inventory, Eligible Letter of Credit Inventory, Maximum Revolver Amount, Net Liquidation Percentage, , or change Section 2.1(b); or (k) amend any of the provisions of Section 16. and, provided further, however, that no amendment, waiver or consent shall, unless in writing and signed by Agent, Issuing Lender, or Swing Lender, affect the rights or duties of Agent, Issuing Lender, or Swing Lender, as applicable, under this Agreement or any other Loan Document. The foregoing notwithstanding, any amendment, modification, waiver, consent, termination, or release of, or with respect to, any provision of this Agreement or any other Loan Document that relates only to the relationship of the Lender Group among themselves, and that does not affect the rights or obligations of Borrower, shall not require consent by or the agreement of Borrower. 15.2 Replacement of Holdout Lender If any action to be taken by the Lender Group or Agent hereunder requires the unanimous consent, authorization, or agreement of all Lenders, and a Lender ("Holdout Lender") fails to give its consent, authorization, or agreement, then Agent, upon at least 5 Business Days prior irrevocable notice to the Holdout Lender, may permanently replace the Holdout Lender with one or more substitute Lenders (each, a "Replacement Lender"), and the Holdout Lender shall have not right to refuse to be replaced hereunder. Such notice to replace the Holdout Lender shall specify an effective date for such replacement, which date shall not be later than 15 Business Days after the date such notice is given. Prior to the effective date of such replacement, the Holdout Lender and each Replacement Lender shall execute and deliver an Assignment and Acceptance Agreement, subject only to the Holdout Lender being repaid its share of the outstanding Obligations (including an assumption of its Pro Rata Share of the Risk Participation Liability) without any premium or penalty of any kind whatsoever. If the Holdout Lender shall refuse or fail to execute and deliver any such Assignment and Acceptance Agreement prior to the effective date of such replacement, the Holdout Lender shall be deemed to have executed and delivered such Assignment and Acceptance Agreement. The replacement of any Holdout Lender shall be made in accordance with the terms of Section 14.1. Until such time as the Replacement Lenders shall have acquired all of the Obligations, the Commitments, and the other rights and obligations of the Holdout Lender hereunder and under the other Loan Documents, the Holdout Lender shall remain obligated to make the Holdout Lender's Pro Rata Share of Advances and to purchase 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. 15.3 No Waivers; Cumulative Remedies. No failure by Agent or any Lender to exercise any right, remedy, or option under this Agreement or, any other Loan Document, or delay by Agent or any Lender in exercising the same, will operate as a waiver thereof. No waiver by Agent or any Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by Agent or any Lender on any occasion shall affect or diminish Agent's and each Lender's rights thereafter to require strict performance by Borrower of any provision of this Agreement. Agent's and each Lender's rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy that Agent or any Lender may have. 16. AGENT; THE LENDER GROUP. 16.1 Appointment and Authorization of Agent. Each Lender hereby designates and appoints Agent as its representative under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Agent agrees to act as such on the express conditions contained in this Section 16. The provisions of this Section 16 are solely for the benefit of Agent, and the Lenders, and Borrower shall have no rights as a third party beneficiary of any of the provisions contained herein. Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent; it being expressly understood and agreed that the use of the word "Agent" is for convenience only, that Agent is merely the representative of the Lenders, and only has the contractual duties set forth herein. Except as expressly otherwise provided in this Agreement, Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions that Agent expressly is entitled to take or assert under or pursuant to this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, or of any other provision of the Loan Documents that provides rights or powers to Agent, Lenders agree that Agent shall have the right to exercise the following powers as long as this Agreement remains in effect: (a) maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Collateral, the Collections, and related matters, (b) execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents, (c) make Advances, for itself or on behalf of Lenders as provided in the Loan Documents, (d) exclusively receive, apply, and distribute the Collections as provided in the Loan Documents, (e) open and maintain such bank accounts and cash management accounts as Agent deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the Collateral and the Collections, (f) perform, exercise, and enforce any and all other rights and remedies of the Lender Group with respect to Borrower, the Obligations, the Collateral, the Collections, or otherwise related to any of same as provided in the Loan Documents, and (g) incur and pay such Lender Group Expenses as Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents. 16.2 Delegation of Duties. Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made without gross negligence or willful misconduct. 16.3 Liability of Agent. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by Borrower or any Subsidiary or Affiliate of Borrower, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the Books or properties of Borrower or the books or records or properties of any of Borrower's Subsidiaries or Affiliates. 16.4 Reliance by Agent. Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent, or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrower or counsel to any Lender), independent accountants and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless Agent shall first receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, Agent shall act, or refrain from acting, as it deems advisable. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. 16.5 Notice of Default or Event of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for the account of the Lenders, except with respect to Events of Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a "notice of default." Agent promptly will notify the Lenders of its receipt of any such notice or of any Event of Default of which Agent has actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of such Event of Default. Each Lender shall be solely responsible for giving any notices to its Participants, if any. Subject to Section 16.4, Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Section 9; provided, however, that unless and until Agent has received any such request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable. 16.6 Credit Decision. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of Borrower and its Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower and any other Person (other than the Lender Group) party to a Loan Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower and any other Person (other than the Lender Group) party to a Loan Document. Except for notices, reports, and other documents expressly herein required to be furnished to the Lenders by Agent, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of Borrower and any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons. 16.7 Costs and Expenses; Indemnification. Agent may incur and pay Lender Group Expenses to the extent Agent reasonably deems necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including court costs, reasonable attorneys fees and expenses, costs of collection by outside collection agencies and auctioneer fees and costs of security guards or insurance premiums paid to maintain the Collateral, whether or not Borrower is obligated to reimburse Agent or Lenders for such expenses pursuant to the Loan Agreement or otherwise. Agent is authorized and directed to deduct and retain sufficient amounts from Collections received by Agent to reimburse Agent for such out-of-pocket costs and expenses prior to the distribution of any amounts to Lenders. In the event Agent is not reimbursed for such costs and expenses from Collections received by Agent, each Lender hereby agrees that it is and shall be obligated to pay to or reimburse Agent for the amount of such Lender's Pro Rata Share thereof. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of Borrower to do so), according to their Pro Rata Shares, from and against any and all Indemnified Liabilities; provided, however, that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct nor shall any Lender be liable for the obligations of any Defaulting Lender in failing to make an Advance or other extension of credit hereunder. Without limitation of the foregoing, each Lender shall reimburse Agent upon demand for such Lender's ratable share of any costs or out-of-pocket expenses (including attorneys fees and expenses) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrower. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of Agent. 16.8 Agent in Individual Capacity. Agent and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with Borrower and their Subsidiaries and Affiliates and any other Person (other than the Lender Group) party to any Loan Documents as though Agent were not Agent hereunder, and, in each case, without notice to or consent of the other members of the Lender Group. The other members of the Lender Group acknowledge that, pursuant to such activities, Agent or its Affiliates may receive information regarding Borrower or their Affiliates and any other Person (other than the Lender Group) party to any Loan Documents that is subject to confidentiality obligations in favor of Borrower or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver Agent will use its reasonable best efforts to obtain), Agent shall not be under any obligation to provide such information to them. The terms "Lender" and "Lenders" include Agent in its individual capacity. 16.9 Successor Agent. Agent may resign as Agent upon 45 days notice to the Lenders. If Agent resigns under this Agreement, the Required Lenders shall appoint a successor Agent for the Lenders. If no successor Agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with the Lenders, a successor Agent. If Agent has materially breached or failed to perform any material provision of this Agreement or of applicable law, the Required Lenders may agree in writing to remove and replace Agent with a successor Agent from among the Lenders. In any such event, upon the acceptance of its appointment as successor Agent hereunder, such successor Agent shall succeed to all the rights, powers, and duties of the retiring Agent and the term "Agent" shall mean such successor Agent and the retiring Agent's appointment, powers, and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 16 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor Agent has accepted appointment as Agent by the date which is 45 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Lenders appoint a successor Agent as provided for above. 16.10 Lender in Individual Capacity. Any Lender and its respective Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with Borrower and their Subsidiaries and Affiliates and any other Person (other than the Lender Group) party to any Loan Documents as though such Lender were not a Lender hereunder without notice to or consent of the other members of the Lender Group. The other members of the Lender Group acknowledge that, pursuant to such activities, such Lender and its respective Affiliates may receive information regarding Borrower or their Affiliates and any other Person (other than the Lender Group) party to any Loan Documents that is subject to confidentiality obligations in favor of Borrower or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Lender will use its reasonable best efforts to obtain), such Lender not shall be under any obligation to provide such information to them. With respect to the Swing Loans and Agent Advances, Swing Lender shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the sub-agent of the Agent. 16.11 Withholding Taxes. (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the IRC and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the IRC, such Lender agrees with and in favor of Agent and Borrower, to deliver to Agent and Borrower: (i) if such Lender claims an exemption from withholding tax pursuant to its portfolio interest exception, (a) a statement of the Lender, signed under penalty of perjury, that it is not a (I) a "bank" as described in Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder (within the meaning of Section 881(c)(3)(B) of the IRC), or (III) a controlled foreign corporation described in Section 881(c)(3)(C) of the IRC, and (B) a properly completed IRS Form W-8BEN, before the first payment of any interest under this Agreement and at any other time reasonably requested by Agent or Borrower; (ii) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Form W-8BEN before the first payment of any interest under this Agreement and at any other time reasonably requested by Agent or Borrower; (iii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of IRS Form W-8ECI before the first payment of any interest is due under this Agreement and at any other time reasonably requested by Agent or Borrower; (iv) such other form or forms as may be required under the IRC or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Lender agrees promptly to notify Agent and Borrower of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form W-8BEN and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of Borrower to such Lender, such Lender agrees to notify Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of Borrower to such Lender. To the extent of such percentage amount, Agent will treat such Lender's IRS Form W-8BEN as no longer valid. (c) If any Lender is entitled to a reduction in the applicable withholding tax, Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to Agent, then Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (d) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify and hold Agent harmless for all amounts paid, directly or indirectly, by Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Agent under this Section, together with all costs and expenses (including attorneys fees and expenses). The obligation of the Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of Agent. (e) All payments made by Borrower hereunder or under any note or other Loan Document will be made without setoff, counterclaim, or other defense, except as required by applicable law other than for Taxes (as defined below). All such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction (other than the United States) or by any political subdivision or taxing authority thereof or therein (other than of the United States) with respect to such payments (but excluding, any tax imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein (i) measured by or based on the net income or net profits of a Lender, or (ii) to the extent that such tax results from a change in the circumstances of the Lender, including a change in the residence, place of organization, or principal place of business of the Lender, or a change in the branch or lending office of the Lender participating in the transactions set forth herein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any note, including any amount paid pursuant to this Section 16.11(e) after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein; provided, however, that Borrower shall not be required to increase any such amounts payable to Agent or any Lender (i) that is not organized under the laws of the United States, if such Person fails to comply with the other requirements of this Section 16.11, or (ii) if the increase in such amount payable results from Agent's or such Lender's own willful misconduct or gross negligence. Borrower will furnish to Agent as promptly as possible after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by Borrower. 16.12 Collateral Matters. (a) The Lenders hereby irrevocably authorize Agent, at its option and in its sole discretion, to release any Lien on any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full by Borrower of all Obligations, (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if Borrower certifies to Agent that the sale or disposition is permitted under Section 7.4 of this Agreement or the other Loan Documents (and Agent may rely conclusively on any such certificate, without further inquiry), (iii) constituting property in which Borrower has not owned any interest at the time the security interest was granted or at any time thereafter, or (iv) constituting property leased to Borrower under a lease that has expired or is terminated in a transaction permitted under this Agreement. Except as provided above, Agent will not execute and deliver a release of any Lien on any Collateral without the prior written authorization of (y) if the release is of all or substantially all of the Collateral, all of the Lenders, or (z) otherwise, the Required Lenders. Upon request by Agent or Borrower at any time, the Lenders will confirm in writing Agent's authority to release any such Liens on particular types or items of Collateral pursuant to this Section 16.12; provided, however, that (1) Agent shall not be required to execute any document necessary to evidence such release on terms that, in Agent's opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (2) such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of Borrower in respect of) all interests retained by Borrower, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral. (b) Agent shall have no obligation whatsoever to any of the Lenders to assure that the Collateral exists or is owned by Borrower or is cared for, protected, or insured or has been encumbered, or that the Agent's Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission, or event related thereto, subject to the terms and conditions contained herein, Agent may act in any manner it may deem appropriate, in its sole discretion given Agent's own interest in the Collateral in its capacity as one of the Lenders and that Agent shall have no other duty or liability whatsoever to any Lender as to any of the foregoing, except as otherwise provided herein. 16.13 Restrictions on Actions by Lenders; Sharing of Payments. (a) Each of the Lenders agrees that it shall not, without the express consent of Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the request of Agent, set off against the Obligations, any amounts owing by such Lender to Borrower or any deposit accounts of Borrower now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so by Agent, take or cause to be taken any action, including, the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral the purpose of which is, or could be, to give such Lender any preference or priority against the other Lenders with respect to the Collateral. (b) If, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments with respect to the Obligations arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Lender from Agent pursuant to the terms of this Agreement, or (ii) payments from Agent in excess of such Lender's ratable portion of all such distributions by Agent, such Lender promptly shall (1) turn the same over to Agent, in kind, and with such endorsements as may be required to negotiate the same to Agent, or in immediately available funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment. 16.14 Agency for Perfection. Agent hereby appoints each other Lender as its agent (and each Lender hereby accepts such appointment) for the purpose of perfecting the Agent's Liens in assets which, in accordance with Article 9 of the Code can be perfected only by possession. Should any Lender obtain possession of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor shall deliver such Collateral to Agent or in accordance with Agent's instructions. 16.15 Payments by Agent to the Lenders. All payments to be made by Agent to the Lenders shall be made by bank wire transfer or internal transfer of immediately available funds pursuant to such wire transfer instructions as each party may designate for itself by written notice to Agent. Concurrently with each such payment, Agent shall identify whether such payment (or any portion thereof) represents principal, premium, or interest of the Obligations. 16.16 Concerning the Collateral and Related Loan Documents. Each member of the Lender Group authorizes and directs Agent to enter into this Agreement and the other Loan Documents relating to the Collateral, for the benefit of the Lender Group. Each member of the Lender Group agrees that any action taken by Agent in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral and the exercise by Agent of its powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. 16.17 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information. By becoming a party to this Agreement, each Lender: (a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a "Report" and collectively, "Reports") prepared by Agent, and Agent shall so furnish each Lender with such Reports, (b) expressly agrees and acknowledges that Agent does not (i) make any representation or warranty as to the accuracy of any Report, and (ii) shall not be liable for any information contained in any Report, (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or other party performing any audit or examination will inspect only specific information regarding Borrower and will rely significantly upon the Books, as well as on representations of Borrower's personnel, (d) agrees to keep all Reports and other material, non-public information regarding Borrower and its Subsidiaries and their operations, assets, and existing and contemplated business plans in a confidential manner; it being understood and agreed by Borrower that in any event such Lender may make disclosures (a) to counsel for and other advisors, accountants, and auditors to such Lender, (b) reasonably required by any bona fide potential or actual Assignee or Participant in connection with any contemplated or actual assignment or transfer by such Lender of an interest herein or any participation interest in such Lender's rights hereunder, (c) of information that has become public by disclosures made by Persons other than such Lender, its Affiliates, assignees, transferees, or Participants, or (d) as required or requested by any court, governmental or administrative agency, pursuant to any subpoena or other legal process, or by any law, statute, regulation, or court order; provided, however, that, unless prohibited by applicable law, statute, regulation, or court order, such Lender shall notify Borrower of any request by any court, governmental or administrative agency, or pursuant to any subpoena or other legal process for disclosure of any such non-public material information concurrent with, or where practicable, prior to the disclosure thereof, and (e) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold Agent and any such other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to Borrower, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a loan or loans of Borrower; and (ii) to pay and protect, and indemnify, defend and hold Agent, and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including, attorneys fees and costs) incurred by Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender. In addition to the foregoing: (x) any Lender may from time to time request of Agent in writing that Agent provide to such Lender a copy of any report or document provided by Borrower to Agent that has not been contemporaneously provided by Borrower to such Lender, and, upon receipt of such request, Agent shall provide a copy of same to such Lender, (y) to the extent that Agent is entitled, under any provision of the Loan Documents, to request additional reports or information from Borrower, any Lender may, from time to time, reasonably request Agent to exercise such right as specified in such Lender's notice to Agent, whereupon Agent promptly shall request of Borrower the additional reports or information reasonably specified by such Lender, and, upon receipt thereof from Borrower, Agent promptly shall provide a copy of same to such Lender, and (z) any time that Agent renders to Borrower a statement regarding the Loan Account, Agent shall send a copy of such statement to each Lender. 16.18 Several Obligations; No Liability. Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of Agent in its capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of Agent (if any) to make any credit available hereunder shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Lender. Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of any other Lender. Except as provided in Section 16.7, no member of the Lender Group shall have any liability for the acts or any other member of the Lender Group. No Lender shall be responsible to any Borrower or any other Person for any failure by any other Lender to fulfill its obligations to make credit available hereunder, nor to advance for it or on its behalf in connection with its Commitment, nor to take any other action on its behalf hereunder or in connection with the financing contemplated herein. 16.19 Legal Representation of Agent. In connection with the negotiation, drafting, and execution of this Agreement and the other Loan Documents, or in connection with future legal representation relating to loan administration, amendments, modifications, waivers, or enforcement of remedies, Brown Rudnick Berlack Israels LLP ("BRBI") only has represented and only shall represent Agent in its capacity as Agent and as a Lender. Each other Lender hereby acknowledges that BRBI does not represent it in connection with any such matters. 17. GENERAL PROVISIONS. 17.1 Effectiveness. This Agreement shall be binding and deemed effective when executed by Borrower, Agent, and each Lender whose signature is provided for on the signature pages hereof. 17.2 Section Headings. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement. 17.3 Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against the Lender Group or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto. 17.4 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 17.5 Amendments in Writing. This Agreement only can be amended by a writing in accordance with Section 15.1. 17.6 Counterparts; Telefacsimile Execution. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis. 17.7 Revival and Reinstatement of Obligations. If the incurrence or payment of the Obligations by Borrower or the transfer to the Lender Group of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if the Lender Group is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that the Lender Group is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of the Lender Group related thereto, the liability of Borrower automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 17.8 Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. [Signature page to follow.] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. TWC ACQUISITION CORP., a Delaware corporation By: Title: WELLS FARGO RETAIL FINANCE II, LLC, a Delaware limited liability company, as Agent and as a Lender By: Title: -8- #1257365 v14 - wells/walking company/loan agreement TABLE OF CONTENTS 1. DEFINITIONS AND CONSTRUCTION.............................................................................1 1.1 Definitions.....................................................................................1 1.2 Accounting Terms...............................................................................31 1.3 Code...........................................................................................31 1.4 Construction...................................................................................31 1.5 Schedules and Exhibits.........................................................................31 2. LOAN AND TERMS OF PAYMENT...............................................................................31 2.1 Revolver Advances..............................................................................31 2.2 [Intentionally Omitted]........................................................................32 2.3 Borrowing Procedures and Settlements...........................................................32 2.4 Payments.......................................................................................39 2.5 Overadvances...................................................................................42 2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations....................43 2.7 Cash Management................................................................................45 2.8 Crediting Payments.............................................................................47 2.9 Designated Account.............................................................................47 2.10 Maintenance of Loan Account; Statements of Obligations.........................................47 2.11 Fees...........................................................................................47 2.12 Letters of Credit..............................................................................48 2.13 LIBOR Option...................................................................................52 2.14 Capital Requirements...........................................................................54 3. CONDITIONS; TERM OF AGREEMENT...........................................................................55 3.1 Conditions Precedent to the Initial Extension of Credit........................................55 3.2 Conditions Subsequent to the Initial Extension of Credit.......................................58 3.3 Conditions Precedent to all Extensions of Credit...............................................58 3.4 Term...........................................................................................59 3.5 Effect of Termination..........................................................................59 3.6 Early Termination by Borrower..................................................................59 4. CREATION OF SECURITY INTEREST...........................................................................60 4.1 Grant of Security Interest.....................................................................60 4.2 Negotiable Collateral..........................................................................60 4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral.........................61 4.4 Delivery of Additional Documentation Required..................................................61 4.5 Power of Attorney..............................................................................61 4.6 Right to Inspect...............................................................................62 4.7 Control Agreements.............................................................................62 5. REPRESENTATIONS AND WARRANTIES..........................................................................62 5.1 No Encumbrances................................................................................62 5.2 Eligible Credit Card Accounts..................................................................62 5.3 Eligible Inventory.............................................................................63 5.4 Equipment......................................................................................63 5.5 [Intentionally Omitted]........................................................................63 5.6 Inventory Records..............................................................................63 5.7 Location of Chief Executive Office; FEIN.......................................................63 5.8 Due Organization and Qualification; Subsidiaries...............................................63 5.9 Due Authorization; No Conflict.................................................................64 5.10 Litigation.....................................................................................64 5.11 No Material Adverse Change.....................................................................65 5.12 Fraudulent Transfer............................................................................65 5.13 Employee Benefits..............................................................................65 5.14 Environmental Condition........................................................................65 5.15 Brokerage Fees.................................................................................65 5.16 Intellectual Property..........................................................................65 5.17 Leases/Warehouse...............................................................................66 5.18 DDAs...........................................................................................66 5.19 Complete Disclosure............................................................................66 5.20 Indebtedness...................................................................................66 5.21 Reserved.......................................................................................67 5.22 Material Agreements............................................................................67 5.23 Credit Card Processors.........................................................................67 6. AFFIRMATIVE COVENANTS...................................................................................67 6.1 Accounting System..............................................................................67 6.2 Collateral Reporting...........................................................................67 6.3 Financial Statements, Reports, Certificates....................................................68 6.4 [Intentionally Omitted]........................................................................70 6.5 Return.........................................................................................70 6.6 Maintenance of Properties......................................................................71 6.7 Taxes..........................................................................................71 6.8 Insurance......................................................................................71 6.9 [Intentionally Omitted]........................................................................72 6.10 Compliance with Laws...........................................................................72 6.11 Leases.........................................................................................72 6.12 Brokerage Commissions..........................................................................72 6.13 Existence......................................................................................72 6.14 Environmental..................................................................................72 6.15 Disclosure Updates.............................................................................73 7. NEGATIVE COVENANTS......................................................................................73 7.1 Indebtedness...................................................................................73 7.2 Liens..........................................................................................74 7.3 Restrictions on Fundamental Changes............................................................74 7.4 Disposal of Assets.............................................................................75 7.5 Change Name....................................................................................75 7.6 Guarantee......................................................................................75 7.7 Nature of Business.............................................................................75 7.8 Payments, Prepayments and Amendments...........................................................75 7.9 Change of Control..............................................................................76 7.10 Consignments...................................................................................76 7.11 Distributions..................................................................................76 7.12 Accounting Methods.............................................................................77 7.13 Investments....................................................................................77 7.14 Transactions with Affiliates...................................................................77 7.15 Suspension.....................................................................................77 7.17 Use of Proceeds: Parent Loans and Shoes.com Loan...............................................77 7.18 Use of Proceeds: Advances......................................................................77 7.19 Change in Location of Chief Executive Office...................................................78 7.20 Securities Accounts............................................................................78 7.21 Inactive Subsidiary............................................................................78 7.22 Financial Covenants............................................................................78 7.23 Material Agreements............................................................................80 8. EVENTS OF DEFAULT.......................................................................................80 9. THE LENDER GROUP'S RIGHTS AND REMEDIES..................................................................83 9.1 Rights and Remedies............................................................................83 9.2 Remedies Cumulative............................................................................84 10. TAXES AND EXPENSES......................................................................................84 11. WAIVERS; INDEMNIFICATION................................................................................84 11.1 Demand; Protest; etc...........................................................................84 11.2 The Lender Group's Liability for Collateral....................................................84 11.3 Indemnification................................................................................84 12. NOTICES. 84 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER..............................................................84 14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS..............................................................84 14.1 Assignments and Participations.................................................................84 14.2 Successors.....................................................................................84 15. AMENDMENTS; WAIVERS.....................................................................................84 15.1 Amendments and Waivers.........................................................................84 15.2 Replacement of Holdout Lender..................................................................84 15.3 No Waivers; Cumulative Remedies................................................................84 16. AGENT; THE LENDER GROUP.................................................................................84 16.1 Appointment and Authorization of Agent.........................................................84 16.2 Delegation of Duties...........................................................................84 16.3 Liability of Agent.............................................................................84 16.4 Reliance by Agent..............................................................................84 16.5 Notice of Default or Event of Default..........................................................84 16.6 Credit Decision................................................................................84 16.7 Costs and Expenses; Indemnification............................................................84 16.8 Agent in Individual Capacity...................................................................84 16.9 Successor Agent................................................................................84 16.10 Lender in Individual Capacity..................................................................84 16.11 Withholding Taxes..............................................................................84 16.12 Collateral Matters.............................................................................84 16.13 Restrictions on Actions by Lenders; Sharing of Payments........................................84 16.14 Agency for Perfection..........................................................................84 16.15 Payments by Agent to the Lenders...............................................................84 16.16 Concerning the Collateral and Related Loan Documents...........................................84 16.17 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information........................................................................84 16.18 Several Obligations; No Liability..............................................................84 16.19 Legal Representation of Agent..................................................................84 17. GENERAL PROVISIONS......................................................................................84 17.1 Effectiveness..................................................................................84 17.2 Section Headings...............................................................................84 17.3 Interpretation.................................................................................84 17.4 Severability of Provisions.....................................................................84 17.5 Amendments in Writing..........................................................................84 17.6 Counterparts; Telefacsimile Execution..........................................................84 17.7 Revival and Reinstatement of Obligations.......................................................84 17.8 Integration....................................................................................84
EXHIBITS AND SCHEDULES Exhibit A-1 ......... Form of Assignment and Acceptance Exhibit C-1 Form of Compliance Certificate Exhibit L-1 Form of LIBOR Notice Schedule A-1 Agent's Account Schedule B-1 Designated Account Schedule C-1 Commitments Schedule E-1 Eligible Inventory Locations Schedule P-1 Permitted Liens Schedule 2.8(a) Cash Management Banks Schedule 5.7 Chief Executive Office; FEIN Schedule 5.8(b) Capitalization of Borrower Schedule 5.8(c) Capitalization of Borrower's Subsidiaries Schedule 5.10 Litigation Schedule 5.14 Environmental Matters Schedule 5.16 Intellectual Property Schedule 5.18 Demand Deposit Accounts Schedule 5.20 Permitted Indebtedness Schedule 5.23 Credit Card Processors Schedule A-1 Agent's Account Account number 323-266193 maintained by Agent with JPMorgan Chas Bank, Funds Transfer Services, 4 New York Plaza, 15th Floor, New York, New York 10004, ABA # 021000021, Credit to Wells Fargo Retail Finance II, LLC. Schedule B-1 Designated Account Account number 4100-168079 of Borrower maintained with the Designated Account Bank, or such other deposit account of Borrower (located within the United States) that has been designated as such, in writing, by Borrower to Agent. Schedule C-1 Commitments ======================================================================== Lender Commitment ======================================================================== - ------------------------------------------------------------------------ Wells Fargo Retail Finance II, LLC Initially $17,500,000 and $20,000,000 if Maximum Revolver Amount is increased by Borrower in accordance with the terms of the Loan Agreement ======================================================================== - ------------------------------------------------------------------------ ======================================================================== - ------------------------------------------------------------------------ ======================================================================== - ------------------------------------------------------------------------ ======================================================================== - ------------------------------------------------------------------------ ======================================================================== - ------------------------------------------------------------------------ All Lenders Initially $17,500,000 and $20,000,000 if Maximum Revolver Amount is increased by Borrower in accordance with the terms of the Loan Agreement ======================================================================== EX-4.5 5 exhibit4-5.txt EXHIBIT 4.5 EXHIBIT 4.5 No. of Stock Units: 4,938 Warrant No. SUN-1 WARRANT TO PURCHASE COMMON STOCK OF BIG DOG HOLDINGS, INC. Dated March 3, 2004 (Void after June 30, 2004) THIS IS TO CERTIFY THAT the Post-Confirmation Committee established under the Plan (as defined below), or registered assigns, is entitled to purchase from Big Dog Holdings, Inc., a Delaware corporation (the "Company"), at any time and from time to time after March 3, 2004 (the "Initial Exercisability Date"), but not later than 5:00 p.m., Pacific Standard time, on June 30, 2004 (the "Expiration Date"), 4,938 Stock Units, in whole or in part in integral units, at a purchase price per Stock Unit of $4.35, all on the terms and conditions hereinbelow. This Warrant is issued by the Company pursuant to the Second Amended Plan of Reorganization (the "Plan") of The Walking Company and Alan's Shoes, Inc. (collectively, the "Debtors") in connection with the Debtors' Bankruptcy Case in the United States Bankruptcy Court for the Central District of California (Case No.SV 03-15880-GM). Section 1. Certain Definitions. As used in this Warrant, unless the context otherwise requires: "Board of Directors" shall mean either the board of directors of the Company or any duly authorized committee of that board. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banks in the State of California are required or permitted to close. "Common Stock" shall mean the Company's authorized common stock, par value $0.01 per share, irrespective of class unless otherwise specified, as constituted on the date of original issuance of this Warrant, and any stock into which such Common Stock may thereafter be changed, and shall also include stock of the Company of any other class, which is not preferred as to dividends or assets over any other class of stock of the Company, issued to the holders of shares of the Company's stock upon any reclassification thereof. "Exercise Price" shall mean the purchase price per Stock Unit as set forth on the first page of his Warrant on the Issuance Date and thereafter shall mean such dollar amount as shall result from the adjustments specified in Section 4. "Holder" means, initially, the Post-Confirmation Committee established under the Plan, and thereafter any Person that is or Persons that are the registered holder(s) of this Warrant as registered on the books of the Company. "Issuance Date" shall mean March 3, 2004, the date of issuance of this Warrant. "Person" shall include a natural person, limited partnership, a corporation, an association, a partnership, a limited liability company, a trust or estate, a government, foreign or domestic, and any agency or political subdivision thereof, or any other entity. "Stock Unit" shall constitute one share of Common Stock, as such Common Stock was constituted on the date hereof and thereafter shall constitute such number of shares (including any fractional shares) of Common Stock as shall result from the adjustments specified in Section 4. "Total Exercise Price" shall mean the product of the Exercise Price times the number of Stock Units to be purchased by the holder of this Warrant upon the exercise thereof. "Warrant" shall mean this Warrant to purchase up to 4,938 Stock Units as set forth herein initially issued to Holder, and all Warrants issued upon transfer, division or combination of, or in substitution therefor. "Warrant Stock" shall mean the shares of Common Stock purchasable by the holder of this Warrant upon the exercise thereof. Section 2. Exercise of Warrant. The Holder of this Warrant may, one time only on and after the Initial Exercisability Date, but not later than the Expiration Date, exercise this Warrant in whole or in part for the integral number of Stock Units which such holder is then entitled to purchase hereunder. The exercise procedures for this Warrant are as follows: (a) The Holder shall deliver to the Company at its office maintained pursuant to Section 11 for such purpose (i) an Exercise Notice in the form attached as Exhibit A, duly completed and signed, (ii) the original of this Warrant and (iii) the Total Exercise Price therefor, which shall be payable solely by delivery of the consideration described in paragraph (b) below. (b) The Total Exercise Price shall be payable solely by delivery of the Second Unsecured Creditors Promissory Note (the "Note") issued by TWC Acquisition Corp., a Delaware corporation ("TWC"), which for purposes of this Warrant shall be valued at the unpaid principal amount thereof plus accrued but unpaid interest thereon, together with written notice to the Company specifying what portion of the principal amount of the Note delivered (plus accrued but unpaid interest on such portion) shall be applied to pay the Exercise Price. Upon any partial application of the principal amount of the Note, the Company shall cause TWC promptly to issue and deliver to or upon the order of the Holder a new Note in a principal amount equal to the remaining principal of such surrendered Note which is not applied to such payment. The Company shall within 20 days of its receipt of a conforming Exercise Notice cause to be issued in the name of and delivered to such Holder, or as the Holder may direct, a certificate or certificates representing the aggregate number of duly authorized, validly issued, fully-paid and nonassessable shares of Common Stock issuable upon such exercise. The stock certificate or certificates for Warrant Stock so delivered shall be in such denominations as may be specified in said notice and shall be registered in the name of such Holder or such other name or names as shall be designated in said notice. Such certificate or certificates shall be deemed to have been issued and such Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares, with, to the extent permitted by law, the right to vote such shares or to consent or to receive notice as a stockholder, as of the time said notice is delivered to the Company as aforesaid. The Company shall pay all expenses and stock transfer taxes payable in connection with the preparation, issuance and delivery of stock certificates under this Section 2. All shares of Common Stock issuable upon the exercise of this Warrant shall be duly authorized, validly issued, fully paid and nonassessable, and free from all liens and other encumbrances thereon. The Company shall not issue certificates for fractional shares of Common Stock upon any exercise of this Warrant. If the amount of principal of the Note that is being requested to be used to purchase Warrant Shares would result in the issuance of fractional shares, the amount of principal being applied to such purchase shall be adjusted downward to the nearest whole-share amount, and the Company may at its option either pay the balance of such principal in cash or include it in the remaining principal amount of the new Note issued after payment of the Total Exercise Price pursuant to Section2(b). Section 3. Transfer, Division and Combination. This Warrant and all rights hereunder are transferable, in whole but not in part, on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the office of the Company maintained for such purpose pursuant to Section 11, together with (a) a written assignment in the form set out at the end of this Warrant duly executed by the Holder hereof or its agent or attorney and (b) payment of funds sufficient to pay any stock transfer taxes payable upon the making of such transfer. Upon such surrender, execution and payment, the Company shall execute and deliver a new Warrant in the name of the assignee, and this Warrant shall promptly be canceled. If this Warrant is assigned in blank, the Company may (but shall not be obliged to) treat the bearer hereof as the absolute owner of this Warrant for all purposes and the Company shall not be affected by any notice to the contrary. This Warrant, if properly assigned in compliance with this Section 3, may be exercised by an assignee for the purchase of shares of Common Stock without having a new Warrant issued. The Company shall pay all expenses other than stock transfer taxes incurred by the Company in the performance of its obligations in connection with the preparation, issuance and delivery of Warrants under this Section 3. The Company agrees to maintain at its aforesaid office books for the registration and transfer of the Warrants. Section 4. Adjustment of Stock Unit or Exercise Price. The number of shares of Common Stock comprising a Stock Unit, and the Exercise Price per Stock Unit, shall be subject to adjustment from time to time as set forth in this Section 4 and in Section 5. 4.1. Stock Dividends, Subdivisions and Combinations. In case at any time or from time to time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Common Stock, or (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the number of shares of Common Stock comprising a Stock Unit immediately after the happening of any such event shall be adjusted so as to consist of the number of shares of Common Stock which a record holder of the number of shares of Common Stock comprising a Stock Unit immediately prior to the happening of such event would own or be entitled to receive after the happening of such event. 4.2. Other Provisions Applicable to Adjustments. The following provisions shall be applicable to the adjustment of the number of shares of Common Stock comprising a Stock Unit hereinbefore provided for in this Section 4: (a) When Adjustments to Be Made. The adjustments required by Section 4.1 shall be made whenever and as often as any specified event requiring an adjustment shall occur. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (b) Fractional Interests. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest one-thousandth of a share. (c) When Adjustment Not Required. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution and shall, thereafter and before the distribution thereof to shareholders, abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. 4.3. Merger, Consolidation Etc. In case the Company shall (a) merge into or consolidate with another Person and shall not be the continuing or surviving Person of such merger or consolidation, (b) shall permit any other Person to merge into or consolidate with the Company and the Company shall be the continuing or surviving Person, but, in connection with such merger or consolidation, the Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other any other property, (c) shall sell, transfer or otherwise dispose of all or substantially all of its property, assets or business to another person or (d) effect a capital reorganization or reclassification of the Common Stock (other than a capital reorganization or reclassification for which an adjustment is provided by Section 4.1) and pursuant to the terms of such merger, consolidation, disposition, capital reorganization or reclassification, shares of common stock of a successor or acquiring Person are to be received by or distributed to the holders of Common Stock of the Company, then each holder of a Warrant shall have the right thereafter to receive, upon exercise of such Warrant, Stock Units each comprising the number of shares of common stock of such successor or acquiring Person receivable upon or as a result of such merger, consolidation, disposition, capital reorganization or reclassification by a holder of the number of shares of Common Stock comprising a Stock Unit immediately prior to such event. If, pursuant to the terms of such merger, consolidation, disposition, capital reorganization or reclassification, any cash, shares of stock, other securities or property or warrants or other subscription or purchase rights or property of any nature whatsoever are to be received by or distributed to the holders of Common Stock of the Company, then, at the Holder's option, either (i) there shall be a reduction of the Exercise Price equal to the amount applicable to the number of shares of Common Stock then comprising a Stock Unit of any such cash and of the fair value of any and all such shares of stock or of other securities or property to be received by or distributed to the holders of Common Stock of the Company, or (ii) such Holder shall have the right to receive, upon exercise of its Warrant, such cash, shares of stock or other securities or property of any nature as a holder of the number of shares of Common Stock underlying a Stock Unit would have been entitled to receive upon the occurrence of such event. Such fair value shall be determined in good faith by the Board of Directors of the Company. In case of any such merger, consolidation, disposition, capital reorganization or reclassification, the successor or acquiring Person shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all of the obligations and liabilities hereunder, subject to such modification as shall be necessary to provide for adjustments of Stock Units which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For the purposes of this Section 4 "common stock of the successor or acquiring Person" shall include stock of such corporation of any class, that is not preferred as to dividends or assets over any other class of stock of such corporation and that is not subject to redemption, and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.3 shall similarly apply to successive mergers, consolidations, dispositions, capital reorganizations or reclassifications. 4.4 No Impairment. The Company will not, by amendment of its certificate of incorporation or through a consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company will not permit the par value of any shares of stock receivable upon the exercise of this Warrant to exceed the amount payable therefor upon such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the exercise of the Warrants from time to time outstanding, and (c) will not take any action that results in any adjustment of the Exercise Price if the total number of shares of Common Stock (or other securities) issuable after the action upon exercise of all of the Warrants would exceed the total number of shares of Common Stock (or other securities) then authorized by the Company's certificate of incorporation and available for the purpose of issue upon such exercise. Section 5. Notice to Warrant Holders of Adjustment of Stock Unit or Exercise Price. Whenever the number of shares of Common Stock comprising a Stock Unit, or the price at which a Stock Unit may be purchased upon exercise of the Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith issue a notice setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a statement of the fair value, as determined by the Board of Directors of the Company, of any evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights or property of any nature whatsoever referred to in Section 4.3) and specifying the number of shares of Common Stock comprising a Stock Unit and (if such adjustment was made pursuant to Section 4.3) describing the number and kind of any other shares of stock comprising a Stock Unit, and any change in the purchase price or prices thereof, after giving effect to such adjustment or change. The Company shall within 30 days after the making of such adjustment send such notice to the Holder in accordance with Section 12. Section 6. Reservation and Authorization of Common Stock. The Company shall at all times reserve and keep available solely for issuance upon the exercise of Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of this Warrant. All shares of Common Stock which shall be so issuable, when issued upon exercise of this Warrant or upon such exercise, as the case may be, shall be duly and validly authorized and issued, fully-paid and nonassessable. Section 7. Taking of Record; Stock and Warrant Transfer Books. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 which refers to the taking of a record of such holders, the Company will in each such case take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up or as otherwise may be required by law, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. Section 8. Limitation of Liability. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of the Warrant Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. Section 9. Loss or Destruction of Warrant Certificates. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security in an amount reasonably satisfactory to the Company (the original Holder's or any other institutional Holder's indemnity being satisfactory indemnity in the event of loss, theft or destruction of any Warrant owned by such institutional Holder), or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company will at its own expense execute and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of shares of Warrant Stock. Section 10. Amendments. The terms of this Warrant may be amended, and the observance of any term therein may be waived, but only with the written consent of the Holder. Section 11. Office of the Company. So long as this Warrant remains outstanding, the Company shall maintain an office where the Warrant may be presented for exercise, transfer, division or combination as in this Warrant provided. Such office shall be at Big Dog Holdings, Inc., 121 Gray Avenue, Suite 300, Santa Barbara, California 93101, Attention: General Counsel, Fax: (805) 962-9460, unless and until the Company shall designate and maintain some other office for such purposes and deliver written notice thereof to the Holder. Section 12. Notices Generally. 12.1. All communications (including all required or permitted notices) pursuant to the provisions hereof shall be in writing and shall be sent, to any registered Holder of this Warrant, to the address of such Holder as it appears in the stock or warrant ledger of the Company or at such other address as such Holder may have furnished in writing to the Company. 12.2. Any notice shall be deemed to have been duly delivered when delivered by hand, if personally delivered, and if sent by mail to a party whose address is in the same country as the sender, five Business Days after being deposited in the mail, postage prepaid, and if sent by recognized international courier, freight prepaid, with a copy sent by telecopier, to a party whose address is not in the same country as the sender, three Business Days after the later of (a) being telecopied and (b) delivery to such courier. Section 13. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California (without regard to the conflicts of laws provisions thereof). IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in its name by its duly authorized officer. Dated as of: March __, 2004 BIG DOG HOLDINGS, INC., a Delaware corporation By /s/ Andrew D. Feshbach ---------------------- Title:President 1 EXHIBIT A EXERCISE NOTICE Warrant No. SUN-1 To Big Dog Holdings, Inc.: The undersigned registered owner of this Warrant to Purchase Common Stock of Big Dog Holdings, Inc. dated March 3, 2004 (this "Warrant") irrevocably exercises this Warrant for and purchases ________ Stock Units of Big Dog Holdings, Inc., a Delaware corporation, purchasable with this Warrant, and hereby tenders $___________________ in principal amount of the attached Second Unsecured Creditors Promissory Note as payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased be issued in the name of and delivered to _________________________ whose address is_____________________. .. The undersigned registered owner of this Warrant hereby certifies that it is not an "underwriter" as that term is defined in Section 1145(b) of the United States Bankruptcy Code, and indemnifies and holds Big Dog Holdings, Inc. harmless against any liability, loss or expense (including, without limitation, reasonable attorneys' fees) incurred or suffered by it arising out of the inaccuracy of this certification. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in this Warrant. Dated:___________________, 2004 POST-CONFIRMATION COMMITTEE By Name: Title: EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant: Name and Address of Assignee and does hereby irrevocably constitute and appoint____________Attorney to make sure transfer occurs on the books of Big Dog Holdings, Inc., a Delaware corporation, maintained for the purpose, with full power of substitution in the premises. Dated: ___________________________ Signature ___________________________ Witness NOTICE: The signature to the assignment must correspond with the name as written upon the face of the Warrant in every particular instance, without alteration or enlargement or any change whatsoever. The signature to this assignment must be guaranteed by a bank or trust company having an office or correspondent in New York, New York or by a firm having membership on the New York Stock Exchange. EX-4.4 6 exhibit4-4.txt EXHIBIT 4.4 EXHIBIT 4.4 No. of Stock Units: 164,611 Warrant No. FUN-1 WARRANT TO PURCHASE COMMON STOCK OF BIG DOG HOLDINGS, INC. Dated March 3, 2004 (Void after June 30, 2004) THIS IS TO CERTIFY THAT the Post-Confirmation Committee established under the Plan (as defined below), or registered assigns, is entitled to purchase from Big Dog Holdings, Inc., a Delaware corporation (the "Company"), at any time and from time to time after March 3, 2004 (the "Initial Exercisability Date"), but not later than 5:00 p.m., Pacific Standard time, on June 30, 2004 (the "Expiration Date"), 164,611 Stock Units, in whole or in part in integral units, at a purchase price per Stock Unit of $4.35, all on the terms and conditions hereinbelow. This Warrant is issued by the Company pursuant to the Second Amended Plan of Reorganization (the "Plan") of The Walking Company and Alan's Shoes, Inc. (collectively, the "Debtors") in connection with the Debtors' Bankruptcy Case in the United States Bankruptcy Court for the Central District of California (Case No. SV 03-15880-GM). Section 1. Certain Definitions. As used in this Warrant, unless the context otherwise requires: "Board of Directors" shall mean either the board of directors of the Company or any duly authorized committee of that board. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banks in the State of California are required or permitted to close. "Common Stock" shall mean the Company's authorized common stock, par value $0.01 per share, irrespective of class unless otherwise specified, as constituted on the date of original issuance of this Warrant, and any stock into which such Common Stock may thereafter be changed, and shall also include stock of the Company of any other class, which is not preferred as to dividends or assets over any other class of stock of the Company, issued to the holders of shares of the Company's stock upon any reclassification thereof. "Exercise Price" shall mean the purchase price per Stock Unit as set forth on the first page of this Warrant on the Issuance Date and thereafter shall mean such dollar amount as shall result from the adjustments specified in Section 4. "Holder" means, initially, the Post-Confirmation Committee established under the Plan, and thereafter any Person that is or Persons that are the registered holder(s) of this Warrant as registered on the books of the Company. "Issuance Date" shall mean March 3, 2004, the date of issuance of this Warrant. "Person" shall include a natural person, limited partnership, a corporation, an association, a partnership, a limited liability company, a trust or estate, a government, foreign or domestic, and any agency or political subdivision thereof, or any other entity. "Stock Unit" shall constitute one share of Common Stock, as such Common Stock was constituted on the date hereof and thereafter shall constitute such number of shares (including any fractional shares) of Common Stock as shall result from the adjustments specified in Section 4. "Total Exercise Price" shall mean the product of the Exercise Price times the number of Stock Units to be purchased by the holder of this Warrant upon the exercise thereof. "Warrant" shall mean this Warrant to purchase up to 164,611 Stock Units as set forth herein initially issued to Holder, and all Warrants issued upon transfer, division or combination of, or in substitution therefor. "Warrant Stock" shall mean the shares of Common Stock purchasable by the holder of this Warrant upon the exercise thereof. Section 2. Exercise of Warrant. The Holder of this Warrant may, one time only on and after the Initial Exercisability Date, but not later than the Expiration Date, exercise this Warrant in whole or in part for the integral number of Stock Units which such holder is then entitled to purchase hereunder. The exercise procedures for this Warrant are as follows: (a) The Holder shall deliver to the Company at its office maintained pursuant to Section 11 for such purpose (i) an Exercise Notice in the form attached as Exhibit A, duly completed and signed, (ii) the original of this Warrant and (iii) the Total Exercise Price therefor, which shall be payable solely by delivery of the consideration described in paragraph (b) below. (b) The Total Exercise Price shall be payable solely by delivery of the First Unsecured Creditors Promissory Note (the "Note") issued by TWC Acquisition Corp., a Delaware corporation ("TWC"), which for purposes of this Warrant shall be valued at the unpaid principal amount thereof plus accrued but unpaid interest thereon, together with written notice to the Company specifying what portion of the principal amount of the Note delivered (plus accrued but unpaid interest on such portion) shall be applied to pay the Exercise Price. Upon any partial application of the principal amount of the Note, the Company shall cause TWC promptly to issue and deliver to or upon the order of the Holder a new Note in a principal amount equal to the remaining principal of such surrendered Note which is not applied to such payment. The Company shall within 20 days of its receipt of a conforming Exercise Notice cause to be issued in the name of and delivered to such Holder, or as the Holder may direct, a certificate or certificates representing the aggregate number of duly authorized, validly issued, fully-paid and nonassessable shares of Common Stock issuable upon such exercise. The stock certificate or certificates for Warrant Stock so delivered shall be in such denominations as may be specified in said notice and shall be registered in the name of such Holder or such other name or names as shall be designated in said notice. Such certificate or certificates shall be deemed to have been issued and such Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares, with, to the extent permitted by law, the right to vote such shares or to consent or to receive notice as a stockholder, as of the time said notice is delivered to the Company as aforesaid. The Company shall pay all expenses and stock transfer taxes payable in connection with the preparation, issuance and delivery of stock certificates under this Section 2. All shares of Common Stock issuable upon the exercise of this Warrant shall be duly authorized, validly issued, fully paid and nonassessable, and free from all liens and other encumbrances thereon. The Company shall not issue certificates for fractional shares of Common Stock upon any exercise of this Warrant. If the amount of principal of the Note that is being requested to be used to purchase Warrant Shares would result in the issuance of fractional shares, the amount of principal being applied to such purchase shall be adjusted downward to the nearest whole-share amount, and the Company may at its option either pay the balance of such principal in cash or include it in the remaining principal amount of the new Note issued after payment of the Total Exercise Price pursuant to Section 2(b). Section 3. Transfer, Division and Combination. This Warrant and all rights hereunder are transferable, in whole but not in part, on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the office of the Company maintained for such purpose pursuant to Section 11, together with (a) a written assignment in the form set out at the end of this Warrant duly executed by the Holder hereof or its agent or attorney and (b) payment of funds sufficient to pay any stock transfer taxes payable upon the making of such transfer. Upon such surrender, execution and payment, the Company shall execute and deliver a new Warrant in the name of the assignee, and this Warrant shall promptly be canceled. If this Warrant is assigned in blank, the Company may (but shall not be obliged to) treat the bearer hereof as the absolute owner of this Warrant for all purposes and the Company shall not be affected by any notice to the contrary. This Warrant, if properly assigned in compliance with this Section 3, may be exercised by an assignee for the purchase of shares of Common Stock without having a new Warrant issued. The Company shall pay all expenses other than stock transfer taxes incurred by the Company in the performance of its obligations in connection with the preparation, issuance and delivery of Warrants under this Section 3. The Company agrees to maintain at its aforesaid office books for the registration and transfer of the Warrants. Section 4. Adjustment of Stock Unit or Exercise Price. The number of shares of Common Stock comprising a Stock Unit, and the Exercise Price per Stock Unit, shall be subject to adjustment from time to time as set forth in this Section 4 and in Section 5. 4.1. Stock Dividends, Subdivisions and Combinations. In case at any time or from time to time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Common Stock, or (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the number of shares of Common Stock comprising a Stock Unit immediately after the happening of any such event shall be adjusted so as to consist of the number of shares of Common Stock which a record holder of the number of shares of Common Stock comprising a Stock Unit immediately prior to the happening of such event would own or be entitled to receive after the happening of such event. 4.2. Other Provisions Applicable to Adjustments. The following provisions shall be applicable to the adjustment of the number of shares of Common Stock comprising a Stock Unit hereinbefore provided for in this Section 4: (a) When Adjustments to Be Made. The adjustments required by Section 4.1 shall be made whenever and as often as any specified event requiring an adjustment shall occur. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (b) Fractional Interests. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest one-thousandth of a share. (c) When Adjustment Not Required. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution and shall, thereafter and before the distribution thereof to shareholders, abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. 4.3. Merger, Consolidation Etc. In case the Company shall (a) merge into or consolidate with another Person and shall not be the continuing or surviving Person of such merger or consolidation, (b) shall permit any other Person to merge into or consolidate with the Company and the Company shall be the continuing or surviving Person, but, in connection with such merger or consolidation, the Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other any other property, (c) shall sell, transfer or otherwise dispose of all or substantially all of its property, assets or business to another Person or (d) effect a capital reorganization or reclassification of the Common Stock (other than a capital reorganization or reclassification for which an adjustment is provided by Section 4.1) and pursuant to the terms of such merger, consolidation, disposition, capital reorganization or reclassification, shares of common stock of a successor or acquiring Person are to be received by or distributed to the holders of Common Stock of the Company, then each holder of a Warrant shall have the right thereafter to receive, upon exercise of such Warrant, Stock Units each comprising the number of shares of common stock of such successor or acquiring Person receivable upon or as a result of such merger, consolidation, disposition, capital reorganization or reclassification by a holder of the number of shares of Common Stock comprising a Stock Unit immediately prior to such event. If, pursuant to the terms of such merger, consolidation, disposition, capital reorganization or reclassification, any cash, shares of stock, other securities or property or warrants or other subscription or purchase rights or property of any nature whatsoever are to be received by or distributed to the holders of Common Stock of the Company, then, at the Holder's option, either (i) there shall be a reduction of the Exercise Price equal to the amount applicable to the number of shares of Common Stock then comprising a Stock Unit of any such cash and of the fair value of any and all such shares of stock or of other securities or property to be received by or distributed to the holders of Common Stock of the Company, or (ii) such Holder shall have the right to receive, upon exercise of its Warrant, such cash, shares of stock or other securities or property of any nature as a holder of the number of shares of Common Stock underlying a Stock Unit would have been entitled to receive upon the occurrence of such event. Such fair value shall be determined in good faith by the Board of Directors of the Company. In case of any such merger, consolidation, disposition, capital reorganization or reclassification, the successor or acquiring Person shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all of the obligations and liabilities hereunder, subject to such modification as shall be necessary to provide for adjustments of Stock Units which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For the purposes of this Section 4 "common stock of the successor or acquiring Person" shall include stock of such corporation of any class, that is not preferred as to dividends or assets over any other class of stock of such corporation and that is not subject to redemption, and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.3 shall similarly apply to successive mergers, consolidations, dispositions, capital reorganizations or reclassifications. 4.4 No Impairment. The Company will not, by amendment of its certificate of incorporation or through a consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company will not permit the par value of any shares of stock receivable upon the exercise of this Warrant to exceed the amount payable therefor upon such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the exercise of the Warrants from time to time outstanding, and (c) will not take any action that results in any adjustment of the Exercise Price if the total number of shares of Common Stock (or other securities) issuable after the action upon exercise of all of the Warrants would exceed the total number of shares of Common Stock (or other securities) then authorized by the Company's certificate of incorporation and available for the purpose of issue upon such exercise. Section 5. Notice to Warrant Holders of Adjustment of Stock Unit or Exercise Price. Whenever the number of shares of Common Stock comprising a Stock Unit, or the price at which a Stock Unit may be purchased upon exercise of the Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith issue a notice setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a statement of the fair value, as determined by the Board of Directors of the Company, of any evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights or property of any nature whatsoever referred to in Section 4.3) and specifying the number of shares of Common Stock comprising a Stock Unit and (if such adjustment was made pursuant to Section 4.3) describing the number and kind of any other shares of stock comprising a Stock Unit, and any change in the purchase price or prices thereof, after giving effect to such adjustment or change. The Company shall within 30 days after the making of such adjustment send such notice to the Holder in accordance with Section 12. Section 6. Reservation and Authorization of Common Stock. The Company shall at all times reserve and keep available solely for issuance upon the exercise of Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of this Warrant. All shares of Common Stock which shall be so issuable, when issued upon exercise of this Warrant or upon such exercise, as the case may be, shall be duly and validly authorized and issued, fully-paid and nonassessable. Section 7. Taking of Record; Stock and Warrant Transfer Books. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 which refers to the taking of a record of such holders, the Company will in each such case take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up or as otherwise may be required by law, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. Section 8. Limitation of Liability. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of the Warrant Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. Section 9. Loss or Destruction of Warrant Certificates. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security in an amount reasonably satisfactory to the Company (the original Holder's or any other institutional Holde's indemnity being satisfactory indemnity in the event of loss, theft or destruction of any Warrant owned by such institutional Holder), or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company will at its own expense execute and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of shares of Warrant Stock. Section 10. Amendments. The terms of this Warrant may be amended, and the observance of any term therein may be waived, but only with the written consent of the Holder. Section 11. Office of the Company. So long as this Warrant remains outstanding, the Company shall maintain an office where the Warrant may be presented for exercise, transfer, division or combination as in this Warrant provided. Such office shall be at Big Dog Holdings, Inc., 121 Gray Avenue, Suite 300, Santa Barbara, California 93101, Attention: General Counsel, Fax: (805) 962-9460, unless and until the Company shall designate and maintain some other office for such purposes and deliver written notice thereof to the Holder. Section 12. Notices Generally. 12.1. All communications (including all required or permitted notices) pursuant to the provisions hereof shall be in writing and shall be sent, to any registered Holder of this Warrant, to the address of such Holder as it appears in the stock or warrant ledger of the Company or at such other address as such Holder may have furnished in writing to the Company. 12.2. Any notice shall be deemed to have been duly delivered when delivered by hand, if personally delivered, and if sent by mail to a party whose address is in the same country as the sender, five Business Days after being deposited in the mail, postage prepaid, and if sent by recognized international courier, freight prepaid, with a copy sent by telecopier, to a party whose address is not in the same country as the sender, three Business Days after the later of (a) being telecopied and (b) delivery to such courier. Section 13. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California (without regard to the conflicts of laws provisions thereof). IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in its name by its duly authorized officer. Dated as of: March 3, 2004 BIG DOG HOLDINGS, INC., a Delaware corporation By /s/ Andrew D. Feshbach ---------------------- Title: President EXHIBIT A EXERCISE NOTICE Warrant No. FUN-1 To Big Dog Holdings, Inc.: The undersigned registered owner of this Warrant to Purchase Common Stock of Big Dog Holdings, Inc. dated March 3, 2004 (this "Warrant") irrevocably exercises this Warrant for and purchases ________ Stock Units of Big Dog Holdings, Inc., a Delaware corporation, purchasable with this Warrant, and hereby tenders $___________________ in principal amount of the attached First Unsecured Creditors Promissory Note as payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased be issued in the name of and delivered to _________________________ whose address is__________________. .. The undersigned registered owner of this Warrant hereby certifies that it is not an "underwriter" as that term is defined in Section 1145(b) of the United States Bankruptcy Code, and indemnifies and holds Big Dog Holdings, Inc. harmless against any liability, loss or expense (including, without limitation, reasonable attorneys' fees) incurred or suffered by it arising out of the inaccuracy of this certification. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in this Warrant. Dated:_____________________,2004 POST CONFIRMATION COMMITTEE By Name: Title: EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant: Name and Address of Assignee and does hereby irrevocably constitute and appoint________Attorney to make sure transfer occurs on the books of Big Dog Holdings, Inc., a Delaware corporation, maintained for the purpose, with full power of substitution in the premises. Dated: ___________________________ Signature ___________________________ Witness NOTICE: The signature to the assignment must correspond with the name as written upon the face of the Warrant in every particular instance, without alteration or enlargement or any change whatsoever. The signature to this assignment must be guaranteed by a bank or trust company having an office or correspondent in New York, New York or by a firm having membership on the New York Stock Exchange. EX-4.3 7 exhibit4-3.txt EXHIBIT 4.3 EXHIBIT 4.3 No. of Stock Units: 286,978 Warrant No. 1 WARRANT TO PURCHASE COMMON STOCK OF BIG DOG HOLDINGS, INC. Dated March 3, 2004 (Void after June 30, 2004) THIS IS TO CERTIFY THAT Retail & Restaurant Growth Capital L.P., or registered assigns, is entitled to purchase from Big Dog Holdings, Inc., a Delaware corporation (the "Company"), at any time and from time to time after March 3, 2004 (the "Initial Exercisability Date"), but not later than 5:00 p.m., Pacific Standard time, on June 30, 2004 (the "Expiration Date"), 286,978 Stock Units, in whole or in part in integral units, at a purchase price per Stock Unit of $4.35, all on the terms and conditions hereinbelow. This Warrant is issued by the Company pursuant to the Second Amended Plan of Reorganization of The Walking Company and Alan's Shoes, Inc. (collectively, the "Debtors") in connection with the Debtors' Bankruptcy Case in the United States Bankruptcy Court for the Central District of California (Case No. SV 03-15880-GM). Section 1. Certain Definitions. As used in this Warrant, unless the context otherwise requires: "Board of Directors" shall mean either the board of directors of the Company or any duly authorized committee of that board. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banks in the State of California are required or permitted to close. "Common Stock" shall mean the Company's authorized common stock, par value $0.01 per share, irrespective of class unless otherwise specified, as constituted on the date of original issuance of this Warrant, and any stock into which such Common Stock may thereafter be changed, and shall also include stock of the Company of any other class, which is not preferred as to dividends or assets over any other class of stock of the Company, issued to the holders of shares of the Company's stock upon any reclassification thereof. "Exercise Price" shall mean the purchase price per Stock Unit as set forth on the first page of this Warrant on the Issuance Date and thereafter shall mean such dollar amount as shall result from the adjustments specified in Section 4. "Holder" means, initially, Retail & Restaurant Growth Capital L.P., and thereafter any Person that is or Persons that are the registered holder(s) of this Warrant as registered on the books of the Company. "Issuance Date" shall mean March 3, 2004, the date of issuance of this Warrant. "Person" shall include a natural person, limited partnership, a corporation, an association, a partnership, a limited liability company, a trust or estate, a government, foreign or domestic, and any agency or political subdivision thereof, or any other entity. "Stock Unit" shall constitute one share of Common Stock, as such Common Stock was constituted on the date hereof and thereafter shall constitute such number of shares (including any fractional shares) of Common Stock as shall result from the adjustments specified in Section 4. "Total Exercise Price" shall mean the product of the Exercise Price times the number of Stock Units to be purchased by the holder of this Warrant upon the exercise thereof. "Warrant" shall mean this Warrant to purchase up to 286,978 Stock Units as set forth herein initially issued to Holder, and all Warrants issued upon transfer, division or combination of, or in substitution therefor. "Warrant Stock" shall mean the shares of Common Stock purchasable by the holder of this Warrant upon the exercise thereof. Section 2. Exercise of Warrant. The Holder of this Warrant may, one time only on and after the Initial Exercisability Date, but not later than the Expiration Date, exercise this Warrant in whole or in part for the integral number of Stock Units which such holder is then entitled to purchase hereunder. The exercise procedures for this Warrant are as follows: (a) The Holder shall deliver to the Company at its office maintained pursuant to Section 11 for such purpose (i) an Exercise Notice in the form attached as Exhibit A, duly completed and signed, (ii) the original of this Warrant and (iii) the Total Exercise Price therefor, which shall be payable solely by delivery of the consideration described in paragraph (b) below. (b) The Total Exercise Price shall be payable solely by delivery of a Junior Secured Creditors Promissory Note (the "Note") issued by TWC Acquisition Corp., a Delaware corporation ("TWC"), which for purposes of this Warrant shall be valued at the unpaid principal amount thereof plus accrued but unpaid interest thereon, together with written notice to the Company specifying what portion of the principal amount of the Note delivered (plus accrued but unpaid interest on such portion) shall be applied to pay the Exercise Price. Upon any partial application of the principal amount of a Note, the Company shall cause TWC promptly to issue and deliver to or upon the order of the Holder a new Note in a principal amount equal to the remaining principal of such surrendered Note which is not applied to such payment. The Company shall within 20 days of its receipt of a conforming Exercise Notice cause to be issued in the name of and delivered to such Holder, or as the Holder may direct, a certificate or certificates representing the aggregate number of duly authorized, validly issued, fully-paid and nonassessable shares of Common Stock issuable upon such exercise. The stock certificate or certificates for Warrant Stock so delivered shall be in such denominations as may be specified in said notice and shall be registered in the name of such Holder or such other name or names as shall be designated in said notice. Such certificate or certificates shall be deemed to have been issued and such Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares, with, to the extent permitted by law, the right to vote such shares or to consent or to receive notice as a stockholder, as of the time said notice is delivered to the Company as aforesaid. The Company shall pay all expenses and stock transfer taxes payable in connection with the preparation, issuance and delivery of stock certificates under this Section 2. All shares of Common Stock issuable upon the exercise of this Warrant shall be duly authorized, validly issued, fully paid and nonassessable, and free from all liens and other encumbrances thereon. The Company shall not issue certificates for fractional shares of Common Stock upon any exercise of this Warrant. If the amount of principal of the Note that is being requested to be used to purchase Warrant Shares would result in the issuance of fractional shares, the amount of principal being applied to such purchase shall be adjusted downward to the nearest whole-share amount, and the Company may at its option either pay the balance of such principal in cash or include it in the remaining principal amount of the new Note issued after payment of the Total Exercise Price pursuant to Section 2(b). Section 3. Transfer, Division and Combination. This Warrant and all rights hereunder are transferable, in whole but not in part, on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the office of the Company maintained for such purpose pursuant to Section 11, together with (a) a written assignment in the form set out at the end of this Warrant duly executed by the Holder hereof or its agent or attorney and (b) payment of funds sufficient to pay any stock transfer taxes payable upon the making of such transfer. Upon such surrender, execution and payment, the Company shall execute and deliver a new Warrant in the name of the assignee, and this Warrant shall promptly be canceled. If this Warrant is assigned in blank, the Company may (but shall not be obliged to) treat the bearer hereof as the absolute owner of this Warrant for all purposes and the Company shall not be affected by any notice to the contrary. This Warrant, if properly assigned in compliance with this Section 3, may be exercised by an assignee for the purchase of shares of Common Stock without having a new Warrant issued. The Company shall pay all expenses other than stock transfer taxes incurred by the Company in the performance of its obligations in connection with the preparation, issuance and delivery of Warrants under this Section 3. The Company agrees to maintain at its aforesaid office books for the registration and transfer of the Warrants. Section 4. Adjustment of Stock Unit or Exercise Price. The number of shares of Common Stock comprising a Stock Unit, and the Exercise Price per Stock Unit, shall be subject to adjustment from time to time as set forth in this Section 4 and in Section 5. 4.1. Stock Dividends, Subdivisions and Combinations. In case at any time or from time to time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Common Stock, or (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the number of shares of Common Stock comprising a Stock Unit immediately after the happening of any such event shall be adjusted so as to consist of the number of shares of Common Stock which a record holder of the number of shares of Common Stock comprising a Stock Unit immediately prior to the happening of such event would own or be entitled to receive after the happening of such event. 4.2. Other Provisions Applicable to Adjustments. The following provisions shall be applicable to the adjustment of the number of shares of Common Stock comprising a Stock Unit hereinbefore provided for in this Section 4: (a) When Adjustments to Be Made. The adjustments required by Section 4.1 shall be made whenever and as often as any specified event requiring an adjustment shall occur. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (b) Fractional Interests. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest one-thousandth of a share. (c) When Adjustment Not Required. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution and shall, thereafter and before the distribution thereof to shareholders, abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. 4.3. Merger, Consolidation Etc. In case the Company shall (a) merge into or consolidate with another Person and shall not be the continuing or surviving Person of such merger or consolidation, (b) shall permit any other Person to merge into or consolidate with the Company and the Company shall be the continuing or surviving Person, but, in connection with such merger or consolidation, the Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other any other property, (c) shall sell, transfer or otherwise dispose of all or substantially all of its property, assets or business to another Person or (d) effect a capital reorganization or reclassification of the Common Stock (other than a capital reorganization or reclassification for which an adjustment is provided by Section 4.1) and pursuant to the terms of such merger, consolidation, disposition, capital reorganization or reclassification, shares of common stock of a successor or acquiring Person are to be received by or distributed to the holders of Common Stock of the Company, then each holder of a Warrant shall have the right thereafter to receive, upon exercise of such Warrant, Stock Units each comprising the number of shares of common stock of such successor or acquiring Person receivable upon or as a result of such merger, consolidation, disposition, capital reorganization or reclassification by a holder of the number of shares of Common Stock comprising a Stock Unit immediately prior to such event. If, pursuant to the terms of such merger, consolidation, disposition, capital reorganization or reclassification, any cash, shares of stock, other securities or property or warrants or other subscription or purchase rights or property of any nature whatsoever are to be received by or distributed to the holders of Common Stock of the Company, then, at the Holder's option, either (i) there shall be a reduction of the Exercise Price equal to the amount applicable to the number of shares of Common Stock then comprising a Stock Unit of any such cash and of the fair value of any and all such shares of stock or of other securities or property to be received by or distributed to the holders of Common Stock of the Company, or (ii) such Holder shall have the right to receive, upon exercise of its Warrant, such cash, shares of stock or other securities or property of any nature as a holder of the number of shares of Common Stock underlying a Stock Unit would have been entitled to receive upon the occurrence of such event. Such fair value shall be determined in good faith by the Board of Directors of the Company. In case of any such merger, consolidation, disposition, capital reorganization or reclassification, the successor or acquiring Person shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all of the obligations and liabilities hereunder, subject to such modification as shall be necessary to provide for adjustments of Stock Units which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For the purposes of this Section 4 "common stock of the successor or acquiring Person" shall include stock of such corporation of any class, that is not preferred as to dividends or assets over any other class of stock of such corporation and that is not subject to redemption, and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.3 shall similarly apply to successive mergers, consolidations, dispositions, capital reorganizations or reclassifications. 4.4 No Impairment. The Company will not, by amendment of its certificate of incorporation or through a consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company will not permit the par value of any shares of stock receivable upon the exercise of this Warrant to exceed the amount payable therefor upon such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the exercise of the Warrants from time to time outstanding, and (c) will not take any action that results in any adjustment of the Exercise Price if the total number of shares of Common Stock (or other securities) issuable after the action upon exercise of all of the Warrants would exceed the total number of shares of Common Stock (or other securities) then authorized by the Compan's certificate of incorporation and available for the purpose of issue upon such exercise. Section 5. Notice to Warrant Holders of Adjustment of Stock Unit or Exercise Price. Whenever the number of shares of Common Stock comprising a Stock Unit, or the price at which a Stock Unit may be purchased upon exercise of the Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith issue a notice setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a statement of the fair value, as determined by the Board of Directors of the Company, of any evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights or property of any nature whatsoever referred to in Section 4.3) and specifying the number of shares of Common Stock comprising a Stock Unit and (if such adjustment was made pursuant to Section 4.3) describing the number and kind of any other shares of stock comprising a Stock Unit, and any change in the purchase price or prices thereof, after giving effect to such adjustment or change. The Company shall within 30 days after the making of such adjustment send such notice to the Holder in accordance with Section 12. Section 6. Reservation and Authorization of Common Stock. The Company shall at all times reserve and keep available solely for issuance upon the exercise of Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of this Warrant. All shares of Common Stock which shall be so issuable, when issued upon exercise of this Warrant or upon such exercise, as the case may be, shall be duly and validly authorized and issued, fully-paid and nonassessable. Section 7. Taking of Record; Stock and Warrant Transfer Books. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 which refers to the taking of a record of such holders, the Company will in each such case take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up or as otherwise may be required by law, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. Section 8. Limitation of Liability. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of the Warrant Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. Section 9. Loss or Destruction of Warrant Certificates. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security in an amount reasonably satisfactory to the Company (the original Holder's or any other institutional Holder's indemnity being satisfactory indemnity in the event of loss, theft or destruction of any Warrant owned by such institutional Holder), or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company will at its own expense execute and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of shares of Warrant Stock. Section 10. Amendments. The terms of this Warrant may be amended, and the observance of any term therein may be waived, but only with the written consent of the Holder. Section 11. Office of the Company. So long as this Warrant remains outstanding, the Company shall maintain an office where the Warrant may be presented for exercise, transfer, division or combination as in this Warrant provided. Such office shall be at Big Dog Holdings, Inc., 121 Gray Avenue, Suite 300, Santa Barbara, California 93101, Attention: General Counsel, Fax: (805) 962-9460, unless and until the Company shall designate and maintain some other office for such purposes and deliver written notice thereof to the Holder. Section 12. Notices Generally. 12.1. All communications (including all required or permitted notices) pursuant to the provisions hereof shall be in writing and shall be sent, to any registered Holder of this Warrant, to the address of such Holder as it appears in the stock or warrant ledger of the Company or at such other address as such Holder may have furnished in writing to the Company. 12.2. Any notice shall be deemed to have been duly delivered when delivered by hand, if personally delivered, and if sent by mail to a party whose address is in the same country as the sender, five Business Days after being deposited in the mail, postage prepaid, and if sent by recognized international courier, freight prepaid, with a copy sent by telecopier, to a party whose address is not in the same country as the sender, three Business Days after the later of (a) being telecopied and (b) delivery to such courier. Section 13. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California (without regard to the conflicts of laws provisions thereof). IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in its name by its duly authorized officer. Dated as of: March 3, 2004 BIG DOG HOLDINGS, INC., a Delaware corporation By /s/ Andrew D. Feshbach ---------------------- Title: President EXHIBIT A EXERCISE NOTICE Warrant No. 1 To Big Dog Holdings, Inc.: The undersigned registered owner of this Warrant to Purchase Common Stock of Big Dog Holdings, Inc. dated March 3, 2004 (this "Warrant") irrevocably exercises this Warrant for and purchases ________ Stock Units of Big Dog Holdings, Inc., a Delaware corporation, purchasable with this Warrant, and hereby tenders $___________________ in principal amount of the attached Junior Secured Creditors Promissory Note as payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased be issued in the name of and delivered to _________________________ whose address is________________________. The undersigned registered owner of this Warrant hereby certifies that it is not an "underwriter" as that term is defined in Section 1145(b) of the United States Bankruptcy Code, and indemnifies and holds Big Dog Holdings, Inc. harmless against any liability, loss or expenses (including, without limitation, reasonable attorneys' fees) incurred or suffered by it arising out of the inaccuracy of this certification. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in this Warrant. Dated:____________________ , 2004 RETAIL & RESTAURANT GROWTH CAPITAL L.P. By ________________________ Title:_____________________ EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant: Name and Address of Assignee and does hereby irrevocably constitute and appoint________________Attorney to make sure transfer occurs on the books of Big Dog Holdings, Inc., a Delaware corporation, maintained for the purpose, with full power of substitution in the premises. Dated: _______________________________ Signature ________________________________ Witness NOTICE: The signature to the assignment must correspond with the name as written upon the face of the Warrant in every particular instance, without alteration or enlargement or any change whatsoever. The signature to this assignment must be guaranteed by a bank or trust company having an office or correspondent in New York, New York or by a firm having membership on the New York Stock Exchange. SCHEDULE The following persons received substantially identical Warrants for the number of Stock Units set forth opposite their names: ----------------------------------------------------------- ----------------------- NAME STOCK UNITS ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Stratford Capital Partners, L.P. 286,978 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Provender Opportunities Fund, L.P. 17,007 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Cornerstone Equity Investors IV, L.P. 58,202 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Jim Argyropolous 53,818 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Harry Adler 7,816 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Greg Milne 781 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Dan Zukerman 781 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Steve Nessim 782 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Pinney Family Trust 1,596 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Appleton Family Trust 1,311 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Robert Taicher 3,523 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Giles Bateman 640 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Herbert Simon 20,347 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Montesano Family Trust 20,347 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Perlman Family Trust 6,782 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Trent and Merilyn Merrill Trust dated 1/29/90 3,391 ----------------------------------------------------------- -----------------------
EX-4.2 8 exhibit4-2.txt EXHIBIT 4.2 EXHIBIT 4.2 No. of Stock Units: 55,188 Warrant No. JSCS-1 (Junior Secured Creditors Stock) WARRANT TO PURCHASE COMMON STOCK OF BIG DOG HOLDINGS, INC. Dated March 3, 2004 (Void after June 30, 2004) THIS IS TO CERTIFY THAT Retail & Restaurant Growth Capital, L.P., or registered assigns, is entitled to purchase from Big Dog Holdings, Inc., a Delaware corporation (the "Company"), at any time and from time to time after March 3, 2004 (the "Initial Exercisability Date"), but not later than 5:00 p.m., Pacific Standard time, on June 30, 2004 (the "Expiration Date"), 55,188 Stock Units, in whole or in part in integral units, at a purchase price per Stock Unit of $4.35, all on the terms and conditions hereinbelow. This Warrant is issued by the Company pursuant to the Second Amended Plan of Reorganization of The Walking Company and Alan's Shoes, Inc. (collectively, the "Debtors") in connection with the Debtors' Bankruptcy Case in the United States Bankruptcy Court for the Central District of California (Case No. SV 03-15880-GM). Section 1. Certain Definitions. As used in this Warrant, unless the context otherwise requires: "Board of Directors" shall mean either the board of directors of the Company or any duly authorized committee of that board. "Business Day" shall mean any day other than a Saturday, Sunday or a day on which banks in the State of California are required or permitted to close. "Common Stock" shall mean the Company's authorized common stock, par value $0.01 per share, irrespective of class unless otherwise specified, as constituted on the date of original issuance of this Warrant, and any stock into which such Common Stock may thereafter be changed, and shall also include stock of the Company of any other class, which is not preferred as to dividends or assets over any other class of stock of the Company, issued to the holders of shares of the Company's stock upon any reclassification thereof. "Exercise Price" shall mean the purchase price per Stock Unit as set forth on the first page of this Warrant on the Issuance Date and thereafter shall mean such dollar amount as shall result from the adjustments specified in Section 4. "Holder" means, initially, Retail & Restaurant Growth Capital, L.P., and thereafter any Person that is or Persons that are the registered holder(s) of this Warrant as registered on the books of the Company. "Issuance Date" shall mean March 3, 2004, the date of issuance of this Warrant. "Person" shall include a natural person, limited partnership, a corporation, an association, a partnership, a limited liability company, a trust or estate, a government, foreign or domestic, and any agency or political subdivision thereof, or any other entity. "Stock Unit" shall constitute one share of Common Stock, as such Common Stock was constituted on the date hereof and thereafter shall constitute such number of shares (including any fractional shares) of Common Stock as shall result from the adjustments specified in Section 4. "Total Exercise Price" shall mean the product of the Exercise Price times the number of Stock Units to be purchased by the holder of this Warrant upon the exercise thereof. "Warrant" shall mean this Warrant to purchase up to 55,188 Stock Units as set forth herein initially issued to Retail & Restaurant Growth Capital, L.P., and all Warrants issued upon transfer, division or combination of, or in substitution therefor. "Warrant Stock" shall mean the shares of Common Stock purchasable by the holder of this Warrant upon the exercise thereof. Section 2. Exercise of Warrant. The Holder of this Warrant may, one time only on and after the Initial Exercisability Date, but not later than the Expiration Date, exercise this Warrant in whole or in part for the integral number of Stock Units which such holder is then entitled to purchase hereunder. The exercise procedures for this Warrant are as follows: (a) The Holder shall deliver to the Company at its office maintained pursuant to Section 11 for such purpose (i) an Exercise Notice in the form attached as Exhibit A, duly completed and signed, (ii) the original of this Warrant and (iii) the Total Exercise Price therefor, which shall be payable solely by delivery of the consideration described in paragraph(b) below. (b) The Total Exercise Price shall be payable only by delivery of all of the Holder's shares of common stock of TWC Acquisition Corp., a Delaware corporation, which for purposes of this Warrant shall be valued at $64.50 per share, together with undated stock powers duly executed in blank, or the cash proceeds thereof. The Company shall within 20 days of its receipt of a conforming Exercise Notice cause to be issued in the name of and delivered to such Holder, or as the Holder may direct, a certificate or certificates representing the aggregate number of duly authorized, validly issued, fully-paid and nonassessable shares of Common Stock issuable upon such exercise. The stock certificate or certificates for Warrant Stock so delivered shall be in such denominations as may be specified in said notice and shall be registered in the name of such Holder or such other name or names as shall be designated in said notice. Such certificate or certificates shall be deemed to have been issued and such Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares, with, to the extent permitted by law, the right to vote such shares or to consent or to receive notice as a stockholder, as of the time said notice is delivered to the Company as aforesaid. The Company shall pay all expenses and stock transfer taxes payable in connection with the preparation, issuance and delivery of stock certificates under this Section 2. All shares of Common Stock issuable upon the exercise of this Warrant shall be duly authorized, validly issued, fully paid and nonassessable, and free from all liens and other encumbrances thereon. The Company shall not issue certificates for fractional shares of Common Stock upon any exercise of this Warrant whenever, in order to implement the provisions of this Warrant, the issuance of such fractional shares is required. Instead, the Company shall pay cash in lieu of such fractional shares upon such exercise. Section 3. Transfer, Division and Combination. This Warrant and all rights hereunder are transferable, in whole but not in part, on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the office of the Company maintained for such purpose pursuant to Section 11, together with (a) a written assignment in the form set out at the end of this Warrant duly executed by the Holder hereof or its agent or attorney and (b) payment of funds sufficient to pay any stock transfer taxes payable upon the making of such transfer. Upon such surrender, execution and payment, the Company shall execute and deliver a new Warrant in the name of the assignee, and this Warrant shall promptly be canceled. If this Warrant is assigned in blank, the Company may (but shall not be obliged to) treat the bearer hereof as the absolute owner of this Warrant for all purposes and the Company shall not be affected by any notice to the contrary. This Warrant, if properly assigned in compliance with this Section 3, may be exercised by an assignee for the purchase of shares of Common Stock without having a new Warrant issued. The Company shall pay all expenses other than stock transfer taxes incurred by the Company in the performance of its obligations in connection with the preparation, issuance and delivery of Warrants under this Section 3. The Company agrees to maintain at its aforesaid office books for the registration and transfer of the Warrants. Section 4. Adjustment of Stock Unit or Exercise Price. The number of shares of Common Stock comprising a Stock Unit, and the Exercise Price per Stock Unit, shall be subject to adjustment from time to time as set forth in this Section 4 and in Section 5. 4.1. Stock Dividends, Subdivisions and Combinations. In case at any time or from time to time the Company shall: (a) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Common Stock, or (b) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or (c) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the number of shares of Common Stock comprising a Stock Unit immediately after the happening of any such event shall be adjusted so as to consist of the number of shares of Common Stock which a record holder of the number of shares of Common Stock comprising a Stock Unit immediately prior to the happening of such event would own or be entitled to receive after the happening of such event. 4.2. Other Provisions Applicable to Adjustments. The following provisions shall be applicable to the adjustment of the number of shares of Common Stock comprising a Stock Unit hereinbefore provided for in this Section 4: (a) When Adjustments to Be Made. The adjustments required by Section 4.1 shall be made whenever and as often as any specified event requiring an adjustment shall occur. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence. (b) Fractional Interests. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest one-thousandth of a share. (c) When Adjustment Not Required. If the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution and shall, thereafter and before the distribution thereof to shareholders, abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled. 4.3. Merger, Consolidation, Etc. In case the Company shall (a) merge into or consolidate with another Person and shall not be the continuing or surviving Person of such merger or consolidation, (b) shall permit any other Person to merge into or consolidate with the Company and the Company shall be the continuing or surviving Person, but, in connection with such merger or consolidation, the Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other any other property, (c) shall sell, transfer or otherwise dispose of all or substantially all of its property, assets or business to another Person or (d) effect a capital reorganization or reclassification of the Common Stock (other than a capital reorganization or reclassification for which an adjustment is provided by Section 4.1) and pursuant to the terms of such merger, consolidation, disposition, capital reorganization or reclassification, shares of common stock of a successor or acquiring Person are to be received by or distributed to the holders of Common Stock of the Company, then each holder of a Warrant shall have the right thereafter to receive, upon exercise of such Warrant, Stock Units each comprising the number of shares of common stock of such successor or acquiring Person receivable upon or as a result of such merger, consolidation, disposition, capital reorganization or reclassification by a holder of the number of shares of Common Stock comprising a Stock Unit immediately prior to such event. If,pursuant to the terms of such merger, consolidation, disposition, capital reorganization or reclassification, any cash, shares of stock, other securities or property or warrants or other subscription or purchase rights or property of any nature whatsoever are to be received by or distributed to the holders of Common Stock of the Company, then, at the Holder's option, either (i)there shall be a reduction of the Exercise Price equal to the amount applicable to the number of shares of Common Stock then comprising a Stock Unit of any such cash and of the fair value of any and all such shares of stock or of other securities or property to be received by or distributed to the holders of Common Stock of the Company, or (ii) such Holder shall have the right to receive, upon exercise of its Warrant, such cash, shares of stock or other securities or property of any nature as a holder of the number of shares of Common Stock underlying a Stock Unit would have been entitled to receive upon the occurrence of such event. Such fair value shall be determined in good faith by the Board of Directors of the Company. In case of any such merger, consolidation, disposition, capital reorganization or reclassification, the successor or acquiring Person shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all of the obligations and liabilities hereunder, subject to such modification as shall be necessary to provide for adjustments of Stock Units which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 4. For the purposes of this Section 4 "common stock of the successor or acquiring Person" shall include stock of such corporation of any class, that is not preferred as to dividends or assets over any other class of stock of such corporation and that is not subject to redemption, and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event, and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.3 shall similarly apply to successive mergers, consolidations, dispositions, capital reorganizations or reclassifications. 4.4 No Impairment. The Company will not, by amendment of its certificate of incorporation or through a consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against impairment. Without limiting the generality of the foregoing, the Company will not permit the par value of any shares of stock receivable upon the exercise of this Warrant to exceed the amount payable therefor upon such exercise, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock on the exercise of the Warrants from time to time outstanding, and (c) will not take any action that results in any adjustment of the Exercise Price if the total number of shares of Common Stock (or other securities) issuable after the action upon exercise of all of the Warrants would exceed the total number of shares of Common Stock (or other securities) then authorized by the Company's certificate of incorporation and available for the purpose of issue upon such exercise. Section 5. Notice to Warrant Holders of Adjustment of Stock Unit or Exercise Price. Whenever the number of shares of Common Stock comprising a Stock Unit, or the price at which a Stock Unit may be purchased upon exercise of the Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith issue a notice setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated (including a statement of the fair value, as determined by the Board of Directors of the Company, of any evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights or property of any nature whatsoever referred to in Section 4.3) and specifying the number of shares of Common Stock comprising a Stock Unit and (if such adjustment was made pursuant to Section 4.3) describing the number and kind of any other shares of stock comprising a Stock Unit, and any change in the purchase price or prices thereof, after giving effect to such adjustment or change. The Company shall within 30 days after the making of such adjustment send such notice to the Holder in accordance with Section 12. Section 6. Reservation and Authorization of Common Stock. The Company shall at all times reserve and keep available solely for issuance upon the exercise of Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of this Warrant. All shares of Common Stock which shall be so issuable, when issued upon exercise of this Warrant or upon such exercise, as the case may be, shall be duly and validly authorized and issued, fully-paid and nonassessable. Section 7. Taking of Record; Stock and Warrant Transfer Books. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 which refers to the taking of a record of such holders, the Company will in each such case take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up or as otherwise may be required by law, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. Section 8. Limitation of Liability. No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of the Warrant Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. Section 9. Loss or Destruction of Warrant Certificates. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security in an amount reasonably satisfactory to the Company (the original Holder's or any other institutional Holder's indemnity being satisfactory indemnity in the event of loss, theft or destruction of any Warrant owned by such institutional Holder), or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company will at its own expense execute and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of shares of Warrant Stock. Section 10. Amendments. The terms of this Warrant may be amended, and the observance of any term therein may be waived, but only with the written consent of the Holder. Section 11. Office of the Company. So long as this Warrant remains outstanding, the Company shall maintain an office where the Warrant may be presented for exercise, transfer, division or combination as in this Warrant provided. Such office shall be at Big Dog Holdings, Inc., 121 Gray Avenue, Suite 300, Santa Barbara, California 93101, Attention: General Counsel, Fax: (805) 962-9460, unless and until the Company shall designate and maintain some other office for such purposes and deliver written notice thereof to the Holder. Section 12. Notices Generally. 12.1. All communications (including all required or permitted notices) pursuant to the provisions hereof shall be in writing and shall be sent, to any registered Holder of this Warrant, to the address of such Holder as it appears in the stock or warrant ledger of the Company or at such other address as such Holder may have furnished in writing to the Company. 12.2. Any notice shall be deemed to have been duly delivered when delivered by hand, if personally delivered, and if sent by mail to a party whose address is in the same country as the sender, five Business Days after being deposited in the mail, postage prepaid, and if sent by recognized international courier, freight prepaid, with a copy sent by telecopier, to a party whose address is not in the same country as the sender, three Business Days after the later of (a) being telecopied and (b) delivery to such courier. Section 13. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California (without regard to the conflicts of laws provisions thereof). IN WITNESS WHEREOF, the Company has caused this Warrant to be executed in its name by its duly authorized officer. Dated as of: March 3, 2004 BIG DOG HOLDINGS, INC., a Delaware corporation By /s/ Andrew D. Feshbach ---------------------- Title: President EXHIBIT A EXERCISE NOTICE Warrant No. JSCS-1 To Big Dog Holdings, Inc.: The undersigned registered owner of this Warrant to Purchase Common Stock of Big Dog Holdings, Inc. dated March 3, 2004 (this "Warrant") irrevocably exercises this Warrant for and purchases ________ Stock Units of Big Dog Holdings, Inc., a Delaware corporation, purchasable with this Warrant, and hereby tenders _____________ shares of TWC Acquisition Corp. common stock as payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased be issued in the name of and delivered to _________________________ whose address is_____ _________________________________________. .. The undersigned registered owner of this Warrant hereby certifies that it is not an "underwriter" as that term is defined in Section 1145(b) of the United States Bankruptcy Code, and indemnifies and holds Big Dog Holdings, Inc. harmless against any liability, loss or expenses (including, without limitation, reasonable attorneys' fees) incurred or suffered by it arising out of the inaccuracy of this certification. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in this Warrant. Dated:______________, 2004 RETAIL & RESTAURANT GROWTH CAPITAL, L.P. By________________________ Title:____________________ EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant: Name and Address of Assignee ---------------------------- and does hereby irrevocably constitute and appoint____________________Attorney to make sure transfer occurs on the books of Big Dog Holdings, Inc., a Delaware corporation, maintained for the purpose, with full power of substitution in the premises. Dated: ___________________________ Signature ___________________________ Witness NOTICE: The signature to the assignment must correspond with the name as written upon the face of the Warrant in every particular instance, without alteration or enlargement or any change whatsoever. The signature to this assignment must be guaranteed by a bank or trust company having an office or correspondent in New York, New York or by a firm having membership on the New York Stock Exchange. SCHEDULE The following persons received substantially identical Warrants for the number of Stock Units set forth opposite their names: ----------------------------------------------------------- ----------------------- NAME STOCK UNITS ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Stratford Capital Partners, L.P. 55,188 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Provender Opportunities Fund, L.P. 3,262 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Cornerstone Equity Investors IV, L.P. 11,194 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Jim Argyropolous 10,349 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Harry Adler 1,497 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Greg Milne 148 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Dan Zukerman 148 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Steve Nessim 148 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Pinney Family Trust 311 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Appleton Family Trust 252 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Robert Taicher 682 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Giles Bateman 118 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Herbert Simon 3,914 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Montesano Family Trust 3,914 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Perlman Family Trust 1,304 ----------------------------------------------------------- ----------------------- ----------------------------------------------------------- ----------------------- Trent and Merilyn Merrill Trust dated 1/29/90 652 ----------------------------------------------------------- -----------------------
EX-4.1 9 exhibit4-1.txt EXHIBIT 4.1 EXHIBIT 4.1 Big Dog Holdings, Inc. - $3,000,000 Revolving Note - March 1, 2004 REVOLVING PROMISSORY NOTE VARIABLE RATE OF INTEREST $3,000,000.00 March 1, 2004 FOR VALUE RECEIVED, the undersigned unconditionally promises to pay on March 1, 2006, to the order of ISRAEL DISCOUNT BANK OF NEW YORK (hereinafter the "Bank"), at the Bank's office at 9401 Wilshire Blvd., Suite 600, Beverly Hills, California 90212, or at any other place designated in writing by the undersigned hereof, the principal amount of Three Million Dollar and No Cents (US$3,000,000.00) or, so much thereof as is advanced (the "Advances") and remains outstanding hereunder on the date due, together with interest thereon at the times and rates specified herein. All advances and payments made in connection with this Note may be recorded from time to time by the Bank on the reverse side hereof, on an attachment hereto or in its general business records. Each such record of any advance hereunder shall be presumptive evidence that the advance was made by the Bank to the undersigned. The principal sum of each advance made hereunder, as the case may be, shall bear interest from the date made until paid in full, at a fluctuating rate per annum equal to One ( 1.00 %) percent above the Prime Rate of the Bank and which shall change when and as the Prime Rate changes, calculated on the basis of a 360-day year and actual number of days elapsed (but in no event in excess of the maximum rate permitted by applicable law). "Prime Rate" shall mean the rate which the Bank announces from time to time as its prime lending rate, in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest, the best or a favored rate actually charged to any customer. Any change in such rate of interest shall be effective as of the opening of business on the date the change in the prime loan rate of the Bank occurs, without prior notice to the undersigned. Such interest is to be payable monthly commencing April 1, 2004, and continuing on the same day of each month until maturity date. The Prime Rate of the Bank in effect on the date of this Note is four percent (4.00%) per annum. All payments hereunder shall be made in lawful money of the United States and in immediately available funds. Any extension of time for the payment of the interest or principal of this Note resulting from the due date falling on a Saturday, Sunday or legal holiday shall be included in the computation of interest. Interest from and after maturity (whether as originally stated or by acceleration) shall be at the rate per annum equal to 5% above the rate charged hereunder on the date of such maturity or renewal or demand or if such rate shall not be lawful with respect to the undersigned, at the highest lawful rate then in effect. Any interest not paid when due hereunder shall be added to the principal amount of this Note and shall bear interest from its due date at the applicable interest rate specified herein. The undersigned shall give the Bank telephonic or fax notice of each requested Advance to be made under this Note by at least one o'clock p.m., Pacific Standard Time, on the date of borrowing, to be followed by prompt written confirmation thereof delivered to the Bank, which notice shall specify the date of borrowing and the principal amount thereof. The Bank shall be entitled to rely upon any such telephonic notice and the undersigned hereby agrees to indemnify the Bank against any claims, liabilities, losses and expenses ensuing from such reliance. This note evidences a revolving line of credit. Subject to the terms and conditions hereof and the terms and conditions set forth in the Bank's letter dated February 23, 2004, to the undersigned (as attached), and any agreement in writing between the Bank and the undersigned, the undersigned may borrow, repay in whole or in part, and reborrow on a revolving basis, up to the maximum amount of this Note. If any amount payable on this Note shall not be paid when due, THEN this Note and the principal of and accrued interest on each Advance evidenced hereby shall, unless the Bank shall otherwise elect, become forthwith due and payable in full, without protest, presentment, notice or demand, all of which are expressly waived by the undersigned. The undersigned and its subsidiaries, represent and warrant that: (1) Event of Default (as hereinafter defined) has occurred and no event has occurred which, with the giving of notice or the lapse of time or both, would constitute an Event of Default; (2) the undersigned shall not use any part of the proceeds of any Advance made hereunder to purchase or carry any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or to extend credit to others for the purpose of purchasing or carrying any margin stock; and (3) on the occasion of each Advance hereunder all representations and warranties contained herein or otherwise made in writing in connection herewith shall be true and correct and with the same force and effect as though such representations and warranties had been made on and as of the date of the making of each such Advance. Upon the occurrence of any of the following specified events of default (each an "Event of Default"): (l) default by the undersigned in making any payment of principal, interest, or any other amount payable under this Note when due; or (2) default by the undersigned and any of its subsidiaries, in the due payment of any indebtedness for borrowed money or in the observance or performance of any covenant or condition contained in any agreement or instrument evidencing, securing, or relating to any such indebtedness, and continuance of any such default for a period sufficient to cause or permit the acceleration of the maturity thereof; or (3) default in the observance or performance of any other agreement of the undersigned set forth herein and continuance of any such default for thirty (30) days after notice thereof to the undersigned; or (4) any representation or warranty made by the undersigned herein or in any certificate furnished by the undersigned pursuant to the provisions hereof, proves untrue in any material respect; (5) the undersigned or any of its subsidiaries becomes insolvent or bankrupt, is generally not paying its debts as they become due, or makes an assignment for the benefit of creditors, or a trustee or receiver is appointed for the undersigned or for the greater part of the properties of the undersigned with the consent of the undersigned, or if appointed without the consent of the undersigned, such Trustee or Receiver is not discharged within thirty (30) days, or bankruptcy, reorganization, liquidation or similar proceedings are instituted by or against the undersigned under the laws of any jurisdiction, and if instituted against the undersigned are consented to by it or remain undismissed for thirty (30) days, or a writ or warrant of attachment or similar process shall be issued against a substantial part of the property of the undersigned and shall not be released or bonded within thirty (30) days after levy; then, in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the principal and the accrued interest in respect of each Advance under this Note shall become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the undersigned. The Bank may assign, transfer and/or deliver to any transferee this Note. No delay on the part of the Bank in exercising any power or right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any power or right hereunder preclude other or further exercise thereof or the exercise of any other power or right. The rights, remedies, and benefits herein expressly specified are cumulative and not exclusive of any rights, remedies or benefits which the Bank may otherwise have. The undersigned hereby waives demand, presentment, notice of dishonor and protest of all instruments included in or evidencing the Note and any and all other notices and demands whatsoever, whether or not relating to any such instrument. THE UNDERSIGNED IN ANY LITIGATION (WHETHER OR NOT ARISING OUT OF OR RELATING TO THIS NOTE OR ANY OTHER LIABILITIES) IN WHICH THE UNDERSIGNED AND THE BANK SHALL BE ADVERSE PARTIES, HEREBY WAIVES THE RIGHT TO TRIAL BY JURY AND THE RIGHT TO INTERPOSE ANY DEFENSE, SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION. No provision hereof shall be modified or limited except by a written instrument signed by the Bank expressly referring hereto and to the provision so modified or limited. The undersigned, if more than one, shall be jointly and severally liable hereunder and all provisions hereof regarding the Note of the undersigned shall apply to any Note of any or all of them. This Note and the provisions hereof are to be binding upon the heirs, executors, administrators, assigns or successors of the undersigned; they shall continue in force and effect notwithstanding any change in any partnership party hereto, whether such change occurs through death, retirement or otherwise. The undersigned hereby consents to the in personam jurisdiction of any state or federal court sitting in the County of Los Angeles, State of California, in connection with any claim arising with respect to this Note or any of the liabilities. In the event any such action is commenced in any such court, service of process may be made on the undersigned by mailing a copy thereof to it at the address then reflected in the Bank's records. This Note and the provisions hereof are to be construed according to and governed by the laws of the State of California. BIG DOG HOLDINGS, INC., a Delaware Corporation ("Borrower") By: Name: Title: DUE: March 1, 2006 Accepted by: ISRAEL DISCOUNT BANK OF NEW YORK ("Bank" or "Lender") By: Name: Title: By: Name: Title: EX-2.2 10 exhibit2-2.txt EXHIBIT 2.2 EXHIBIT 2.2 RON BENDER (SBN 143364) MONICA Y. KIM (SBN 180139) JACQUELINE L. RODRIGUEZ (SBN 198838) LEVENE, NEALE, BENDER, RANKIN & BRILL L.L.P. 1801 Avenue of the Stars, Suite 1120 Los Angeles, California 90067 Telephone: (310) 229-1234 Facsimile: (310) 229-1244 Attorneys for Chapter 11 Debtors and Plan Proponents UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA SAN FERNANDO VALLEY DIVISION In re )CASE)NO.SV 03-15880-GM ) THE WALKING COMPANY, a )Jointly Administered With Case California corporation, No. SV 03-15932-GM and ALAN'S SHOES, INC., an Arizona )Chapter 11 corporation, )ORDER CONFIRMING DEBTORS' Debtors. )SECOND AMENDED PLAN OF )REORGANIZATION _ Affects The Walking Company Only )Plan Confirmation Hearing: -------------------------- - Affects Alan's Shoes, Inc. Only )Date: March 1, 2004 )Time: 9:00 a.m. X_ Affects Both Debtors )Place: Courtroom "303" 21041 Burbank Blvd. Woodland Hills, CA - ---------------------------------------------------------- A hearing was held on March 1, 2004, at 9:00 a.m., for the Bankruptcy Court to consider the confirmation of the Second Amended Plan of Reorganization (the "Plan") proposed by The Walking Company and Alan's Shoes, Inc.(collectively, the "Debtors"). Appearances were made as set forth on the record of the Bankruptcy Court.The Bankruptcy Court, having considered the Plan, the voting on the Plan, the complete record in these cases, the statements, arguments and representations of the parties made at the Plan confirmation hearing, and the Bankruptcy Court having determined that proper notice of the Plan and the Plan confirmation hearing was given and that all objections to Plan confirmation were either withdrawn or overruled, and good cause appearing therefore, THE BANKRUPTCY COURT HEREBY FINDS AS FOLLOWS: 1. Each and every requirement of Sections 1122(a) and 1123(a) of the Bankruptcy Code has been satisfied. 2. Each and every requirement of Sections 1125 and 1126 of the Bankruptcy Code has been satisfied. 3. The Plan, as modified, complies with Section 1127(a) and Bankruptcy Rule 3019. 4. Each and every requirement of Section 1129(a) of the Bankruptcy Code necessary for Plan confirmation has been satisfied except for Section 1129(a)(8) of the Bankruptcy Code with respect to class 20 (general unsecured creditors) in the event that class 20 is deemed to reject the Plan and with respect to class 21 (interest holders). 5. Even if Shoes.Com, Inc. ("SCI") is provided a class 20 allowed claim in an amount that would cause class 20 to be deemed, as a class, to have voted to reject the Plan if SCI voted its class 20 allowed claim to reject the Plan, each and every requirement of Section 1129(b) of the Bankruptcy Code necessary for Plan confirmation over the dissenting vote of class 20 has been satisfied because the Plan does not discriminate unfairly against, and is fair and equitable with respect to, class 20 and because no holder of any claim or interest that is junior to class 20 claims will receive or retain any property under the Plan on account of such junior claim or interest. 6. Each and every requirement of Section 1129(b) of the Bankruptcy Code necessary for Plan confirmation over the dissenting vote of class 21 (Interest holders) has been satisfied because the Plan does not discriminate unfairly against, and is fair and equitable with respect to, class 21 (interest holders). 7. The Debtors and the Reorganized Debtor have demonstrated, either through evidence satisfactory to the Bankruptcy Court or through separate agreements with affected landlords, adequate assurance of future performance of all Assumed Contracts and Leases. BASED UPON ALL OF THE FOREGOING, IT IS HEREBY ORDERED AS FOLLOWS: 1. The Plan, a copy of which is attached hereto as Exhibit "A", is confirmed pursuant to Sections 1129(a) and 1129(b) of the Bankruptcy Code. 2. All of the modifications to the Plan are approved. 3. All terms which are not defined in this Order shall have the definitions assigned to such terms in the Plan unless such terms are defined in the Disclosure Statement and not in the Plan in which case such terms shall have the definitions assigned to such terms in the Disclosure Statement. 4. The effective date of the Plan (the "Effective Date") shall be the first business day following the date of entry of this Order. On the Effective Date, TWC Acquisition Corp. (the "Reorganized Debtor"), a subsidiary Delaware corporation formed by Big Dogs Holdings, Inc. ("BDH"), will acquire all of the assets of the Debtors (excluding the Lease Sale Proceeds, the Class Action Recovery Funds, the Class Action Suit, and the $610,000 SCI Stock Proceeds) free and clear of all rights, claims, liens, encumbrances and interests of the Debtors, their bankruptcy estates, all creditors and interest holders, except as otherwise provided for in the Plan. From and after the Effective Date, the Reorganized Debtor shall own and operate such assets without further supervision by or jurisdiction of the Bankruptcy Court. 5. On or as soon as practicable after the Effective Date: a. LNBRB shall turn over the $610,000 of SCI Stock Proceeds to the Reorganized Debtor which shall distribute this sum to the $2.5 Million Junior Secured Creditors on a pro rata basis based on the allowed amount of their respective secured claims against the Debtors as set forth in Exhibit "1" to the Plan. b. The Reorganized Debtor shall issue the Junior Secured Creditors Stock to the Junior Secured Creditors on a pro rata basis based on the allowed amount of their respective secured claims against the Debtors as set forth in Exhibit "1" to the Plan. c. The Reorganized Debtor shall issue the Intercompany Note to BDH in form attached as Exhibit "2' to the Plan. d. The Reorganized Debtor shall distribute the Junior Secured Creditors New Money Contribution to all of the Junior Secured Creditors in accordance with Exhibit "1" to the Plan. e. The Reorganized Debtor shall distribute the Junior Secured Creditors Promissory Notes in the form attached as Exhibit "10" to the Plan and in accordance with Exhibit "1" to the Plan. f. The Reorganized Debtor shall issue the First Unsecured Creditors Promissory Note in the form attached as Exhibit "6" to the Plan and the Second Unsecured Creditors Promissory Note in the form attached as Exhibit "8" to the Plan to the Post-Confirmation Creditors Committee. g. The Reorganized Debtor shall pay $510,000 to FocalPoint in full, complete and final satisfaction of all claims of FocalPoint. h. The Reorganized Debtor shall pay $60,000 to Jim Argyropoulos in full, complete and final satisfaction of his claim for actual out-of-pocket expenses incurred in connection with the Original Plan as provided by the Bankruptcy Court. i. LNBRB shall turn over to the Reorganized Debtor the $41,985 of Lease Sale Proceeds and any Class Action Recovery Funds currently being held by LNBRB, which the Reorganized Debtor shall maintain in a segregated account for the benefit of holders of class 20 allowed claims until the Reorganized Debtor distributes such funds to the holders of class 20 allowed claims. 6. On the Effective Date, the Reorganized Debtor shall pay the Unsecured Creditors New Money Contribution into a segregated account maintained by LNBRB (the "Walking Company Trust Account"). 7. On the Effective Date, the Reorganized Debtor shall pay $600,000 of the New Money Contribution into the Professional Fee Account maintained by LNBRB. 8. The Reorganized Debtor shall pay all undisputed amounts needed to cure any delinquencies in connection with the assumption and assignment of any unexpired leases or executory contracts set forth in Exhibit "B" to this Order within five (5) days of the Effective Date and will deposit all disputed amounts into a segregated account for the benefit of such other parties to such leases and executory contracts free and clear of any liens of Wells or the Junior Secured Creditors Lien pending an agreement between the Reorganized Debtor and such other parties to such leases and executory contracts or the entry of a Bankruptcy Court order resolving such disputed amounts. 9. Within five business days following the Effective Date, the Reorganized Debtor shall cause the release and expungement of all undisputed mechanics liens relating to the Assumed Contracts and Leases by way of satisfaction or otherwise. If the Reorganized Debt or disputes the amount of any mechanics lien, the Reorganized Debtor shall record a mechanics lien release bond or provide other security sufficient to obtain the release of the landlord's real property and the leasehold interest from the lien under applicable state law within seven business days following the Effective Date. 10. The Reorganized Debtor shall not be required to pay more than $600,000 on account of the allowed fees and expenses of the professionals which have been employed in these cases, exclusive of any fees and expenses to be paid to FocalPoint. To the extent the allowed fees and expenses of the professionals who have been employed in these cases exclusive of FocalPoint exceed $600,000 (after taking into account pre-petition retainers paid and the $750,000 which has been disbursed to such professionals from the Professional Fee Account), the difference will be paid out of the Unsecured Creditors New Money Contribution. LNBRB will cause all allowed professional fees and expenses to be paid out of the $1,035,000 (comprised of the $600,000 designated for allowed professional fees and expenses plus the $435,000 Unsecured Creditors New Money Contribution) to be paid into the Professional Fee Account and the Walking Company Trust Account by the Reorganized Debtor on the Effective Date. After LNBRB has caused all allowed professional fees and expenses to be paid out of the $1,035,000 to be paid into the Professional Fee Account and the Walking Company Trust Account by the Reorganized Debtor on the Effective Date, LNBRB will turn over the remaining balance to the Reorganized Debtor who will hold such funds in a segregated interest bearing account for the benefit of the holders of class 20 allowed claims until the Reorganized Debtor distributes such funds to the holders of class 20 allowed claims. 11. All allowed administrative claims (i.e., post-bankruptcy claims including outstanding professional fees and expenses and any fees and expenses owing to the Bankruptcy Court and the Office of the United States Trustee) which were incurred by the Debtors or allowed by Bankruptcy Court order will either be assumed by the Reorganized Debtor and paid in the ordinary course of the Reorganized Debtor's business or paid by the Reorganized Debtor when allowed by Bankruptcy Court order, except allowed fees and expenses of professionals which have been employed in the Debtors' Chapter 11 cases, exclusive of any fees and expenses of FocalPoint, which will be paid first out of the Professonal Fee Account and then, to the extent of any shortfall in the Professional Fee Account, out of the Walking Company Trust Account in the amounts allowed by the Bankruptcy Court. As set forth in paragraph 5g. above, by agreement between BDH and FocalPoint, the Reorganized Debtor will pay the total sum of $510,000 to FocalPoint in full, complete and final satisfaction of all claims of FocalPoint. The Reorganized Debtor reserves all of its rights to object to any other administrative claim asserted against the Debtors. 12. The Reorganized Debtor will pay all allowed Section 507(a) (8) priority tax claims in full with interest at the rate of six (6) percent (6%) per annum over a period of six years from the date of assessment of such tax claims, with such payments to be made on an annual basis. The first payment on account of such priority tax claims shall be made within thirty days following the Effective Date. 13. The Reorganized Debtor will pay all allowed priority claims that are referred to in Bankruptcy Code Sections 507(a)(3), (4), (5), (6), and (7) in cash in full on the later of the Effective Date and the date the Bankruptcy Court enters an order allowing such priority claims. 14. On the Effective Date, all class 21 interests in the Debtors will be deemed cancelled, terminated, rejected and of no further force and effect and will no longer constitute an equity interest in the Debtors or the Reorganized Debtor without the need for either the Debtors or the class 21 interest holders to take any further action. Interest holders will not receive any distribution or retain any property under the Plan on account of their equity interests in the Debtors. 15. On or immediately after the Effective Date, the Reorganized Debtor will change its name to "The Walking Company" (or any other name selected by the Reorganized Debtor). 16. All other payments required to be made under the Plan (other than as set forth above with respect to exchange rights granted to the holders of the Junior Secured Creditors Stock, the Junior Secured Creditors Promissory Notes, the First Unsecured Creditors Promissory Note, and the Second Unsecured Creditors Promissory Note) will be funded through the business operations and working capital of the Reorganized Debtor, subject to the specific provisions of Paragraph 48. 17. On the Effective Date, the officers and directors of the Reorganized Debtor are authorized to execute and deliver all documents and agreements required for implementation of the Plan, including, without limitation, in connection with the Wells Post-Confirmation Financing agreements. 18. On the Effective Date, TWC and Alan's will be substantively consolidated. There will be no distinction between the treatment of TWC's creditors and Alan's creditors under the Plan. From and after the Effective Date, TWC and Alan's will cease to exist as a separate legal entities. 19. The management of the Reorganized Debtor and the members of the Reorganized Debtor's Board of Directors shall consist of Andrew Feshbach. The initial management of the Reorganized Debtor shall consist of Andrew Feshbach, CEO; Roberta Morris, CFO and Assistant Secretary; and Anthony Wall, Executive Vice President, General Counsel and Secretary. 20. The Reorganized Debtor shall serve as the disbursing agent for the purpose of making all distributions to the class 20 claim holders. The Reorganized Debtor shall only make distributions to or for the benefit of the class 20 claim holders upon receipt of a final, entered order of the Bankruptcy Court authorizing such distributions. LNBRB shall cause all allowed fees and expenses of the professionals employed in these cases (excluding FocalPoint) to be paid first out of the Professional Fee Account and then, to the extent of any shortfall in the Professional Fee Account, out of the Walking Company Trust Account. 21. On the Effective Date, all of the Debtors' executory contracts and unexpired leases attached as Exhibit "11" to the Plan (the "Assumed Contracts and Leases") shall be deemed assumed by the Debtors and assigned to the Reorganized Debtor effective as of the Effective Date. With respect to all of the Assumed Contracts and Leases, the Reorganized Debtor has (a) demonstrated that it will cure and has provided adequate assurance that the Reorganized Debtor will promptly cure any default existing under all such Assumed Contracts and Leases in the amounts set forth in Exhibit "B" hereto, (b) demonstrated that it will compensate or has provided adequate assurance that the Reorganized Debtor will promptly compensate any other party to such Assumed Contracts and Leases for any actual pecuniary loss to such parties resulting from any default existing under any such Assumed Contracts and Leases, and (c) provided adequate assurance of future performance under such Assumed Contracts and Leases. A supplemental schedule identifying those amounts payable to landlords on account of attorneys' fees under Bankruptcy Code Section 365(b)(1)(B) shall be filed separately. 22. All Assumed Contracts and Leases are subject to all applicable provisions thereof, unless modified or amended by written agreement between a particular landlord and the Reorganized Debtor. Specifically, but without limitation, the Reorganized Debtor agrees to maintain "The Walking Company" trade name and comply with all applicable use provisions of the Assumed Contracts and Leases. 23. The collateral provided to Wells in connection with any post-confirmation financing and the collateral provided to Junior Secured Creditors or other parties in interest shall not include any lien, pledge or leasehold mortgage against the Reorganized Debtor's interest in any of the real property leasehold interests included in the list of Assumed Contracts or Leases. 24. A status and scheduling hearing shall be held before the Bankruptcy Court on March 30, 2004 at 10:00 a.m. with respect to all unresolved disputed cure amounts. 25. A status and scheduling hearing shall be held before the Bankruptcy Court on March 30, 2004 at 10:00 a.m. with respect to all unresolved disputed mechanics liens which must be cured by the Reorganized Debtor. 26. All of the Debtors' remaining executory contracts and unexpired leases which are not included among the list of Assumed Contracts and Leases attached as Exhibit "11" to the Plan shall be deemed rejected effective as of 11:59 PST on the Effective Date. THE BAR DATE FOR FILING A PROOF OF CLAIM BASED ON A CLAIM ARISING FROM THE REJECTION OF AN UNEXPIRED LEASE OR EXECUTORY CONTRACT WHICH IS REJECTED ON THE EFFECTIVE DATE WILL BE THIRTY (30) DAYS AFTER THE EFFECTIVE DATE. Any claim based on the rejection of an unexpired lease or executory contract will be barred if the proof of claim is not timely filed, unless the Bankruptcy Court orders otherwise. In the event that any allowed class 20 claims arise as a result of the rejection of any of the Debtors' executory contracts and unexpired leases due to their not being included in the list of Assumed Contracts and Leases, the Reorganized Debtor will increase the principal amount of the First Unsecured Creditors Promissory Note on a proportional basis so that there is no dilutive effect to the holders of class 20 allowed claims resulting from the rejection of such executory contracts and unexpired leases. 27. With respect to any real property leases of the Debtors that the Reorganized Debtor elects not to take an assignment of (a "Rejected Property"), the Reorganized Debtor shall be entitled to continue in possession of the Rejected Property and operate therefrom for up to 30 days after the Effective Date (the "Exit Period") in order to close and exit the Rejected Property in an orderly fashion, to give advance notice to the store employees, and to remove store inventory, equipment and trade fixtures. The Reorganized Debtor shall have the right to remove all inventory, equipment and trade fixtures from a Rejected Property during the Exit Period free of any claim or lien of the landlord or other party. During the Exit Period, the Reorganized Debtor shall comply with all provisions of the applicable lease, including, without limitation, the payment of rent and expenses, the maintenance of insurance coverage, and provisions regarding use. At the end of such occupancy the Reorganized Debtor shall turn over possession of the Rejected Property to the landlord in broom-clean condition and repair any damage caused by the removal of equipment and trade fixtures all in accordance with the terms of the respective lease. The Bankruptcy Court shall retain jurisdiction to order the return of possession at the end of the Exit Period. 28. With respect to any executory contract or unexpired capital lease of the Debtors that the Reorganized Debtor elects not to take an assignment of (a "Rejected Contract"), the Reorganized Debtor shall have the same 30-day Exit Period to redeliver such equipment to the lessor, and during such Exit Period, the Reorganized Debtor shall pay all of the contractual rent due the respective lessor under the Rejected Contract until the redelivery of such equipment to the lessor, all in accordance with the terms of the respective Rejected Contract. 29. On the Effective Date, the Debtors shall deliver to the Reorganized Debtor (a) an executed Certificate of Amendment to its Articles of Incorporation changing its name to "Shoes Liquidation Co." in a form acceptable to the California Secretary of State and (b) an executed Certificate of Withdrawal from the State of Delaware surrendering its authority to transact business in Delaware in a form acceptable to the Delaware Secretary of State. Each of such documents shall be prepared by BDH, at BDH's expense, and delivered to the Debtors for signature at least one business day prior to the Effective Date. 30. As soon as practicable after the Effective Date, each of the Debtors shall deliver to the Reorganized Debtor the documents necessary to surrender its authority to transact business in each state in which it is currently qualified to do business. Each of such documents shall be prepared by BDH, at BDH's expenses, and delivered to the Debtors for signature prior to the Effective Date. 31. Pursuant to the Plan, the Plan Confirmation Order, and Section 1400 of the California Corporations Code, as applicable, the Debtors shall cease to exist as corporate entities and shall be deemed, as a matter of law, dissolved, as of the entry of the Final Decree. Notwithstanding the dissolution of the Debtors and consistent with Section 2010 of the California Corporations Code, the Debtors shall continue to exist for the purpose of winding up their affairs, and the officers of the Debtors in office on the Effective Date shall execute and deliver to the Reorganized Debtor such reasonable instruments and other documents which are prepared by BDH, at BDH's expense, and delivered to the Debtors prior to the Effective Date for the purpose of carrying out or evidencing any of the transactions contemplated by the Plan. 32. Confirmation of the Plan shall effect a tax-free reorganization under Internal Revenue Code SS 368(a)(1)(G). 33. Pursuant to section 1146(c) of the Bankruptcy Code, the transfer of property shall not be subject to any stamp tax, transfer tax or similar tax. 34. The various promissory notes, stock certificates, and other documents to be provided to holders of allowed claims under the Plan shall be in the place and stead of any certificated security or promissory note presently held by such creditors as evidence of such allowed claims and all such documents presently held by such creditors shall be deemed null and void as of the Effective Date. 35. After confirmation of the Plan and occurrence of the Effective Date, in addition to any jurisdiction which is provided to the Bankruptcy Court by the Bankruptcy Code, including, without limitation, Sections 105(a) and 1127 of the Bankruptcy Code, the Bankruptcy Court will retain such jurisdiction as is legally permissible including for those purposes set forth in the Plan. 36. Substantial consummation of the Plan, within the meaning of Section 1127 of the Bankruptcy Code, shall be deemed to have occurred after (i) all payments required to be made by the Reorganized Debtor on the Effective Date have been paid, (ii) all payments required to be made by the Reorganized Debtor as set forth in paragraph 5 above have been paid, and (iii) all documents and instruments required to be delivered under paragraph 5 above have been delivered. 37. The provisions of Bankruptcy Rule 7062 and Rule 62(a) of the Federal Rules of Civil Procedure shall not apply to this Order and the Debtors are authorized to consummate the Plan upon the entry of this Order. 38. The Post-Confirmation Committee shall be comprised of those members of the Creditors Committee who wish to serve on the Post-Confirmation Committee. The Post-Confirmation Committee shall have the right to retain such professionals that they deem necessary to effectuate the purposes and intent of the Plan and to pay or cause the Reorganized Debtor to pay the fees and expenses of such professionals out of the funds designated to be paid to the class 20 claim holders without any further order of the Bankruptcy Court. 39. The Post-Confirmation Committee shall remain in existence until such time as the final distribution is made to holders of class 20 allowed claims. The Post-Confirmation Committee shall have the powers and responsibilities, and the duties of the Post-Confirmation Committee shall be restricted to the matters, described in the Plan. 40. The Debtors will not receive a discharge under the Plan pursuant to and in accordance with the provisions of Section 1141 of the Bankruptcy Code because there has been a liquidation of all or substantially all of the property of the Debtors' estates and because the Debtors will not engage in business after the consummation of the Plan. 41. The Debtors may seek to modify the Plan at any time after confirmation of the Plan so long as (1) the Plan has not been substantially consummated and (2) the Bankruptcy Court authorizes the proposed modifications after notice and a hearing. 42. Until a final decree closing the Debtors' Chapter 11 cases is entered, the Post-Confirmation Committee shall file a quarterly status report with the Bankruptcy Court explaining what progress has been made toward consummation of the confirmed Plan and shall serve such status reports upon the Office of the United States Trustee, Debtors' counsel LNBRB, attn: Ron Bender, Esq., the Reorganized Debtors' counsel, Wolf, Rifkin, Shapiro & Schulman, LLP, 11400 W. Olympic Boulevard, 9th Floor, Los Angeles, California 90064, Attn. Simon Aron, Esq., and those parties who have requested special notice. 43. Once these estates have been fully administered as referred to in Bankruptcy Rule 3022, the Post-Confirmation Committee shall file a motion with the Bankruptcy Court to obtain a final decree to close these cases. The Reorganized Debtor shall be responsible for the timely payment of all fees incurred pursuant to 28 U.S.C. Section 1930(a)(6) until the entry of a final decree closing these cases. 44. The obligations to and the lien securing the Junior Secured Creditor Promissory Notes will at all times be junior and subordinate to the obligations to and lien of Wells or any other future replacement senior lender on terms acceptable to Wells or such future replacement senior lender, but will not be junior to any other liens. 45. In complete settlement, satisfaction and resolution of any and all claims or causes of action, subordination of claims, recharacterization of debt, or otherwise arising between the Creditors Committee and the Junior Secured Creditors, the Creditors Committee and the Junior Secured Creditors have agreed to allocate the additional consideration realized over the original stalking horse bid contained in the Original Plan as follows: seven percent (7%) to the general unsecured creditors and ninety-three percent (93%) to the Junior Secured Creditors. This allocation is binding upon all classes of creditors under this Plan and such allocation has already been taken into account with respect to the various treatment of creditors as described in the Plan. 46. Any conflict between the terms of this Order and the Plan shall be resolved in favor of this Order. 47. The bar date for creditors to assert an administrative claim against the Debtors or their estates is April 15, 2004. Any creditor who contends that it is entitled to an administrative claim against the Debtor or their estates must file a motion with the Bankruptcy Court asserting such administrative claim and set the motion for hearing. All motions for allowance of an administrative claim must be served upon the Office of the United States Trustee, Debtors' counsel LNBRB, attn: Ron Bender, Esq., the Reorganized Debtors' counsel, and Wolf, Rifkin, Shapiro & Schulman, LLP, 11400 W. Olympic Boulevard, 9th Floor, Los Angeles, California 90064, Attn. Simon Aron, Esq. Any creditor who fails to file a motion for allowance of an administrative claim by April 15, 2004 shall be permanently and forever barred from asserting any administrative claim against the Debtors or their estates. 48. Any allowed administrative priority claim arising as a result of the rejection of the executory contracts between TWC and SCI shall be paid in full in cash by the Reorganized Debtor upon allowance by the Bankruptcy Court of such administrative priority claim. Payment of any such allowed administrative priority claim shall be personally guaranteed up to the amount of $2.9 million by Andrew Feshbach and Fred Kayne, principals of BDH, and shall be subject to documentation reasonably acceptable to SCI and the Reorganized Debtor. 49. The Reorganized Debtor shall be prohibited from issuing any nonvoting equity securities, and, with respect to all classes of securities of the Reorganized Debtor which have voting power, there shall be an appropriate distribution of such power among such classes. 50. Rick Hettlinger and/or Steve Adler are hereby authorized and directed to execute the "State of Delaware Certificate of Withdrawal from the State of Delaware", the "Certificate of Amendment of Articles of Incorporation of The Walking Company" and the "Bill of Sale" presented to the Debtors by BDH without any further order of the Bankruptcy Court or any further approval of the Board of Directors of the Debtors. In addition, Mike Grenley is authorized and directed on behalf of the Debtors to execute any further documents necessary to give effect to this Order, including name change filings in each state in which the Debtors are qualified to do business, without further order of the Bankruptcy Court or any further approval of the Board of Directors of the Debtors. 51. The Post-Confirmation Committee shall not (a) be considered an "underwriter" for any purpose, including, without limitation, for purposes of Section 1145(b) of the Bankruptcy Code or (b) engage in activities that would constitute it as an "underwriter" under Section 1145(b) of the Bankruptcy Code, but instead the Post-Confirmation Committee shall be the nominee holder of the First Unsecured Creditors Note, and related Warrant and Put Option and Second Unsecured Creditors Note, and related Warrant and Put Option First Unsecured Creditors Note, and related Warrant and Put Option until such securities are actually distributed pursuant to the Plan to the Class 20 claim holders. 52. Andrew Feshbach and Fred Kayne, shareholders and directors of BDH (collectively, the "Put Guarantors"), shall jointly and severally guarantee the payment obligations of BDH and the Reorganized Debtor under the Put Options relating to the Junior Secured Creditors Promissory Notes, the First Unsecured Creditors Promissory Note and the Second Unsecured Creditors Promissory Note (the "Put Guaranty"). If the Put Guarantors make any payments under the Put Guaranty, then the Put Guarantors shall have the right to receive payment from BDH or the Reorganized Debtor, as applicable, to the extent of such payment by the Put Guarantors and the Put Guarantors shall be fully subrogated to, and shall be vested with, all of the applicable holder's rights, powers and remedies under its promissory note (to the extent of the put principal), the related Put Option and the Plan. 53. In addition to the findings of fact and conclusions of law contained herein, this Order is made and based upon and incorporates the oral statements made on the record at the hearing on confirmation of the Plan, including any clarification or interpretation regarding the Plan provisions and implementation thereof, including statements re finalization of Plan exhibits that may need further revision after entry of this Order. IT IS SO ORDERED: ----------------- Dated: March __, 2004 /s/ Geraldine Mund HONORABLE GERALDINE MUND UNITED STATES BANKRUPTCY JUDGE Presented By: ------------- LEVENE, NEALE, BENDER, RANKIN & BRILL L.L.P. By: /s/ Monica Kim -------------- RON BENDER MONICA Y. KIM Attorneys for Chapter 11 Debtors and Plan Proponents Approved And Agreed By: ---------------------- WOLF, RIFKIN, SHAPIRO & SCHULMAN, LLP By:/s/ Simon Aron -------------- SIMON ARON Attorneys for Big Dog Holdings, Inc., Andrew Feshbach and Fred Kayne EX-2.1 11 exhibit2-1.txt EXHIBIT 2.1 EXHIBIT 2.1 RON BENDER (SBN 143364) MONICA Y. KIM (SBN 180139) JACQUELINE L. RODRIGUEZ (SBN 198838) LEVENE, NEALE, BENDER, RANKIN & BRILL L.L.P. 1801 Avenue of the Stars, Suite 1120 Los Angeles, California 90067 Telephone: (310) 229-1234 Facsimile: (310) 229-1244 Attorneys for Chapter 11 Debtors and Plan Proponents UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA SAN FERNANDO VALLEY DIVISION In re ) CASE NO.SV 03-15880-GM THE WALKING COMPANY, a) Jointly Administered With Case California corporation, ) No. SV 03-15932-GM and ) ALAN'S SHOES, INC., an Arizona ) Chapter 11 corporation, ) ) DEBTORS' SECOND AMENDED PLAN OF REORGANIZATION Debtors. _ Affects The Walking Company Only Plan Confirmation Hearing: __________________________ _ Affects Alan's Shoes, Inc. Only Date: March 1, 2004 Time: 9:00 a.m. X_ Affects Both Debtors Place: Courtroom "303" 21041 Burbank Blvd. Woodland Hills, CA - ----------------------------------------) I. INTRODUCTION The Walking Company ("TWC"), a California corporation, and Alan's Shoes, Inc. ("Alan's"), an Arizona corporation (Alan's," and, with TWC, the "Debtors") are the Debtors in pending Chapter 11 bankruptcy cases. On July 14, 2003, TWC commenced its bankruptcy case by filing a Voluntary Petition under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. SS 101 et seq. (the "Bankruptcy Code"). On July 15, 2003, Alan's commenced its bankruptcy case by filing a Voluntary Petition under Chapter 11 of the Bankruptcy Code. Alan's is a wholly-owned subsidiary of TWC. The Debtors' Chapter 11 bankruptcy cases are pending before the United States Bankruptcy Court, Central District of California, San Fernando Valley Division (the "Bankruptcy Court"). This document is the Second Amended Plan of Reorganization ("Plan") that is being proposed by the Debtors. The Disclosure Statement ("Disclosure Statement") describing this Plan was approved by the Bankruptcy Court at a hearing on December 18, 2003. All terms which are not otherwise defined in this Plan shall have the same meaning as such terms are provided in the Disclosure Statement. Chapter 11 allows the Debtors, and, under some circumstances, creditors and other parties in interest, to propose a plan of reorganization. This Plan is a plan of reorganization which has been proposed by the Debtors. The effective date of this Plan (the "Effective Date") will be the first business day following the date of entry of the Bankruptcy Court order confirming this Plan (the "Plan Confirmation Order"). II. PLAN SUMMARY The following is a summary description of the modifications to the First Amended Plan of Reorganization (the "Original Plan") which are contained in this Plan. For a more detailed description of this Plan and the modifications to the Original Plan, you should read this Plan in its entirety. All terms which are not defined herein shall have the meanings assigned to those terms in the Original Plan and the Disclosure Statement. 1. On the Effective Date, TWC Acquisition Corp. (the "Reorganized Debtor"), a subsidiary Delaware corporation formed by Big Dogs Holdings, Inc. ("BDH"), will acquire all of the assets of the Debtors (excluding the Lease Sale Proceeds, the Class Action Recovery Funds, the Class Action Suit, and the $610,000 SCI Stock Proceeds) free and clear of all rights, claims, liens, encumbrances and interests of the Debtors, their bankruptcy estates, all creditors and interest holders, except as otherwise provided for in this Plan. The common stock of the Reorganized Debtor will be owned 90% by BDH and 10% by the Junior Secured Creditors. The 10% stock of the Reorganized Debtor which will be owned by the Junior Secured Creditors shall be referred to as the "Junior Secured Creditors Stock". The Junior Secured Creditors Stock shall be issued to the Junior Secured Creditors on a pro rata basis based on the allowed amount of their respective secured claims against the Debtors. 2. On the Effective Date, BDH will contribute $8.95 million (the "New Money Contribution") to the Reorganized Debtor. $6.45 million of the New Money Contribution will be in the form of equity and $2.5 million of the New Money Contribution will be in the form of subordinated debt which will bear interest at the rate of ten percent (10%) per annum, with all principal and interest subordinated to all debts of the Reorganized Debtor except to the extent otherwise agreed upon in writing by the affected debt holders. The amount of the New Money Contribution to be funded on the Effective Date will be reduced by all sums that BDH advances to the Debtors prior to the Effective Date for or on account of rent and other occupancy costs owed by the Debtors for the month of February, 2004. 3. BDH has requested Wells to provide the Reorganized Debtor with post-confirmation financing. If Wells agrees to do so upon terms which are mutually acceptable to Wells and to the Reorganized Debtor, Wells will be the Reorganized Debtor's post-confirmation lender. If Wells does not agree to do so upon terms which are mutually acceptable to Wells and to the Reorganized Debtor, the Reorganized Debtor will obtain a replacement lender and Wells will be paid in cash in full on the Effective Date. 4. On the Effective Date, the Reorganized Debtor will pay $1,265,000 of the New Money Contribution (the "Junior Secured Creditors New Money Contribution") to all of the Junior Secured Creditors (which is an increase of $465,000 over the $800,000 which was set forth in the Original Plan) on a pro rata basis based upon the allowed amount of their respective allowed secured claims remaining after distribution of the SCI Stock Proceeds. The balance of the allowed secured claims owing to the Junior Secured Creditors will be satisfied with promissory notes issued by the Reorganized Debtor to each of the Junior Secured Creditors in the form attached as Exhibit "10" to this Plan on a pro rata basis based upon the amount of their respective allowed secured claims against the Debtors (all such promissory notes shall collectively be referred to as the "Junior Secured Creditors Promissory Notes"). The aggregate principal amount of the Junior Secured Creditors Promissory Notes will be $3,279,000. The Junior Secured Creditors Promissory Notes will bear interest at the rate of 7% per annum. The Junior Secured Creditors Promissory Notes will have the following additional features: (i) interest will paid on the Junior Secured Creditors Promissory Notes on a quarterly basis, (ii)the Junior Secured Creditors Promissory Notes will have a term of six years and prepayments may be made without any penalty, and (iii) the following mandatory principal payments will be made: $550,000 at the end of each of years 2, 3, 4 and 5, and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. The Junior Secured Creditors Promissory Notes will be secured by a lien (the "Junior Secured Creditors Lien") against substantially all assets of the Reorganized Debtor (excluding real property leases). The obligations to and the lien securing the Junior Secured Creditor Promissory Notes will at all times be junior and subordinate to the obligations to and lien of Wells (if Wells provides the Reorganized Debtor with post-confirmation financing) or any other current replacement or future senior lender on terms acceptable to Wells or such other replacement lender, but will not be junior to any other liens. 5. On the Effective Date, the Reorganized Debtor will pay $435,000 of the New Money Contribution (the "Unsecured Creditors New Money Contribution") into the Professional Fee Account for the benefit of professionals to the extent their allowed fees and expenses exceed $600,000 and the balance for all holders of class 20 allowed claims (which is an increase by $35,000 from the $400,000 which was set forth in the Original Plan). In the event that the allowed professional fees and expenses beyond any pre-petition retainers paid and the $750,000 paid out of the Professional Fee Account as described in more detail in Section IV(B)(1)of the Disclosure Statement exceed $600,000 (excluding any fees and expenses owing to FocalPoint), such allowed professional fees and expenses will be paid first from this $435,000, and the remainder of this $435,000 will be paid pro-rata to all holders of class 20 allowed claims. Additionally, the Reorganized Debtor will issue two unsecured promissory notes for the benefit of all holders of class 20 allowed claims. The first such promissory note (the "First Unsecured Creditors Promissory Note") will have a principal amount of $700,000, will accrue interest at the rate of 7% per annum, and will have a term of five years. The First Unsecured Creditors Promissory Note will have the following additional features: (i) interest will be paid on a quarterly basis, (ii) prepayments may be made without penalty, and (iii) the following mandatory principal payments will be made: $100,000 at the end of both years 2 and 3 and $150,000 at the end of year 4, and the remaining principal balance of $350,000 and any unpaid interest will be due and payable at the end of the five-year term. The second such promissory note (the "Second Unsecured Creditors Promissory Note") will have a principal amount of $21,000, will bear interest at the rate of 7% per annum, and will have the following additional features: (i) interest will paid on the Second Unsecured Creditors Promissory Note on a quarterly basis, (ii) the Second Unsecured Creditors Promissory Note will have a term of six years and prepayments may be made without any penalty, and (iii) the entire principal balance of $21,000 and any unpaid interest will be due and payable at the end of the six-year term. All payments made on account of the First Unsecured Creditors Promissory Note and the Second Unsecured Creditors Promissory Note will be distributed by the Reorganized Debtor to all holders of class 20 allowed claims on a pro-rata basis. The obligations of the Reorganized Debtor under the First Unsecured Creditors Promissory Note and the Second Unsecured Creditors Promissory Note will at all times be junior and subordinate to the obligations to and lien of Wells (if Wells provides the Reorganized Debtor with post-confirmation financing) or any other current replacement or future senior lender and the obligations to and lien of the Junior Secured Creditors. 6. On the Effective Date, the Reorganized Debtor will pay $600,000 of the New Money Contribution into the Professional Fee Account maintained by LNBRB to be used to pay the allowed professional fees and expenses beyond those which have already been paid out of the Professional Fee Account and exclusive of any allowed fees and expenses owing to FocalPoint as ordered by the Bankruptcy Court. On the later of the Effective Date and the date such claims are allowed by the Bankruptcy Court, the Reorganized Debtor will also pay any allowed fees and expenses owing to FocalPoint, all allowed amounts needed to cure any delinquencies in connection with the assumption and assignment of any unexpired leases or executory contracts, and any allowed expense reimbursement of up to $60,000 to Jim Argyropoulos to reimburse him for his actual out-of-pocket expenses incurred in connection with the Original Plan as provided by the Bankruptcy Court. 7. The balance of the New Money Contribution remaining after the Effective Date cash payments which are required to be paid under this Plan will be deposited into the Reorganized Debtor's bank account and will constitute the Reorganized Debtor's initial working capital. 8. On or before June 30, 2004, each of the Junior Secured Creditors shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of their Junior Secured Creditors Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Junior Secured Creditors Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Junior Secured Creditors Promissory Note which is to be put to BDH. 9. On or before June 30, 2004, the unsecured creditors acting through the Post-Confirmation Committee shall have a one time right to (i) exchange all or any portion of the then unpaid principal balance of the First Unsecured Creditors Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 100% of the then outstanding principal balance of the First Unsecured Creditors Promissory Note to the Reorganized Debtor for cash equal to 80% of that portion of the principal balance of the First Unsecured Creditors Promissory Note which is to be put to the Reorganized Debtor. 10. On or before June 30, 2004, the unsecured creditors acting through the Post-Confirmation Committee shall have a one time right to (i) exchange all or a portion of then unpaid principal balance of the Second Unsecured Creditors Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 100% of the then outstanding principal balance of the Second Unsecured Creditors Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Second Unsecured Creditors Promissory Note which has been put to BDH. 11. On or before June 30, 2004, the then holders of Junior Secured Creditors Stock (based upon their individual pro rata share) shall each have a one time right to (i) exchange all such Junior Secured Creditors Stock for BDH common stock at an exchange price of $4.35 per share using the agreed upon value of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all such Junior Secured Creditors Stock to the Reorganized Debtor for cash using the agreed upon value of $645,000 for all of the Junior Secured Creditors Stock. 12. In addition to the foregoing, the Debtors' estate (or successor thereto) shall retain free and clear of any interests of BDH or the Reorganized Debtor (i) all proceeds received by the Debtors from the sale of the Debtors' leases which have already closed or close by the time of confirmation of this Plan (collectively, the "Lease Sale Proceeds"), and (ii) the right to pursue and retain any funds (the "Class Action Recovery Funds") recovered or to be recovered from Callahan, McCune & Willis or others in connection with the class action suit (the "Class Action Suit") that was previously filed against the Debtors and for which the Debtors made partial settlement payments prior to the Debtors' bankruptcy filings. The Reorganized Debtor will retain all other causes of action, including all avoidance causes of action (other than the Class Action Suit), and the Reorganized Debtor agrees that it will not pursue any such avoidance causes of action. 13. In connection with the rights granted to holders of the Junior Secured Creditors Promissory Notes, the Junior Secured Creditors Stock, the First Unsecured Creditors Promissory Note and the Second Unsecured Creditors Promissory Note to exchange their respective claims or interests for common stock of BDH, BDH will obtain on or before the Effective Date a reasoned legal opinion that such exchange rights and the BDH common stock issuable pursuant thereto may be offered and sold to such creditors without registration under the Securities Act of 1933 and such stock may be offered and sold by such creditors without registration under the Securities Act of 1933, assuming that none of such creditors is an "underwriter" as defined in Section 1145(b) of the Bankruptcy Code. 14. In complete settlement, satisfaction and resolution of any and all claims or causes of action regarding insiders, subordination of claims, recharacterization of debt, or otherwise arising between the Creditors Committee and the Junior Secured Creditors, the Creditors Committee and the Junior Secured Creditors have agreed to allocate the additional consideration realized over the original stalking horse bid contained in the Original Plan as follows: seven percent (7%) to the general unsecured creditors and ninety-three percent (93%) to the Junior Secured Creditors. This allocation is binding upon all classes of creditors under this Plan and such allocation has already been taken into account with respect to the various treatment of creditors as described above. III. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS A. What Creditors and Interest Holders Will Receive Under this Plan As required by the Bankruptcy Code, this Plan classifies claims and interests in various classes according to their right to priority. This Plan states whether each class of claims or interests is impaired or unimpaired. This Plan provides the treatment each class will receive. B. Unclassified Claims Certain types of claims are not placed into voting classes; instead they are unclassified. They are not considered impaired and they do not vote on this Plan because they are automatically entitled to specific treatment provided for them in the Bankruptcy Code. As such, the Debtors have not placed the following claims in a class. 1. Administrative Expenses Administrative expenses are claims for costs or expenses of administering the Debtors' Chapter 11 cases which are allowed under Bankruptcy Code Section 507(a)(1). The Bankruptcy Code requires that all administrative claims be paid on the Effective Date unless a particular claimant agrees to a different treatment. In accordance with the debtor-in-possession financing which was approved by the Bankruptcy Court, the Debtors made a weekly deposit into a professional fee account (the "Professional Fee Account"). The Professional Fee Account was maintained by LNBRB. Pursuant to an order of the Bankruptcy Court, the funds in the Professional Fee Account were disbursed by LNBRB monthly to all of the professionals employed in these cases (excluding FocalPoint and the Debtors' accountant) on a pro rata basis. Pursuant to the debtor-in-possession financing which was approved by the Bankruptcy Court, a total of $750,000 was funded into the Professional Fee Account and disbursed to the professionals. LNBRB made the first monthly disbursement on or about September 30, 2003, at which time LNBRB disbursed a total of $350,000 out of the Professional Fee Account for fees and expenses incurred through August 31, 2003 as follows: 1. LNBRB - $182,637.02 2. Renaissance Partners, L.C. - $13,129.18 3. Deloitte & Touche, LLP - $32,092.47 4. Kronish Lieb Weiner & Hellman LLP - $81,979.10 5. Klee, Tuchin, Bogdanoff & Stern LLP - $40,162.23 The foregoing five professionals had requested payment of a total of $420,867.94 for fees and expenses incurred through August 31, 2003 (after taking into account a 20% holdback for fees). LNBRB made the second monthly disbursement on or about October 31, 2003, at which time LNBRB disbursed a total of $150,000 out of the Professional Fee Account for fees and expenses incurred through September 30, 2003 as follows: 1. LNBRB - $81,688.56 2. Renaissance Partners, L.C. - $4,064.91 3. Deloitte & Touche, LLP - $9,578.62 4. Kronish Lieb Weiner & Hellman LLP - $37,622.78 5. Klee, Tuchin, Bogdanoff & Stern LLP - $17,045.13 The foregoing five professionals had requested payment of a total of $217,435.14 for fees and expenses incurred through September 30, 2003 (after taking into account a 20% holdback for fees). LNBRB made the third monthly disbursement on or about November 30, 2003, at which time LNBRB disbursed a total of $125,000 out of the Professional Fee Account for fees and expenses incurred through October 31, 2003 as follows: 1. LNBRB - $77,321.74 2. Renaissance Partners, L.C. - $6,834.12 3. Deloitte & Touche, LLP - $8,343.12 4. Kronish Lieb Weiner & Hellman LLP - $23,474.43 5. Klee, Tuchin, Bogdanoff & Stern LLP - $9,026.59 The foregoing five professionals had requested payment of a total of $213,672.44 for fees and expenses incurred through October 31, 2003 (after taking into account a 20% holdback for fees). LNBRB made the fourth monthly disbursement on or about December 30, 2003, at which time LNBRB disbursed a total of $125,000 out of the Professional Fee Account for fees and expenses incurred through November 30, 2003 as follows: 1. LNBRB - $90,558.11 2. Renaissance Partners, L.C. - $0 3. Deloitte & Touche, LLP - $14,697.99 4. Kronish Lieb Weiner & Hellman LLP - $14,809.47 5. Klee, Tuchin, Bogdanoff & Stern LLP - $4,934.43 The five professionals employed in these cases requested payment of a total of $136,672.88 for fees and expenses incurred through November 30, 2003 (after taking into account a 20% holdback for fees). The following chart lists all of the Debtors' projected outstanding and unpaid SS 507(a)(1) administrative claims and their treatment under this Plan. All of the figures set forth in the following chart represent the Debtors' estimate of the additional fees and expenses which will be owed by the Reorganized Debtor to such professionals after taking into account pre-petition retainers paid and the $750,000 which has been disbursed to such professionals from the Professional Fee Account. ==================================== ================================= ================================= Name Amount Owed Treatment ------------------------------------ --------------------------------- --------------------------------- ------------------------------------ --------------------------------- --------------------------------- Clerk's Office Fees $0 Paid in full on the Effective Date by the Reorganized Debtor ------------------------------------ --------------------------------- --------------------------------- Office of the U.S. Trustee $0 Paid in full on the Effective Fees Date by the Reorganized Debtor ------------------------------------ --------------------------------- --------------------------------- Kronish Lieb Weiner & Hellman LLP, $250,000 (est.) in excess of Paid in full out of the general counsel to the Committee fees and expenses paid during Professional Fee Account on the the Chapter 11 cases out of the later of the Effective Date and Professional Fee Account the date the Bankruptcy Court enters an order allowing such fees and expenses ------------------------------------ --------------------------------- --------------------------------- Klee, Tuchin, Bogdanoff & Stern $108,000 (est.) in excess of Paid in full out of the LLP, local counsel to the fees and expenses paid during Professional Fee Account on the Committee the Chapter 11 cases out of the later of the Effective Date and Professional Fee Account the date the Bankruptcy Court enters an order allowing such fees and expenses ------------------------------------ --------------------------------- --------------------------------- Deloitte & Touche, LLP, financial $85,000 (est.) in excess of Paid in full out of the advisor to the Committee fees and expenses paid during Professional Fee Account on the the Chapter 11 cases out of the later of the Effective Date and Professional Fee Account the date the Bankruptcy Court enters an order allowing such fees and expenses ------------------------------------ --------------------------------- --------------------------------- ------------------------------------ --------------------------------- --------------------------------- Levene, Neale, Bender, Rankin & $400,000 (est.) in excess of Paid in full out of the Brill L.L.P., bankruptcy counsel LNBRB's pre-petition retainer Professional Fee Account on the to the Debtors balance existing at the time of later of the Effective Date and the Debtors' bankruptcy filings the date the Bankruptcy Court and the fees and expenses paid enters an order allowing such during the Chapter 11 cases out fees and expenses of the Professional Fee Account ------------------------------------ --------------------------------- --------------------------------- ------------------------------------ --------------------------------- --------------------------------- Renaissance Partners, L.C., $80,000 (est.) in excess of Paid in full out of the financial advisors to the Debtor Renpar's pre-petition retainer Professional Fee Account on the balance existing at the time of later of the Effective Date and the Debtors' bankruptcy filings the date the Bankruptcy Court and the fees and expenses paid enters an order allowing such during the Chapter 11 cases out fees and expenses of the Professional Fee Account ==================================== ================================= ================================= ------------------------------------ --------------------------------- --------------------------------- David A. Stevens, accountant to $3,000 as the Debtors intend to Paid in full out of the the Debtors pay such fees and expenses as Professional Fee Account on the they are incurred in the later of the Effective Date and ordinary course of the Debtors' the date the Bankruptcy Court business enters an order allowing such fees and expenses ==================================== ================================= ================================= ------------------------------------ --------------------------------- --------------------------------- FocalPoint Partners, LLC - Unknown because it is based Paid in full by the Reorganized investment banker to the Debtors. upon the outcome of the final Debtor on the later of the transaction which consummates. Effective Date and the date the Bankruptcy Court enters an order allowing such fees and expenses. ==================================== ================================= ================================= ------------------------------------ --------------------------------- --------------------------------- Post-Petition Non-Professional Fee Accounts payable and other Assumed and paid in full by the Administrative Claims accrued expenses incurred in Reorganized Debtor in the the ordinary course of the ordinary course of the Debtors' business. Reorganized Debtor's business or following order of the Bankruptcy Court if a dispute exists between the Reorganized Debtor and the administrative claim holder ==================================== ================================= ================================= ------------------------------------ --------------------------------- --------------------------------- TOTAL $926,000 est. excluding any fee Paid in full in the manner owing to FocalPoint or to described above accounts payable assumed by the Reorganized Debtor ------------------------------------ --------------------------------- ---------------------------------
Bankruptcy Court Approval of Fees Required: ------------------------------------------- The Bankruptcy Court must approve all professional fees and expenses listed in this chart before they may be paid. For all professional fees and expenses except fees owing to the Clerk of the Bankruptcy Court and fees owing to the Office of the United States Trustee, the professional in question must file and serve a properly noticed fee application and the Bankruptcy Court must rule on the application. Only the amount of fees and expenses allowed by the Bankruptcy Court will be required to be paid under this Plan. The administrative claim amounts set forth above simply represent the Debtors' best estimate as to what the amount of allowed administrative claims will be in these cases. The actual administrative claims may be higher or lower. By voting to accept this Plan, creditors are not acknowledging the validity of, or consenting to the amount of, any of these administrative claims, and creditors are not waiving any of their rights to object to the allowance of any of these administrative claims. As described above, the Reorganized Debtor will not be required to pay more than $600,000 on account of the allowed fees and expenses of the professionals which have been employed in these cases, exclusive of any fees and expenses which the Bankruptcy Court awards to FocalPoint. To the extent the allowed fees and expenses of the professionals which have been employed in these cases exclusive of FocalPoint exceed $600,000 (after taking into account pre-petition retainers paid and the $750,000 which has been disbursed to such professionals from the Professional Fee Account), the difference will be paid out of the Unsecured Creditors New Money Contribution. LNBRB will cause all allowed professional fees and expenses to be paid out of the $1,035,000 to be paid into the Professional Fee Account by the Reorganized Debtor on the Effective Date (comprised of the $600,000 designated for allowed professional fees and expenses plus the $435,000 Unsecured Creditors New Money Contribution). After LNBRB has caused all allowed professional fees and expenses to be paid out of the $1,035,000 to be paid into the Professional Fee Account by the Reorganized Debtor on the Effective Date, LNBRB will turn over the remaining balance to the Reorganized Debtor who will hold such funds in a segregated interest bearing account for the benefit of class 20 claim holders. All administrative claims (i.e., post-bankruptcy claims including outstanding professional fees and expenses and any fees and expenses owing to the Bankruptcy Court and the Office of the United States Trustee) which are either consented to by the Debtors or allowed by Bankruptcy Court order will either be assumed by the Reorganized Debtor and paid in the ordinary course of the Reorganized Debtor's business or paid by the Reorganized Debtor when allowed by Bankruptcy Court order, except allowed fees and expenses of professionals which have been employed in the Debtors' Chapter 11 cases, exclusive of any fees and expenses of FocalPoint, which the Reorganized Debtor will pay in the amount allowed by the Bankruptcy Court with the Reorganized Debtor reserving all of its rights to object to any fees and expenses requested by FocalPoint and to object to any other administrative claim asserted against the Debtors. 2. Priority Tax Claims Priority tax claims include certain unsecured income, employment and other taxes described by Section 507(a)(8) of the Bankruptcy Code. The Bankruptcy Code requires that each holder of such a Section 507(a)(8) priority tax claim receive the present value of such claim in deferred cash payments, over a period not exceeding six years from the date of the assessment of such tax. The Debtors estimate that there are a total of approximately $571,973.16 of pre-petition sales taxes which the Debtors believe are entitled to priority under Section 507 of the Bankruptcy Code. The Debtors are not aware of any other priority tax claims. All allowed Section 507(a)(8) priority tax claims will be paid in full with interest at the rate of six (6) percent (6%) per annum (or such other rate of interest as determined by the Bankruptcy Court) over a period of six years from the date of assessment of such tax claims, with such payments to be made on an annual basis. C. Classified Claims and Interests 1. Classes of Secured Claims Secured claims are claims secured by liens on property of the estate. Wells is not impaired under this Plan and is therefore deemed to have voted to accept this Plan. Junior Secured Creditors (Classes 2 through 18, inclusive) had the right to accept the treatment offered them under the Original Plan or to elect cramdown treatment if they timely voted to reject the Original Plan. The Original Plan provided that Junior Secured Creditors who did not timely vote on the Original Plan would be deemed to have voted to accept the Original Plan. All of the Junior Secured Creditors either voted to accept the Original Plan or did not timely vote on the Original Plan and therefore are deemed to have voted to accept the Original Plan. The following charts set forth the description and treatment of each of the Debtors' known secured claims. =============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 1 The allowed secured claim NotImpaired; Pursuant to the Bankruptcy Court of Wells allowed claim order approving the post-petition in financing provided to the Debtors by Because the Debtors pay all this Wells, the Debtors are required to of their sales proceeds to class pay Wells in cash in full on the Wells and borrow money from is not entitled to Effective Date unless Wells agrees to Wells on a daily basis, the vote the contrary. As described above, Debtors' outstanding on BDH has requested Wells to provide indebtedness owing to Wells this Plan. the Reorganized Debtor with changes on a daily basis. post-confirmation financing. If On October 31, 2003, the Wells is unwilling to provide the outstanding indebtedness Reorganized Debtor with owing to Wells was post-confirmation financing, the $9,363,883.60. As set Reorganized Debtor will obtain an forth in Exhibit "F" to the alternative lender to provide the Disclosure Statement, the Reorganized Debtor with Debtors estimate that the post-confirmation financing, and the outstanding indebtedness Reorganized Debtor will pay the owing to Wells on January outstanding indebtedness owing to 31, 2004 will be Wells on the Effective Date in cash approximately $5,598,685 in full out of the refinancing (which is a substantially proceeds. reduced sum from the average loan balance during the year resulting from payment of the Debtors' holiday sales proceeds to Wells). --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 2 The allowed secured claim Impaired;allowed On the Effective Date, RR Growth will of RR Growth claim receive its pro rata share of the in Junior Secured Creditors New Money The total secured claim of this Contribution (the "RR Growth Cash RR Growth is approximately class Distribution"). This pro rata share $3,192,551, including was entitled will be computed by dividing the accrued interest up until to vote total secured claim of RR Growth by the date of the Debtors' on the total amount of secured claims bankruptcy filings. this Plan. held by all of the Junior Secured However, under Section Creditors after subtracting the 506(c) of the Bankruptcy payment of the SCI Stock Proceeds Code, the claim of RR from the amount of secured claims Growth is treated as held by the $2.5 Million Junior secured only up to the Secured Creditors (the "RR Growth value of the collateral Percentage") and multiplying the RR which secures that claim Growth Percentage by $1,265,000. The and is treated as a general Debtors estimate that the RR Growth unsecured claim (i.e., Cash Distribution will be in the class 20) for the balance. amount of $470,780. All of the Junior Secured In addition to the RR Growth Cash Creditors are on a pari Distribution, RR Growth will receive passu basis with respect to (i) a promissory note from the the collateral which Reorganized Debtor (the "RR Growth secures their claims (the Promissory Note") with a principal "Junior Secured Creditors amount equal to the figure obtained Collateral"), except with by multiplying the RR Growth Share respect to the SCI Stock Percentage by $3,279,000, which Proceeds as described amount is estimated to be $1,220,358 above, and subject to the and (ii) a pro-rata number of shares senior lien of Wells. of the Junior Secured Creditors Stock determined by multiplying the RR Growth Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- The RR Growth Promissory Note will have the following additional features: (i) the RR Growth Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the RR Growth Promissory Note on a quarterly basis, (iii) the RR Growth Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) RR Growth would receive its pro rata share of the following mandatory principal payments which will be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- The Reorganized Debtor's obligations to RR Growth under the RR Growth Promissory Note will be secured by the Junior Secured Creditors Lien. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, the RR Growth shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the RR Growth Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the RR Growth Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the RR Growth Promissory Note which has been put to BDH. On or before June 30, 2004, RR Growth shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of RR Growth's class 2 claim shall be in full settlement and satisfaction of such class 2 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 3 The allowed secured claim Impaired; allowed On the Effective Date, Stratford will of Stratford claim receive its pro rata share of the in Junior Secured Creditors New Money The total secured claim of this Contribution (the "Stratford Cash Stratford is approximately class Distribution"). This pro rata share $3,192,551, including was entitled will be computed by dividing the accrued interest up until to vote total secured claim of Stratford by the date of the Debtors' on the total amount of secured claims bankruptcy filings. this Plan. held by all of the Junior Secured However, under Section Creditors after subtracting the 506(c) of the Bankruptcy payment of the SCI Stock Proceeds Code, the claim of from the amount of secured claims Stratford is treated as held by the $2.5 Million Junior secured only up to the Secured Creditors (the "Stratford value of the collateral Percentage") and multiplying the which secures that claim Stratford Percentage by $1,265,000. and is treated as a general The Debtors estimate that the unsecured claim (i.e., Stratford Cash Distribution will be class 20) for the balance. in the amount of $470,780. All of the Junior Secured In addition to the Stratford Cash Creditors are on a pari Distribution, Stratford will receive passu basis with respect to (i) a promissory note from the the Junior Secured Reorganized Debtor (the "Stratford Creditors Collateral, Promissory Note") with a principal except with respect to the amount equal to the figure obtained SCI Stock Proceeds as by multiplying the Stratford described above, and Percentage by $3,279,000, which subject to the senior lien amount is estimated to be $1,220,358 of Wells. and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- the Stratford Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Stratford Promissory Note will have the following additional features: (i) the Stratford Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Stratford Promissory Note on a quarterly basis, (iii) the Stratford Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Stratford would receive its pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. The Reorganized Debtor's obligations to Stratford under the Stratford Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Stratford shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Stratford Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Stratford Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Stratford Promissory Note which has been put to BDH. On or before June 30, 2004, Stratford shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- The foregoing treatment of Stratford's class 3 claim shall be in full settlement and satisfaction of such class 3 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 4 The allowed secured claim Impaired;allowed On the Effective Date, Cornerstone of Cornerstone claim will receive its pro rata share of in the $610,000 SCI Stock Proceeds (the The total secured claim of this "Cornerstone SCI Stock Proceeds Cornerstone is class Distribution"). This pro rata share approximately $827,580, was entitled will be computed by dividing the including accrued interest to vote total secured claim of Cornerstone by up until the date of the on the total amount of the secured Debtors' bankruptcy this Plan. claims held by the $2.5 Million filings. However, under Junior Secured Creditors (the Section 506(c) of the "Cornerstone Percentage") and Bankruptcy Code, the claim multiplying the Cornerstone of Cornerstone is treated Percentage by $610,000. The Debtors as secured only up to the estimate that the Cornerstone SCI value of the collateral Stock Proceeds Distribution will be which secures that claim in the amount of $180,100. and is treated as a general unsecured claim (i.e., On the Effective Date, Cornerstone class 20) for the balance. will also receive its pro rata share of the Junior Secured Creditors New All of the Junior Secured Money Contribution (the "Cornerstone Creditors are on a pari Cash Distribution"). This pro rata passu basis with respect to share would be computed by the Junior Secured multiplying the Cornerstone Creditors Collateral, Percentage by $1,265,000. The except with respect to the Debtors estimate that the Cornerstone SCI Stock Proceeds as Cash Distribution will be in the described above, and amount of $95,482. subject to the senior lien of Wells. In addition to the Cornerstone SCI Stock Proceeds Distribution and the Cornerstone Cash --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- Distribution, Cornerstone will receive (i) a promissory note from the Reorganized Debtor (the "Cornerstone Promissory Note") with a principal amount equal to the figure obtained by multiplying the Cornerstone Percentage by $3,279,000, which amount is estimated to be $247,500 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Cornerstone Share Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Cornerstone Promissory Note will have the following additional features: (i) the Cornerstone Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Cornerstone Promissory Note on a quarterly basis, (iii) the Cornerstone Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Cornerstone would receive its pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- The Reorganized Debtor's obligations to Cornerstone under the Cornerstone Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Cornerstone shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Cornerstone Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Cornerstone Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Cornerstone Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Cornerstone shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Cornerstone's class 4 claim shall be in full settlement and satisfaction of such class 4 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 5 The allowed secured claim Impaired;allowed On the Effective Date, Provender will of Provender claim receive its pro rata share of the in $610,000 SCI Stock Proceeds (the The total secured claim of this "Provender SCI Stock Proceeds Provender is approximately class Distribution"). This pro rata share $241,825, including accrued is entitled will be computed by dividing the interest up until the date to vote total secured claim of Provender by of the Debtors' bankruptcy on the total amount of the secured filings. However, under this Plan. claims held by the $2.5 Million Section 506(c) of the Junior Secured Creditors (the Bankruptcy Code, the claim "Provender Percentage") and of Provender is treated as multiplying the Provender Percentage secured only up to the by $610,000. The Debtors estimate value of the collateral that the Provender SCI Stock Proceeds which secures that claim Distribution will be in the amount of and is treated as a general $52,627. unsecured claim (i.e., class 20) for the balance. On the Effective Date, Provender will also receive its pro rata share of All of the Junior Secured the Junior Secured Creditors New Creditors are on a pari Money Contribution (the "Provender passu basis with respect to Cash Distribution"). This pro rata the Junior Secured share would be computed by Creditors Collateral, multiplying the Provender Percentage except with respect to the by $1,265,000. The Debtors estimate SCI Stock Proceeds as that the Provender Cash Distribution described above, and will be in the amount of $27,901. subject to the senior lien of Wells. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- In addition to the Provender SCI Stock Proceeds Distribution and the Provender Cash Distribution, Provender will receive (i) a promissory note from the Reorganized Debtor (the "Provender Promissory Note") with a principal amount equal to the figure obtained by multiplying the Provender Percentage by $3,279,000, which amount is estimated to be $72,322 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Provender Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Provender Promissory Note will have the following additional features: (i) the Provender Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Provender Promissory Note on a quarterly basis, (iii) the Provender Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Provender would receive its pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. The Reorganized Debtor's obligations to Provender under the Provender Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Provender shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Provender Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Provender Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Provender Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Provender shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- The foregoing treatment of Provender's class 5 claim shall be in full settlement and satisfaction of such class 5 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 6 The allowed secured claim Impaired;allowed On the Effective Date, Jim will of Jim claim receive his pro rata share of the in $610,000 SCI Stock Proceeds (the "Jim The total secured claim of this SCI Stock Proceeds Distribution"). Jim is approximately class This pro rata share will be computed $765,251, including accrued was entitled by dividing Jim's total secured claim interest up until the date to vote by the total amount of the secured of the Debtors' bankruptcy on claims held by the $2.5 Million filings. However, under this Plan. Junior Secured Creditors (the "Jim Section 506(c) of the Percentage") and multiplying the Jim Bankruptcy Code, the claim Percentage by $610,000. The Debtors of Jim is treated as estimate that the Jim SCI Stock secured only up to the Proceeds Distribution will be in the value of the collateral amount of $166,536. which secures that claim and is treated as a general On the Effective Date, Jim will also unsecured claim (i.e., receive his pro rata share of the class 20) for the balance. Junior Secured Creditors New Money Contribution (the "Jim Cash All of the Junior Secured Distribution"). This pro rata share Creditors are on a pari would be computed by multiplying the passu basis with respect to Jim Percentage by $1,265,000. The the Junior Secured Debtors estimate that the Jim Cash Creditors Collateral, Distribution will be in the amount of except with respect to the $88,290. SCI Stock Proceeds as described above, and subject to the senior lien of Wells. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- In addition to the Jim SCI Stock Proceeds Distribution and the Jim Cash Distribution, Jim will receive (i) a promissory note from the Reorganized Debtor (the "Jim Promissory Note") with a principal amount equal to the figure obtained by multiplying the Jim Percentage by $3,279,000, which amount is estimated to be $228,860 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Jim Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Jim Promissory Note will have the following additional features: (i) the Jim Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Jim Promissory Note on a quarterly basis, (iii) the Jim Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Jim would receive his pro rata share of the following mandatory early principal payments which would be made in the aggregate to all Junior Secured Creditors if they all voted to accept this Plan: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- The Reorganized Debtor's obligations to Jim under the Jim Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Jim shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Jim Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Jim Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Jim Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Jim shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Jim's class 6 claim shall be in full settlement and satisfaction of such class 6 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 7 The allowed secured claim Impaired;allowed On the Effective Date, Harry will of Harry Adler ("Harry") claim receive his pro rata share of the in $610,000 SCI Stock Proceeds (the The total secured claim of this "Harry SCI Stock Proceeds Harry is approximately class Distribution"). This pro rata share $111,138, including accrued wasentitled will be computed by dividing Harry's interest up until the date to vote total secured claim by the total of the Debtors' bankruptcy on amount of the secured claims held by filings. However, under this Plan. the $2.5 Million Junior Secured Section 506(c) of the Creditors (the "Harry Percentage") Bankruptcy Code, the claim and multiplying the Harry Percentage of Harry is treated as by $610,000. The Debtors estimate secured only up to the that the Harry SCI Stock Proceeds value of the collateral Distribution will be in the amount of which secures that claim $24,186. and is treated as a general unsecured claim (i.e., On the Effective Date, Harry will class 20) for the balance. also receive his pro rata share of the Junior Secured Creditors New All of the Junior Secured Money Contribution (the "Harry Cash Creditors are on a pari Distribution"). This pro rata share passu basis with respect to would be computed by multiplying the the Junior Secured Harry Percentage by $1,265,000. The Creditors Collateral, Debtors estimate that the Harry Cash except with respect to the Distribution will be in the amount of SCI Stock Proceeds as $12,822. described above, and subject to the senior lien In addition to the Harry SCI Stock of Wells. Proceeds Distribution and the Harry Cash Distribution, Harry will receive (i) a promissory --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- note from the Reorganized Debtor (the "Harry Promissory Note") with a principal amount equal to the figure obtained by multiplying the Harry Percentage by $3,279,000, which amount is estimated to be $33,237 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Harry Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Harry Promissory Note will have the following additional features: (i) the Harry Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Harry Promissory Note on a quarterly basis, (iii) the Harry Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Harry would receive his pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. The Reorganized Debtor's obligations to Harry under the Harry Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Harry shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Harry Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Harry Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Harry Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Harry shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Harry's class 7 claim shall be in full settlement and satisfaction of such class 7 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 8 The allowed secured claim Impaired;allowed On the Effective Date, Milne will of Greg Milne ("Milne") claim receive his pro rata share of the in $610,000 SCI Stock Proceeds (the The total secured claim of this "Milne SCI Stock Proceeds Milne is approximately class Distribution"). This pro rata share $11,114, including accrued was entitled will be computed by dividing Milne's interest up until the date to vote total secured claim by the total of the Debtors' bankruptcy on amount of the secured claims held by filings. However, under this Plan. the $2.5 Million Junior Secured Section 506(c) of the Creditors (the "Milne Percentage") Bankruptcy Code, Milne's and multiplying the Milne Percentage claim is treated as secured by $610,000. The Debtors estimate only up to the value of the that the Milne SCI Stock Proceeds collateral which secures Distribution will be in the amount of that claim and is treated $2,419. as a general unsecured claim (i.e., class 20) for On the Effective Date, Milne will the balance. also receive his pro rata share of the Junior Secured Creditors New All of the Junior Secured Money Contribution (the "Milne Cash Creditors are on a pari Distribution"). This pro rata share passu basis with respect to would be computed by multiplying the the Junior Secured Milne Percentage by $1,265,000. The Creditors Collateral, Debtors estimate that the Milne Cash except with respect to the Distribution will be in the amount of SCI Stock Proceeds as $1,282. described above, and subject to the senior lien In addition to the Milne SCI Stock of Wells. Proceeds Distribution and the Milne Cash Distribution, --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- Milne will receive (i) a promissory note from the Reorganized Debtor (the "Milne Promissory Note") with a principal amount equal to the figure obtained by multiplying the Milne Percentage by $3,279,000, which amount is estimated to be $3,324 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Milne Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Milne Promissory Note will have the following additional features: (i) the Milne Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Milne Promissory Note on a quarterly basis, (iii) the Milne Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Milne would receive its pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- The Reorganized Debtor's obligations to Milne under the Milne Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Milne shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Milne Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Milne Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Milne Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Milne shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Milne's class 8 claim shall be in full settlement and satisfaction of such class 8 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 9 The allowed secured claim Impaired;allowed On the Effective Date, Zuckerman will of Dan Zuckerman claim receive his pro rata share of the ("Zuckerman") in $610,000 SCI Stock Proceeds (the this "Zuckerman SCI Stock Proceeds The total secured claim of class Distribution"). This pro rata share Zuckerman is approximately was entitled will be computed by dividing $11,114, including accrued to vote Zuckerman's total secured claim by interest up until the date on the total amount of the secured of the Debtors' bankruptcy this Plan. claims held by the $2.5 Million filings. However, under Junior Secured Creditors (the Section 506(c) of the "Zuckerman Percentage") and Bankruptcy Code, multiplying the Zuckerman Percentage Zuckerman's claim is by $610,000. The Debtors estimate treated as secured only up that the Zuckerman SCI Stock Proceeds to the value of the Distribution will be in the amount of collateral which secures $2,419. that claim and is treated as a general unsecured On the Effective Date, Zuckerman will claim (i.e., class 20) for also receive his pro rata share of the balance. the Junior Secured Creditors New Money Contribution (the "Zuckerman All of the Junior Secured Cash Distribution"). This pro rata Creditors are on a pari share would be computed by passu basis with respect to multiplying the Zuckerman Percentage the Junior Secured by $1,265,000. The Debtors estimate Creditors Collateral, that the Zuckerman Cash Distribution except with respect to the will be in the amount of $1,282. SCI Stock Proceeds as described above, and subject to the senior lien of Wells. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- In addition to the Zuckerman SCI Stock Proceeds Distribution and the Zuckerman Cash Distribution Zuckerman will receive (i) a promissory note from the Reorganized Debtor (the "Zuckerman Promissory Note") with a principal amount equal to the figure obtained by multiplying the Zuckerman Percentage by $3,279,000, which amount is estimated to be $3,324 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Zuckerman by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Zuckerman Promissory Note will have the following additional features: (i) the Zuckerman Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Zuckerman Promissory Note on a quarterly basis, (iii) the Zuckerman Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Zuckerman would receive his pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- The Reorganized Debtor's obligations to Zuckerman under the Zuckerman Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Zuckerman shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Zuckerman Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Zuckerman Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Zuckerman Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Zuckerman shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Zuckerman's class 9 claim shall be in full settlement and satisfaction of such class 9 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 10 The allowed secured claim Impaired;allowed On the Effective Date, Nessim will of Steve Nessim ("Nessim") claim receive his pro rata share of the in $610,000 SCI Stock Proceeds (the The total secured claim of this "Nessim SCI Stock Proceeds Nessim is approximately class Distribution"). This pro rata share $11,133, including accrued was entitled will be computed by dividing Nessim's interest up until the date to vote total secured claim by the total of the Debtors' bankruptcy on amount of the secured claims held by filings. However, under this Plan. the $2.5 Million Junior Secured Section 506(c) of the Creditors (the "Nessim Percentage") Bankruptcy Code, Nessim's and multiplying the Nessim Percentage claim is treated as secured by $610,000. The Debtors estimate only up to the value of the that the Nessim SCI Stock Proceeds collateral which secures Distribution will be in the amount of that claim and is treated $2,423. as a general unsecured claim (i.e., class 20) for On the Effective Date, Nessim will the balance. also receive his pro rata share of the Junior Secured Creditors New All of the Junior Secured Money Contribution (the "Nessim Cash Creditors are on a pari Distribution"). This pro rata share passu basis with respect to would be computed by multiplying the the Junior Secured Nessim Percentage by $1,265,000. The Creditors Collateral, Debtors estimate that the Nessim Cash except with respect to the Distribution will be in the amount of SCI Stock Proceeds as $1,284. described above, and subject to the senior lien In addition to the Nessim SCI Stock of Wells. Proceeds Distribution and the Nessim Cash Distribution, Nessim will receive (i) a promissory note from the Reorganized Debtor (the "Nessim Promissory Note") with a --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- principal amount equal to the figure obtained by multiplying the Nessim Percentage by $3,279,000, which amount is estimated to be $3,329 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Nessim Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Nessim Promissory Note will have the following additional features: (i) the Nessim Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Nessim Promissory Note on a quarterly basis, (iii) the Nessim Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Nessim would receive its pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. The Reorganized Debtor's obligations to Nessim under the Nessim Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Nessim shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Nessim Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Nessim Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Nessim Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Nessim shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Nessim's class 10 claim shall be in full settlement and satisfaction of such class 10 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 11 The allowed secured claim Impaired; allowed On the Effective Date, Pinney will of Pinney Family 1999 Trust claim in this receive its pro rata share of the UAD 5/29/99 ("Pinney") class was entitled $610,000 SCI Stock Proceeds (the to vote on this "Pinney SCI Stock Proceeds The total secured claim of Plan. Distribution"). This pro rata share Pinney is approximately will be computed by dividing Pinney's $22,694, including accrued total secured claim by the total interest up until the date amount of the secured claims held by of the Debtors' bankruptcy the $2.5 Million Junior Secured filings. However, under Creditors (the "Pinney Percentage") Section 506(c) of the and multiplying the Pinney Percentage Bankruptcy Code, Pinney's by $610,000. The Debtors estimate claim is treated as secured that the Pinney SCI Stock Proceeds only up to the value of the Distribution will be in the amount of collateral which secures $4,939. that claim and is treated as a general unsecured On the Effective Date, Pinney will claim (i.e., class 20) for also receive its pro rata share of the balance. the Junior Secured Creditors New Money Contribution (the "Pinney Cash All of the Junior Secured Distribution"). This pro rata share Creditors are on a pari would be computed by multiplying the passu basis with respect to Pinney Percentage by $1,265,000. The the Junior Secured Debtors estimate that the Pinney Cash Creditors Collateral, Distribution will be in the amount of except with respect to the $2,618. SCI Stock Proceeds as described above, and In addition to the Pinney SCI Stock subject to the senior lien Proceeds Distribution and the Pinney of Wells. Cash Distribution, Pinney will receive (i) a promissory note from the Reorganized --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- Debtor (the "Pinney Promissory Note") with a principal amount equal to the figure obtained by multiplying the Pinney Percentage by $3,279,000, which amount is estimated to be $6,786 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Pinney Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Pinney Promissory Note will have the following additional features: (i) the Pinney Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Pinney Promissory Note on a quarterly basis, (iii) the Pinney Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Pinney would receive its pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. The Reorganized Debtor's obligations to Pinney under the Pinney Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Pinney shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Pinney Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Pinney Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Pinney Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Pinney shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Pinney's class 11 claim shall be in full settlement and satisfaction of such class 11 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 12 The allowed secured claim Impaired; allowed On the Effective Date, Appleton will of Candice E. Appleton claim in this receive its pro rata share of the Family Trust dated October class was entitled $610,000 SCI Stock Proceeds (the 15, 2002 ("Appleton") to vote on this "Appleton SCI Stock Proceeds Plan. Distribution"). This pro rata share The total secured claim of will be computed by dividing Appleton is approximately Appleton's total secured claim by the $18,648, including accrued total amount of the secured claims interest up until the date held by the $2.5 Million Junior of the Debtors' bankruptcy Secured Creditors (the "Appleton filings. However, under Percentage") and multiplying the Section 506(c) of the Appleton Percentage by $610,000. The Bankruptcy Code, Appleton's Debtors estimate that the Appleton claim is treated as secured SCI Stock Proceeds Distribution will only up to the value of the be in the amount of $4,058. collateral which secures that claim and is treated On the Effective Date, Appleton will as a general unsecured also receive its pro rata share of claim (i.e., class 20) for the Junior Secured Creditors New the balance. Money Contribution (the "Appleton Cash Distribution"). This pro rata All of the Junior Secured share would be computed by Creditors are on a pari multiplying the Appleton Percentage passu basis with respect to by $1,265,000. The Debtors estimate the Junior Secured that the Appleton Cash Distribution Creditors Collateral, will be in the amount of $2,152. except with respect to the SCI Stock Proceeds as In addition to the Appleton SCI Stock described above, and Proceeds Distribution and the subject to the senior lien Appleton Cash Distribution, Appleton of Wells. will receive (i) a promissory note from the Reorganized Debtor (the "Appleton Promissory Note") with a principal amount equal to the figure obtained by multiplying the Appleton Percentage by $3,279,000, --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- which amount is estimated to be $5,576 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Appleton Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Appleton Promissory Note will have the following additional features: (i) the Appleton Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Appleton Promissory Note on a quarterly basis, (iii) the Appleton Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Appleton would receive its pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. The Reorganized Debtor's obligations to Appleton under the Appleton Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Appleton shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Appleton Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Appleton Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Appleton Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Appleton shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Appleton's class 12 claim shall be in full settlement and satisfaction of such class 12 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 13 The allowed secured claim Impaired; allowed On the Effective Date, Taicher will of Robert Taicher claim in this receive his pro rata share of the ("Taicher") class was entitled $610,000 SCI Stock Proceeds (the to vote on this "Taicher SCI Stock Proceeds The total secured claim of Plan. Distribution"). This pro rata share Taicher is approximately will be computed by dividing $50,100, including accrued Taicher's total secured claim by the interest up until the date total amount of the secured claims of the Debtors' bankruptcy held by the $2.5 Million Junior filings. However, under Secured Creditors (the "Taicher Section 506(c) of the Percentage") and multiplying the Bankruptcy Code, Taicher's Taicher Percentage by $610,000. The claim is treated as secured Debtors estimate that the Taicher SCI only up to the value of the Stock Proceeds Distribution will be collateral which secures in the amount of $10,903. that claim and is treated as a general unsecured On the Effective Date, Taicher will claim (i.e., class 20) for also receive his pro rata share of the balance. the Junior Secured Creditors New Money Contribution (the "Taicher Cash All of the Junior Secured Distribution"). This pro rata share Creditors are on a pari would be computed by multiplying the passu basis with respect to Taicher Percentage by $1,265,000. the Junior Secured The Debtors estimate that the Taicher Creditors Collateral, Cash Distribution will be in the except with respect to the amount of $5,781. SCI Stock Proceeds as described above, and In addition to the Taicher SCI Stock subject to the senior lien Proceeds Distribution and the Taicher of Wells. Cash Distribution, --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- Taicher will receive (i) a promissory note from the Reorganized Debtor (the "Taicher Promissory Note") with a principal amount equal to the figure obtained by multiplying the Taicher Percentage by $3,279,000, which amount is estimated to be $14,983 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Taicher Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Taicher Promissory Note will have the following additional features: (i) the Taicher Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Taicher Promissory Note on a quarterly basis, (iii) the Taicher Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Taicher would receive his pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. The Reorganized Debtor's obligations to Taicher under the Taicher Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Taicher shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Taicher Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Taicher Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Taicher Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Taicher shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Taicher's class 13 claim shall be in full settlement and satisfaction of such class 13 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 14 The allowed secured claim Impaired; allowed On the Effective Date, Bateman will of Giles Bateman ("Bateman") claim in this receive his pro rata share of the class was entitled $610,000 SCI Stock Proceeds (the The total secured claim of to vote on this "Bateman SCI Stock Proceeds Bateman is approximately Plan. Distribution"). This pro rata share $9,113, including accrued will be computed by dividing interest up until the date Bateman's total secured claim by the of the Debtors' bankruptcy total amount of the secured claims filings. However, under held by the $2.5 Million Junior Section 506(c) of the Secured Creditors (the "Bateman Bankruptcy Code, Bateman's Percentage") and multiplying the claim is treated as secured Bateman Percentage by $610,000. The only up to the value of the Debtors estimate that the Bateman SCI collateral which secures Stock Proceeds Distribution will be that claim and is treated in the amount of $1,983. as a general unsecured claim (i.e., class 20) for On the Effective Date, Bateman will the balance. also receive his pro rata share of the Junior Secured Creditors New All of the Junior Secured Money Contribution (the "Bateman Cash Creditors are on a pari Distribution"). This pro rata share passu basis with respect to would be computed by multiplying the the Junior Secured Bateman Percentage by $1,265,000. Creditors Collateral, The Debtors estimate that the Bateman except with respect to the Cash Distribution will be in the SCI Stock Proceeds as amount of $1,051. described above, and subject to the senior lien of Wells. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- In addition to the Bateman SCI Stock Proceeds Distribution and the Bateman Cash Distribution, Bateman will receive (i) a promissory note from the Reorganized Debtor (the "Bateman Promissory Note") with a principal amount equal to the figure obtained by multiplying the Bateman Percentage by $3,279,000, which amount is estimated to be $2,725 and (ii) a pro-rata of shares of the Junior Secured Creditors Stock determined by multiplying the Bateman Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Bateman Promissory Note will have the following additional features: (i) the Bateman Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Bateman Promissory Note on a quarterly basis, (iii) the Bateman Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Bateman would receive its pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- The Reorganized Debtor's obligations to Bateman under the Bateman Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Bateman shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Bateman Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Bateman Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Bateman Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Bateman shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Bateman's class 14 claim shall be in full settlement and satisfaction of such class 14 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 15 The allowed secured claim Impaired; allowed On the Effective Date, Simon will of Herbert Simon ("Simon") claim in this receive his pro rata share of the class was entitled $610,000 SCI Stock Proceeds (the The total secured claim of to vote on this "Simon SCI Stock Proceeds Simon is approximately Plan. Distribution"). This pro rata share $289,324, including accrued will be computed by dividing Simon's interest up until the date total secured claim by the total of the Debtors' bankruptcy amount of the secured claims held by filings. However, under the $2.5 Million Junior Secured Section 506(c) of the Creditors (the "Simon Percentage") Bankruptcy Code, Simon's and multiplying the Simon Percentage claim is treated as secured by $610,000. The Debtors estimate only up to the value of the that the Simon SCI Stock Proceeds collateral which secures Distribution will be in the amount of that claim and is treated $62,963. as a general unsecured claim (i.e., class 20) for On the Effective Date, Simon will the balance. also receive his pro rata share of the Junior Secured Creditors New All of the Junior Secured Money Contribution (the "Simon Cash Creditors are on a pari Distribution"). This pro rata share passu basis with respect to would be computed by multiplying the the Junior Secured Simon Percentage by $1,265,000. The Creditors Collateral, Debtors estimate that the Simon Cash except with respect to the Distribution will be in the amount of SCI Stock Proceeds as $33,382. described above, and subject to the senior lien In addition to the Simon SCI Stock of Wells. Proceeds Distribution and the Simon Cash Distribution, --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- Simon will receive (i) a promissory note from the Reorganized Debtor (the "Simon Promissory Note") with a principal amount equal to the figure obtained by multiplying the Simon Percentage by $3,279,000, which amount is estimated to be $86,526 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Simon Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Simon Promissory Note will have the following additional features: (i) the Simon Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Simon Promissory Note on a quarterly basis, (iii) the Simon Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Simon would receive its pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- The Reorganized Debtor's obligations to Simon under the Simon Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Simon shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Simon Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Simon Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Simon Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Simon shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Simon's class 15 claim shall be in full settlement and satisfaction of such class 15 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 16 The allowed secured claim Impaired; allowed On the Effective Date, Montesano will of Montesano Family Trust claim in this receive its pro rata share of the Dated March 17, 1998 class was entitled $610,000 SCI Stock Proceeds (the ("Montesano") to vote on this "Montesano SCI Stock Proceeds Plan. Distribution"). This pro rata share The total secured claim of will be computed by dividing Montesano is approximately Montesano's total secured claim by $289,324, including accrued the total amount of the secured interest up until the date claims held by the $2.5 Million of the Debtors' bankruptcy Junior Secured Creditors (the filings. However, under "Montesano Percentage") and Section 506(c) of the multiplying the Montesano Percentage Bankruptcy Code, by $610,000. The Debtors estimate Montesano's claim is that the Montesano SCI Stock Proceeds treated as secured only up Distribution will be in the amount of to the value of the $62,963. collateral which secures that claim and is treated On the Effective Date, Montesano will as a general unsecured also receive its pro rata share of claim (i.e., class 20) for the Junior Secured Creditors New the balance. Money Contribution (the "Montesano Cash Distribution"). This pro rata All of the Junior Secured share would be computed by Creditors are on a pari multiplying the Montesano Percentage passu basis with respect to by $1,265,000. The Debtors estimate the Junior Secured that the Jim Cash Distribution will Creditors Collateral, be in the amount of $33,382. except with respect to the SCI Stock Proceeds as In addition to the Montesano SCI described above, and Stock Proceeds Distribution and the subject to the senior lien Montesano Cash Distribution, of Wells. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- Montesano will receive (i) a promissory note from the Reorganized Debtor (the "Montesano Promissory Note") with a principal amount equal to the figure obtained by multiplying the Montesano Percentage by $3,279,000, which amount is estimated to be $86,526 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Montesano Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Montesano Promissory Note will have the following additional features: (i) the Montesano Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Montesano Promissory Note on a quarterly basis, (iii) the Montesano Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Montesano would receive its pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- The Reorganized Debtor's obligation's to Montesano under the Montesano Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Montesano shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Montesano Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Montesano Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Montesano Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Montesano shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Montesano's class 16 claim shall be in full settlement and satisfaction of such class 16 claim. --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 17 The allowed secured claim Impaired; allowed On the Effective Date, Perlman will of The Perlman Family Trust claim in this receive its pro rata share of the Dated 2/17/95 ("Perlman") class was entitled $610,000 SCI Stock Proceeds (the to vote on "Perlman SCI Stock Proceeds The total secured claim of this Plan. Distribution"). This pro rata share Perlman is approximately will be computed by dividing $96,441, including accrued Perlman's total secured claim by the interest up until the date total amount of the secured claims of the Debtors' bankruptcy held by the $2.5 Million Junior filings. However, under Secured Creditors (the "Perlman Section 506(c) of the Percentage") and multiplying the Bankruptcy Code, Perlman's Perlman Percentage by $610,000. The claim is treated as secured Debtors estimate that the Perlman SCI only up to the value of the Stock Proceeds Distribution will be collateral which secures in the amount of $20,988. that claim and is treated as a general unsecured On the Effective Date, Perlman will claim (i.e., class 20) for also receive its pro rata share of the balance. the Junior Secured Creditors New Money Contribution (the "Perlman Cash All of the Junior Secured Distribution"). This pro rata share Creditors are on a pari would be computed by multiplying the passu basis with respect to Perlman Percentage by $1,265,000. the Junior Secured The Debtors estimate that the Jim Creditors Collateral, Cash Distribution will be in the except with respect to the amount of $11,127. SCI Stock Proceeds as described above, and In addition to the Perlman SCI Stock subject to the senior lien Proceeds Distribution and the Perlman of Wells. Cash Distribution, Perlman will receive (i) --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- a promissory note from the Reorganized Debtor (the "Perlman Promissory Note") with a principal amount equal to the figure obtained by multiplying the Perlman Percentage by $3,279,000, which amount is estimated to be $28,842 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Perlman Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Perlman Promissory Note will have the following additional features: (i) the Perlman Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Perlman Promissory Note on a quarterly basis, (iii) the Perlman Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Perlman would receive its pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. The Reorganized Debtor's obligations to Perlman under the Perlman Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Perlman shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Perlman Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Perlman Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Perlman Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Perlman shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Perlman's class 17 claim shall be in full settlement and satisfaction of such class 17 claim. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ ---------------------------------------
=============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 18 The allowed secured claim Impaired; allowed On the Effective Date, Merrill will of Trent and Marilyn claim in this receive its pro rata share of the Merrill Trust dated 1/29/90 class was entitled $610,000 SCI Stock Proceeds (the ("Merrill") to vote on "Merrill SCI Stock Proceeds this Plan. Distribution"). This pro rata share The total secured claim of will be computed by dividing Merrill is approximately Merrill's total secured claim by the $48,222, including accrued total amount of the secured claims interest up until the date held by the $2.5 Million Junior of the Debtors' bankruptcy Secured Creditors (the "Merrill filings. However, under Percentage") and multiplying the Section 506(c) of the Merrill Percentage by $610,000. The Bankruptcy Code, Merrill's Debtors estimate that the Merrill SCI claim is treated as secured Stock Proceeds Distribution will be only up to the value of the in the amount of $10,494. collateral which secures that claim and is treated On the Effective Date, Merrill will as a general unsecured also receive its pro rata share of claim (i.e., class 20) for the Junior Secured Creditors New the balance. Money Contribution (the "Merrill Cash Distribution"). This pro rata share All of the Junior Secured would be computed by multiplying the Creditors are on a pari Merrill Percentage by $1,265,000. passu basis with respect to The Debtors estimate that the Merrill the Junior Secured Cash Distribution will be in the Creditors Collateral, amount of $5,564. except with respect to the SCI Stock Proceeds as In addition to the Merrill SCI Stock described above, and Proceeds Distribution and the Merrill subject to the senior lien Cash Distribution, Merrill will of Wells. receive (i) --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- a promissory note from the Reorganized Debtor (the "Merrill Promissory Note") with a principal amount equal to the figure obtained by multiplying the Merrill Percentage by $3,279,000, which amount is estimated to be $14,421 and (ii) a pro-rata number of shares of the Junior Secured Creditors Stock determined by multiplying the Merrill Percentage by the total number of all shares of Junior Secured Creditors Stock to be issued to all Junior Secured Creditors. The Merrill Promissory Note will have the following additional features: (i) the Merrill Promissory Note will bear interest at the rate of 7% per annum, (ii) interest will be paid on the Merrill Promissory Note on a quarterly basis, (iii) the Merrill Promissory Note will have a term of six years, (iv) prepayments may be made without any penalty, and (v) Merrill would receive its pro rata share of the following mandatory principal payments which would be made in the aggregate to all Junior Secured Creditors: $550,000 at the end of each of years 2, 3, 4 and 5 and the remaining principal balance of $1,079,000 and any unpaid interest will be due and payable at the end of the six-year term. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- The Reorganized Debtor's obligations to Merrill under the Merrill Promissory Note will be secured by the Junior Secured Creditors Lien. On or before June 30, 2004, Merrill shall have a one time right to (i) exchange all or a portion of the then unpaid principal balance of the Merrill Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 50% of the then outstanding principal balance of the Merrill Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Merrill Promissory Note which has been put to BDH. --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- On or before June 30, 2004, Merrill shall have the right to (i) exchange all then owned shares of Junior Secured Creditors Stock into BDH common stock at a conversion price of $4.35 per share using a valuation of $645,000 for all of the Junior Secured Creditors Stock, or (ii) put all then owned shares of Junior Secured Creditors Stock to the Reorganized Debtor for cash in the aggregate amount of $645,000 for all of the Junior Secured Creditors Stock. The foregoing treatment of Merrill's class 17 claim shall be in full settlement and satisfaction of such class 17 claim. --------------- ----------------------------- ------------------ ---------------------------------------
Attached to this Plan as Exhibit "1" is a schedule setting forth (i) the computation of the amount of the secured claims of all of the Junior Secured Creditors (including interest accrued up until the date of the Debtors' bankruptcy filings), (ii) the pro rated distribution of the $610,000 of SCI Stock Proceeds, (iii) the pro rated distribution of the Junior Secured Creditors New Money Contribution, (iv) the pro rated distribution of the Junior Secured Creditors Promissory Notes to be provided to all of the Junior Secured Creditors, and (v) the pro rated distribution of the shares of the Junior Secured Creditors Stock. 2. Classes of Priority Unsecured Claims Certain priority claims that are referred to in Bankruptcy Code Sections 507(a)(3), (4), (5), (6), and (7) are required to be placed in classes. These types of claims are entitled to priority treatment as follows: the Bankruptcy Code requires that each holder of such a claim receive cash on the Effective Date equal to the allowed amount of such claim. However, a class of unsecured priority claim holders may vote to accept deferred cash payments of a value, as of the Effective Date, equal to the allowed amount of such claim. The Debtors believe that there are no Section 507(a)(3), (4), (5), (6), or (7) priority unsecured claims. To the extent the Debtors do have any such allowed priority unsecured claims, such claims will be considered class 19 allowed claims and will be paid in full by the Reorganized Debtor on the later of the Effective Date and the date the Bankruptcy Court enters an order allowing such priority claims. 3. Class of General Unsecured Claims General unsecured claims are unsecured claims not entitled to priority under Bankruptcy Code Section 507(a). The following chart identifies this Plan's treatment of the class containing all of the Debtors' non-priority general unsecured claims (see Exhibit "I" to the Disclosure Statement for detailed information about each general unsecured claim): =============== ============================= ================== ======================================= CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ----------------------------- ------------------ --------------------------------------- 20 All general unsecured Impaired; allowed On the Effective Date, the claims claims in this Reorganized Debtor will pay into the class were Professional Fee Account the $435,000 Excluding any deficiency entitled to vote Unsecured Creditors New Money claim of the Junior Secured on this Plan. Contribution, which cash will be used Creditors, the Debtors first to pay any outstanding allowed estimate that there are fees and expenses of the approximately $17,291,000 professionals employed in these cases of unsecured claims (other than FocalPoint) if such fees consisting of (i) and expenses exceed the $600,000 that $1,500,000 which was lent will be paid by the Reorganized to the Debtors on December Debtor (after taking into account 20, 2001 by Provender, pre-petition retainers paid and the Cornerstone, Jim and NH $750,000 which have been disbursed to Walking, Ltd., (ii) such professionals from the $700,000 of unsecured debt Professional Fee Account), and second which was provided to to be distributed to holders of class Provender, Cornerston and 20 allowed claims on a pro rata Jim in connection with a basis. After the Bankruptcy Court secured loan that they enters orders allowing the fees and extended to the Debtors on expenses of the professionals September 18, 2002, (iii) employed in these cases (other than $300,000 of unsecured debt FocalPoint), LNBRB will pay any such which was provided to a allowed fees and expenses in excess number of people/entities of $600,000 out of the $435,000 in connection with a Unsecured Creditors New Money secured loan that they Contribution which will be in the extended to Professional Fee Account, and LNBRB will turn over the remaining balance of such $435,000 Unsecured Creditors New Money Contribution to the Reorganized Debtor who will hold such funds in a segregated account for the benefit of holders of class 20 allowed claims. In addition, on the Effective Date, the Reorganized Debtor will execute and deliver to the Post-Confirmation Committee for the benefit of class 20 claim holders a promissory note with a principal amount of $700,000 (the "First Unsecured Creditors Promissory Note"). The First Unsecured Creditors Promissory Note will bear interest at the rate of 7% per annum and have a term of five years. The First Unsecured Creditors --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- the Debtors on October 15, Promissory Note will have the 2002, and (iv) an estimated following additional features: (i) $14,791,000 of general interest will be paid on a quarterly unsecured debt, inclusive basis, (ii) prepayments may be made of an estimated $5,027,000 without penalty, and (iii) the of lease rejection claims following mandatory principal held by the landlords of payments will be made: $100,000 at the 29 stores at which the the end of both years 2 and 3 and Debtors are conducting or $150,000 at the end of year 4, and have conducted store the remaining principal balance of closing sales and $350,000 and any unpaid interest will approximately $400,000 be due and payable at the end of the owing on account of a prior five-year term. All payments made on class action damage claim. account of the First Unsecured Creditors Promissory Note will be RR Growth and Stratford distributed to all holders of class contend that Provender, 20 allowed claims on a pro rata basis. Cornerstone, Jim and NH Walking, Ltd. assigned In addition, on the Effective Date, their claims relating to the Reorganized Debtor will execute the $1,500,000 which they and deliver to the Post-Confirmation lent to the Debtors on Committee for the benefit of class 20 December 20, 2001 to RR claim holders a second promissory Growth and Stratford as note with a principal amount of security and that any $21,000 (the "Second Unsecured payment to be made to Creditors Promissory Note"). Provender, Cornerstone, Jim The Second Unsecured Creditors and NH Walking, Ltd. on Promissory Note will bear interest at account of such class 20 the rate of 7% per annum, and will allowed claims must instead have the following additional be made to RR Growth and features: (i) interest will paid on Stratford (on a 50%/50% the Second Unsecured Creditors basis). Promissory Note on a quarterly basis, (ii) the Second Unsecured Creditors Promissory Note will have a term of six years and prepayments may be made without any penalty, and (iii) the remaining principal balance of $21,000 and any unpaid interest will be due and payable at the end of the six-year term. On or before June 30, 2004, the class 20 claim holders acting through the Post-Confirmation Committee shall have a one time right to (i) exchange all or any portion of the then unpaid principal balance of the First Unsecured Creditors Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 100% of the then outstanding principal balance of the First Unsecured Creditors Promissory Note to the Reorganized Debtor for cash equal to 80% of that portion of the principal balance of the First Unsecured Creditors Promissory Note which is to be put to the Reorganized Debtor. On or before June 30, 2004, the class 20 claim holders acting through the Post-Confirmation Committee shall have a one time right to (i) exchange all or a portion of then unpaid principal balance of the Second Unsecured Creditors Promissory Note for BDH common stock at an exchange price of $4.35 per share, and/or (ii) put up to 100% of the then outstanding principal balance of the Second Unsecured Creditors Promissory Note to BDH for cash equal to 80% of that portion of the principal balance of the Second Unsecured Creditors Promissory Note which has been put to BDH. In addition to the foregoing, on the Effective Date all of the Lease Sale Proceeds (currently at $41,985 and expected to remain at this amount) and all Class Action Recovery Funds, if any, will be turned over to the Reorganized Debtor who will hold such funds in a segregated account for the benefit of holders of class 20 allowed claims and all rights and title to the Class Action Suit, to the extent it remains unresolved on the Effective Date, shall be deemed transferred to the Post-Confirmation Committee who shall have the right to continue pursuit of the Class Action Suit for the benefit of class 20 claim holders. If the allowed professional fees and expenses (excluding FocalPoint) do not exceed $600,000 (after taking into account pre-petition retainers paid and the $750,000 which has been disbursed to such professionals from the Professional Fee Account), which would mean that the entire $435,000 Unsecured Creditors New Money Contribution --------------- ----------------------------- ------------------ --------------------------------------- --------------- ----------------------------- ------------------ --------------------------------------- would be paid to class 20 claim holders, and no money is recovered from the Class Action Suit, the Debtors estimate that a total of $1,197,985 (comprised of $435,000 from the Unsecured Creditors New Money Contribution + $700,000 from the First Unsecured Creditors Promissory Note + $21,000 from the Second Unsecured Creditors Promissory Note + $41,985 of Lease Sale Proceeds) would be available to be distributed to class 20 claim holders. If a total of $1,197,985 is distributed to class 20 claim holders and the total class 20 allowed claims of the Junior Secured Creditors is $3,434,123 (which is the estimated total), the Debtors estimate that each holder of a class 20 allowed claim would receive a distribution equal to approximately 5.78% of the amount of their class 20 allowed claim because a total of $1,197,985 would be distributed to a total of $20,725,123 of class 20 allowed claims. If the allowed professional fees and expenses (excluding FocalPoint) do exceed $600,000 (after taking into account pre-petition retainers paid and the $750,000 which has been disbursed to such professionals from the Professional Fee Account), the estimated recovery to holders of class 20 allowed claims would be reduced accordingly. The foregoing treatment shall be in full settlement and satisfaction of all class 20 claims.
4. Class of Interest Holders Interest holders are the parties who hold an ownership interest (i.e., equity interest) in the Debtors, whether such ownership interest consists of common stock, preferred stock, options, warrants or any other stock vehicle. The following chart identifies this Plan's treatment of the class of interest holders: =============== ============================== ======================= ==================================== CLASS # DESCRIPTION IMPAIRED TREATMENT (Y/N) --------------- ------------------------------ ----------------------- ------------------------------------ 21 All stock holders, including Impaired; holders of On the Effective Date, all class holders of common stock, class 21 interests 21 interests will be deemed preferred stock, stock are not entitled to cancelled, terminated, rejected options, warrants, etc. vote on this Plan and of no further force and because they are effect and will no longer deemed to have constitute an equity interest in rejected this Plan the Debtors or the Reorganized pursuant to Section Debtor without the need for 1126(g) of the either the Debtors or the class Bankruptcy Code. 21 interest holders to take any further action. Interest holders will not receive any distribution or retain any property under this Plan on account of their equity interests in the Debtors. =============== ============================== ======================= ====================================
D. Means of Effectuating this Plan and Implementation of this Plan 1. The Reorganized Debtor. On or immediately before the Effective Date, TWC Acquisition Corp. ("Reorganized Debtor") shall be incorporated as a Delaware corporation. On or immediately after the Effective Date, the Reorganized Debtor will change its name to "The Walking Company" (or any other name selected by the Reorganized Debtor). On the Effective Date title to all assets, properties and business operations of the Debtors, including, without limitation, all cash on hand, deposits, accounts receivable, inventory, fixtures, furnishings and equipment (but excluding the Lease Sale Proceeds, the Class Action Recovery Funds and the Class Action Suit), shall vest in the Reorganized Debtor, and thereafter the Reorganized Debtor shall own and retain such assets free and clear of all rights,claims, liens, encumbrances, and interests, except as expressly provided in this Plan. From and after the Effective Date, the Reorganized Debtor shall own and operate such assets without further supervision by or jurisdiction of the Bankruptcy Court. From and after the Effective Date, the Reorganized Debtor will satisfy the obligations owing to the holders of allowed claims in Classes 2 through 20 under this Plan, and will perform all obligations under executory contracts and unexpired leases assumed by the Debtors and assigned to the Reorganized Debtor in accordance with the terms and provisions of this Plan. 2. Plan Funding On the Effective Date, BDH will contribute the New Money Contribution to the Reorganized Debtor. $6.45 million of the New Money Contribution will be in the form of equity and $2.5 million of the New Money Contribution will be in the form of subordinated debt which will bear interest at the rate of ten percent (10%) per annum, with all principal and interest subordinated to all debts of the Reorganized Debtor except to the extent otherwise agreed upon in writing by the affected debt holders. BDH will receive a promissory note payable by the Reorganized Debtor to BDH in the amount of the subordinated debt (the "Intercompany Note"). The Intercompany Note shall be payable to BDH only if and to the extent the Reorganized Debtor accumulates stockholders equity after the Effective Date in an amount equal to the amount to be paid on the Intercompany Note. The form of the BDH Intercompany Note is attached hereto as Exhibit "2". The amount of the New Money Contribution to be funded on the Effective Date will be reduced by all sums that BDH advanced to the Debtors prior to the Effective Date for or on account of rent and other occupancy costs owed by the Debtors for the month of February, 2004. The $610,000 of SCI Stock Proceeds will be distributed to the $2.5 Million Junior Secured Creditors on a pro rata basis on the Effective Date unless the Bankruptcy Court orders to the contrary. The $41,985 of Lease Sale Proceeds and all Class Action Recovery Funds will be distributed on a pro rata basis to the holders of class 20 allowed claims. All other payments required to be made on the Effective Date will be paid out of the New Money Contribution, including the $600,000 for payment of allowed professional fees and expenses (exclusive of any fees or expenses of FocalPoint), any fees and expenses of FocalPoint as allowed by the Bankruptcy Court, all other allowed administrative claims, the $1,265,000 Junior Secured Creditors New Money Contribution, the $435,000 Unsecured Creditors New Money Contribution, and all cure amounts owing with respect to all unexpired leases and executory contracts assumed by the Debtors and assigned to the Reorganized Debtor. All other payments required to be made under this Plan (other than as set forth above with respect to exchange rights granted to the holders of the Junior Secured Creditors Stock, the Junior Secured Creditors Promissory Notes, the First Unsecured Creditors Promissory Note, and the Second Unsecured Creditors Promissory Note) will be funded through the business operations and working capital of the Reorganized Debtor. BDH has requested Wells to provide the Reorganized Debtor with post-confirmation financing. If Wells and BDH have reached an agreement on mutually acceptable terms for the post-confirmation financing of the Reorganized Debtor, the obligation of the Reorganized Debtor to make any payments to the Junior Secured Creditors and unsecured creditors would be expressly subordinated in right of payment to the prior payment in full of all obligations of the Reorganized Debtor to Wells under the post-confirmation financing agreement (the "Wells Post-Confirmation Financing"), any refinancings thereof and any obligations to any other current or future senior lender on the terms acceptable to Wells or such other replacement lender (recognizing that absent an event of default existing under such financing agreements which prohibits the Reorganized Debtor from making its required Plan payments to the Junior Secured Creditors and the unsecured creditors, the Reorganized Debtor shall continue to be obligated to make all such Plan payments to the Junior Secured Creditors and the unsecured creditors). The security interest of the Junior Secured Creditors and the unsecured creditors in the Reorganized Debtor's assets and in any proceeds thereof shall be junior and subordinate in all respects to the security interests in the assets and in any proceeds thereof granted to Wells. If an event of default should occur with respect to the Wells Post-Confirmation Financing, or with respect to any instrument in connection with the Wells Post-Confirmation Financing under which payment is outstanding, or if any payment of amounts to or for the benefit of the Junior Secured Creditors or the unsecured creditors would cause an event of default to occur thereunder, then, unless and until such event of default has been cured or waived, no payment shall be made to or for the benefit of the Junior Secured Creditors or the unsecured creditors on account of any right to payment arising under this Plan. If an event of default should occur with respect to the Wells Post-Confirmation Financing, or with respect to any instrument in connection with the Wells Post-Confirmation Financing under which payment is outstanding, or if any payment of amounts to or for the benefit of the Junior Secured Creditors or the unsecured creditors pursuant to or on account of a right to payment arising under this Plan would cause an event of default to occur thereunder, then, BDH may delay such payment until such event of default shall have been cured or waived, or the payment of such amounts due to or for the benefit of the Junior Secured Creditors or the unsecured creditors would no longer cause such an event of default or the Wells Post-Confirmation Financing indebtedness is paid in full. BDH will provide written notice to the applicable Junior Secured Creditors or the Post-Confirmation Committee of any such delay in payment. BDH will further provide written notice to the applicable Junior Secured Creditors or the Post-Confirmation Committee that the event of default has been cured or waived or shall have ceased to exist and will thereafter pay the applicable Junior Secured Creditors or the unsecured creditors as soon as practicable both to bring them current and on a go forward basis. Furthermore, if there shall occur any receivership, insolvency, assignment for the benefit of creditors, bankruptcy, reorganization or arrangements with creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale of all or substantially all of the assets, dissolution, liquidation or any other marshaling of assets and liabilities of the Reorganized Debtor, (i) no amount shall be paid by the Reorganized Debtor to the Junior Secured Creditors and unsecured creditors unless and until the principal of, interest on and all other amounts due with respect to the Wells Post-Confirmation Financing then outstanding is paid in full, and (ii) no claim or proof of claim shall be filed with the Reorganized Debtor by or on behalf of the Junior Secured Creditors or the unsecured creditors which shall assert any right to receive any payments except subject to the payment in full of the principal of, interest on and all other amounts due with respect to the Wells Post-Confirmation Financing then outstanding. On or as soon as practicable after the Effective Date, the Reorganized Debtor will issue the Junior Secured Creditors Stock to the Junior Secured Creditors on a pro-rata basis as set forth in Exhibit "1" to this Plan. In conjunction with the issuance of the Junior Secured Creditors Stock, the Reorganized Debtor will issue to each of the Junior Secured Creditors (i) a Warrant in the form of Exhibit "3" to this Plan to exchange all of such Junior Secured Creditor's shares of stock in the Reorganized Debtor for BDH common shares at an exchange price of $4.35 per share using a valuation of $645,000 for all of the shares of the Junior Secured Creditors Stock, and (ii) a Put Option in the form of Exhibit "4" to this Plan to exchange all of such Junior Secured Creditor's shares of stock in the Reorganized Debtor for a cash payment from the Reorganized Debtor using a valuation of $645,000 for all shares of the Junior Secured Creditors tock. The Warrants and Put Options issued in conjunction with the Junior Secured Creditors Stock must be exercised, if at all, on or before June 30, 2004. On or as soon as practicable after the Effective Date, the Reorganized Debtor will issue the Junior Secured Creditors Promissory Notes to the Junior Secured Creditors on a pro-rata basis as set forth in Exhibit "1" to this Plan. In conjunction with the issuance of the Junior Secured Creditors Promissory Notes, the Reorganized Debtor will issue to each of the Junior Secured Creditors (i) a Warrant in the form of Exhibit "3" to this Plan to exchange all or a portion of such Junior Secured Creditor"s Promissory Note for BDH common shares at an exchange price of $4.35 per share, and (ii) a Put Option in the form of Exhibit "5" to this Plan to exchange up to fifty percent (50%) of the then outstanding principal balance of such Junior Secured Creditor's Promissory Note for a cash payment from BDH equal to eighty percent (80%) of the principal balance of the such Junior Secured Creditor's Promissory Note being put to BDH. The Warrants and Put Options issued in conjunction with the Junior Secured Creditors Promissory Notes must be exercised, if at all, on or before June 30, 2004. On or as soon as practicable after the Effective Date, the Reorganized Debtor will issue the First Unsecured Creditors Promissory Note in the form of Exhibit "6" to this Plan to the Post-Confirmation Committee for the benefit of class 20 claim holders. In conjunction with the issuance of the First Unsecured Creditors Promissory Note, the Reorganized Debtor will issue to the Post-Confirmation Committee for the benefit of class 20 claim holders (i) a Warrant in the form of Exhibit "3" to this Plan to exchange all or a portion of the unpaid principal balance of the First Unsecured Creditors Promissory Note for BDH common shares at an exchange price of $4.35 per share, and (ii) a Put Option in the form of Exhibit "7" to this Plan to exchange up to One Hundred percent (100%) of the then outstanding principal balance of the First Unsecured Creditors Promissory Note for a cash payment from the Reorganized Debtor equal to eighty percent (80%) of the principal balance of the First Unsecured Creditors Promissory Note being put to the Reorganized Debtor. The Warrant and Put Option issued in conjunction with the First Unsecured Creditors Promissory Note must be exercised, if at all, on or before June 30, 2004. On or as soon as practicable after the Effective Date, the Reorganized Debtor will issue the Second Unsecured Creditors Promissory Note in the form of Exhibit "8" to this Plan to the Post-Confirmation Committee for the benefit of class 20 claim holders. In conjunction with the issuance of the Second Unsecured Creditors Promissory Note, the Reorganized Debtor will issue to the Post-Confirmation Committee for the benefit of class 20 claim holders (i) a Warrant in the form of Exhibit "3" to this Plan to exchange all or a portion of the unpaid principal balance of Second Unsecured Creditors Promissory Note for BDH common shares at an exchange price of $4.35 per share, and (b) a Put Option in the form of Exhibit "9" to this Plan to exchange up to one hundred percent (100%) of the then outstanding principal balance of the Second Unsecured Creditors Promissory Note for a cash payment from BDH equal to eighty percent (80%) of the principal balance of the Second Unsecured Creditors Promissory Note being put to BDH. The Warrant and Put Option issued in conjunction with the Second Unsecured Creditors Promissory Note must be exercised, if at all, on or before June 30, 2004. In connection with the rights granted to holders of the Junior Secured Creditors Stock, Junior Secured Creditors Promissory Note, the First Unsecured Creditors Promissory Note and the Second Unsecured Creditors Promissory Note to exchange their respective claims or interests for common stock of BDH, BDH will obtain on or before the Effective Date a reasoned legal opinion that such exchange rights and the BDH common stock issuable pursuant thereto may be offered and sold to such creditors without registration under the Securities Act of 1933 and such stock may be offered and sold by such creditors without registration under the Securities Act of 1933, assuming that none of such creditors is an "underwriter" as defined in Section 1145(b) of the Bankruptcy Code. Each instrument which constitutes or may constitute a security issued to the Junior Secured Creditors and unsecured creditors under this Plan shall be issued with a legend in substantially the following form unless, as soon as practicable after the Effective Date, the recipient of such instrument represents to the issuer that it is not an "underwriter" as defined by Section 1145(b) of the Bankruptcy Code and indemnifies such issuer for any breach of such representation: "THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND THUS MAY NOT BE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER THAT ACT OR SUCH LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION OR QUALIFICATION IS AVAILABLE." If a party entitled to receive securities to be issued under this Plan has any questions regarding its status as an "underwriter" under Section 1145(b) of Bankruptcy Code, it should consult with its counsel prior to making this representation to the issuer. 3. Substantive Consolidation On the Effective Date, TWC and Alan's will be substantively consolidated. There will be no distinction between the treatment of TWC's creditors and Alan's creditors under this Plan. From and after the Effective Date, TWC and Alan's will cease to exist as a separate legal entities. 4. Post-Confirmation Management and Board of Directors The management of the Reorganized Debtor and the members of the Reorganized Debtor's Board of Directors will be determined by BDH, as the owner of 90% of the Reorganized Debtor. Prior to the Plan confirmation hearing, BDH will file a pleading with the Bankruptcy Court identifying the makeup of the initial management of the Reorganized Debtor and the initial members of the Reorganized Debtor's Board of Directors. 5. Purchase and Waiver of Avoidance Causes of Action. Other than the Class Action Suit, the Reorganized Debtor will be acquiring all causes of action of these estates, including avoidance causes of action, and the Reorganized Debtor has agreed not to pursue any such causes of action. 6. Objections to Claims The Post-Confirmation Committee shall file and prosecute or continue with the prosecution of objections to claims which were commenced by the Debtors prior to the Effective Date. The Bankruptcy Court shall retain jurisdiction to consider and adjudicate all such objections to claims, regardless of whether the objections to claims were filed prior to or after the Effective Date. Any objection to any claim must be filed within one hundred twenty (120) days following the Effective Date. 7. Disbursing Agent The Reorganized Debtor shall serve as the disbursing agent for the purpose of making all distributions to the class 20 claim holders. LNBRB shall cause all allowed fees and expenses of the professionals employed in these cases (excluding FocalPoint) to be paid out of the Professional Fee Account. 8. Executory Contracts and Unexpired Leases On the Effective Date, all of the Debtors' executory contracts and unexpired leases attached as Exhibit "11" to this Plan (the "Assumed Contracts and Leases") shall be deemed assumed by the Reorganized Debtor effective as of the Effective Date. BDH shall have the right to amend the list of the Assumed Contracts and Leases up until the business day prior to the hearing on confirmation of this Plan. With respect to all of the Assumed Contracts and Leases, the Reorganized Debtor will be required to (a) cure or provide adequate assurance that the Reorganized Debtor will promptly cure any default existing under all such Assumed Contracts and Leases, (b) compensate or provide adequate assurance that the Reorganized Debtor will promptly compensate any other party to such Assumed Contracts and Leases for any actual pecuniary loss to such parties resulting from any default existing under any such Assumed Contracts and Leases, and (c) provide adequate assurance of future performance under such Assumed Contracts and Leases. If the Reorganized Debtor elects not to take an assignment of one or more of the Debtors' existing retail store leases and those landlords obtain allowed unsecured claims against the Debtors as a result of the rejection, the principal amount of the First Unsecured Creditors' Promissory Note will be increased so as not to dilute the distribution that class 20 claim holders would have received if not for such rejection. All of the Debtors' remaining executory contracts and unexpired leases which are not included among the list of Assumed Contracts and Leases attached as Exhibit "11" to this Plan shall be deemed rejected effective as of 11:59 PST on the Effective Date. THE BAR DATE FOR FILING A PROOF OF CLAIM BASED ON A CLAIM ARISING FROM THE REJECTION OF AN UNEXPIRED LEASE OR EXECUTORY CONTRACT WHICH IS REJECTED ON THE EFFECTIVE DATE WILL BE THIRTY (30) DAYS AFTER THE EFFECTIVE DATE. Any claim based on the rejection of an unexpired lease or executory contract will be barred if the proof of claim is not timely filed, unless the Bankruptcy Court orders otherwise. With respect to any real property leases of the Debtors that the Reorganized Debtor elects not to take an assignment of (a "Rejected Property"), the Reorganized Debtor shall be entitled to continue in possession of the subject property and operate therefrom for up to 30 days after the Effective Date (the "Exit Period") in order to close and exit the Rejected Property in an orderly fashion, to give advance notice to the store employees, and to remove store inventory, equipment and trade fixtures. The Reorganized Debtor shall have the right to remove all inventory, equipment and trade fixtures from a Rejected Property during the Exit Period free of any claim or lien of the landlord or other party. During the Exit Period, the Reorganized Debtor shall comply with all provisions of the applicable lease, including, without limitation, the payment of rent and expenses, the maintenance of insurance coverage, and provisions regarding use. At the end of such occupancy the Reorganized Debtor shall turn over possession of the Rejected Property to the landlord in broom-clean condition and repair any damage caused by the removal of equipment and trade fixtures all in accordance with the terms of the respective lease. The Bankruptcy Court shall retain jurisdiction to order the return of possession at the end of the Exit Period. With respect to any executory contract or unexpired capital lease of the Debtors that the Reorganized Debtor elects not to take an assignment of (a "Rejected Contract"), the Reorganized Debtor shall have the same 30-day Exit Period to redeliver such equipment to the lessor, and during such Exit Period, the Reorganized Debtor shall pay all of the contractual rent due the respective lessor under the Rejected Contract until the redelivery of such equipment to the lessor, all in accordance with the terms of the respective Rejected Contract. 9. Changes in Rates Subject to Regulatory Commission Approval The Debtors are not subject to governmental regulatory commission approval of their rates. 10. Name Change, Termination of Qualifications and Dissolution of Debtors. On the Effective Date, the Debtors shall deliver to the Reorganized Debtor (a) an executed Certificate of Amendment to its Articles of Incorporation changing its name to "Shoes Liquidation Co." in a form acceptable to the California Secretary of State and (b) an executed Certificate of Withdrawal from the State of Delaware surrendering its authority to transact business in Delaware in a form acceptable to the Delaware Secretary of State. Each of such documents shall be prepared by BDH, at BDH's expense, and delivered to the Debtors for signature at least one business day prior to the Effective Date. As soon as practicable after the Effective Date, each of the Debtors shall deliver to the Reorganized Debtor the documents necessary to surrender its authority to transact business in each state in which it is currently qualified to do business. Each of such documents shall be prepared by BDH, at BDH's expenses, and delivered to the Debtors for signature prior to the Effective Date. Pursuant to this Plan, the Plan Confirmation Order, and Section 1400 of the California Corporations Code, as applicable, the Debtors shall cease to exist as corporate entities and shall be deemed, as a matter of law, dissolved, as of the entry of the Final Decree. Notwithstanding the dissolution of the Debtors and consistent with Section 2010 of the California Corporations Code, the Debtors shall continue to exist for the purpose of winding up their affairs, and the officers of the Debtors in office on the Effective Date shall execute and deliver to the Reorganized Debtor such reasonable instruments and other documents which are prepared by BDH, at BDH's expense, and delivered to the Debtors prior to the Effective Date for the purpose of carrying out or evidencing any of the transactions contemplated by this Plan. 11. Tax-Free Reorganization Confirmation of this Plan shall effect a tax-free reorganization under Internal Revenue Code SS 368(a)(1)(G). 12. Exemption From Certain Transfer Taxes Pursuant to section 1146(c) of the Bankruptcy Code, the transfer of property shall not be subject to any stamp tax, transfer tax or similar tax. 13. Present Certificated Securities and Promissory Notes Deemed Null and Void The various promissory notes, stock certificates, and other documents to be provided to holders of allowed claims under this Plan shall be in the place and stead of any certificated security or promissory note presently held by such creditors as evidence of such allowed claims and all such documents presently held by such creditors shall be deemed null and void as of the Effective Date. 14. Retention of Jurisdiction After confirmation of this Plan and occurrence of the Effective Date, in addition to any jurisdiction which is provided to the Bankruptcy Court by the Bankruptcy Code, the Bankruptcy Court will retain such jurisdiction as is legally permissible including for the following purposes: i. to resolve any and all disputes regarding the operation and interpretation of this Plan and the Plan Confirmation Order; ii. to resolve any and all disputes regarding any exhibits to this Plan and any other documents that the Reorganized Debtor issues under this Plan or requests the Debtors to execute to effectuate the terms of this Plan; iii. to determine the allowability, classification, or priority of claims and interests, regardless of whether such objection is filed before or after the Effective Date; iv. to determine the extent, validity and priority of any lien asserted against property of the Debtors or their estates; v. to construe and take any action to enforce this Plan, the Plan Confirmation Order, and any other order of the Bankruptcy Court, issue such orders as may be necessary for the implementation, execution, performance, and consummation of this Plan, the Plan Confirmation Order, and all matters referred to in this Plan and the Plan Confirmation Order, and to determine all matters that may be pending before the Bankruptcy Court in these cases on or before the Effective Date with respect to any person or entity related thereto; vi. to determine (to the extent necessary) any and all applications for allowance of compensation and reimbursement of expenses of professionals for the period on or before the Effective Date; vii. to determine any request for payment of administrative expenses; viii. to determine motions for the rejection, assumption, or assignment of executory contracts or unexpired leases filed before the Effective Date and the allowance of any claims resulting therefrom; ix. to determine all applications, motions, adversary proceedings, contested matters, and any other litigated matters instituted during the pendency of these cases whether before, on, or after the Effective Date including avoidance causes of action; x. to determine such other matters and for such other purposes as may be provided in the Plan Confirmation Order; xi. to modify this Plan under Section 1127 of the Bankruptcy Code in order to remedy any apparent defect or omission in this Plan or to reconcile any inconsistency in this Plan so as to carry out its intent and purpose; xii. except as otherwise provided in this Plan and the Plan Confirmation Order, to issue injunctions, to take such other actions or make such other orders as may be necessary or appropriate to restrain interference with this Plan or the Plan Confirmation Order, or the execution or implementation by any person or entity of this Plan or the Plan Confirmation Order; xiii. to issue such orders in aid of consummation of this Plan and the Plan Confirmation Order, notwithstanding any otherwise applicable nonbankruptcy law, with respect to any person or entity, to the fullest extent authorized by the Bankruptcy Code or Bankruptcy Rules; and xiv. to enter a final decree closing these Chapter 11 cases. 15. Post-Confirmation Committee The Post-Confirmation Committee shall be comprised of those members of the Creditors Committee who wish to serve on the Post-Confirmation Committee. The Post-Confirmation Committee shall have the right to retain such professionals that they deem necessary to effectuate the foregoing and to pay the fees and expenses of such professionals out of the funds designated to be paid to the class 20 claim holders without any further order of the Bankruptcy Court. The Post-Confirmation Committee shall remain in existence until such time as the final distribution is made to holders of class 20 allowed claims. The Post-Confirmation Committee shall have the powers and responsibilities, and the duties of the Post-Confirmation Committee shall be restricted to the matters, described immediately below. 1. The Post-Confirmation Committee shall monitor th performance of the Reorganized Debtor regarding its obligations to make all of the payments required to be made to class 20 allowed claims. 2. The Post-Confirmation Committee shall monitor the performance of the Reorganized Debtor. 3. The Post-Confirmation Committee shall have the authority to agree on behalf of all class 20 claim holders to: i. proposals made by the Reorganized Debtor to modify this Plan; ii. elect to exchange all or a portion of the then unpaid principal balance of the First Unsecured Creditors Promissory Note for BDH common stock at an exchange price of $4.35 per share and/or put up to 100% of the then outstanding principal balance of the First Unsecured Creditors Promissory Note to the Reorganized Debtor for cash equal to 80% of that portion of the principal balance of the First Unsecured Creditors Promissory Note which is to be put to the Reorganized Debtor, as provided for herein; iii. elect to exchange all or a portion of the then unpaid principal balance of the Second Unsecured Creditors Promissory Note for BDH common stock at an exchange price of $4.35 per share and/or put up to 100% of the then outstanding principal balance of the Second Unsecured Creditors Promissory Note to the Reorganized Debtor for cash equal to 80% of that portion of the principal balance of the Second Unsecured Creditors Promissory Note which is to be put to the Reorganized Debtor, as provided for herein; and iv. proposals made by the Reorganized Debtor to postpone the scheduled date of a distribution to holders of class 20 allowed claims. 4. The Post-Confirmation Committee may initiate and prosecute objections to claims, including objections to claims which were filed prior to the Effective Date. 5. The Post-Confirmation Committee shall have authority to agree on behalf of class 20 claim holders to proposals by the Reorganized Debtor with respect to disposition and settlement of any class 20 claim. 6. The Post-Confirmation Committee shall have such other powers and responsibilities as expressly set forth in this Plan. 7. The members of the Post-Confirmation Committee shall serve without compensation for their performance of services as members of the Post-Confirmation Committee, except that they shall be entitled to reimbursement of reasonable expenses by the Reorganized Debtor. 8. The Post-Confirmation Committee shall take such steps as are necessary to obtain the entry of a final decree closing the Debtors' Chapter 11 cases 9. The Post-Confirmation Committee shall have the right to retain the services of attorneys, accountants and other agents which, in the discretion of the Post-Confirmation Committee, are necessary to assist the Post-Confirmation Committee in the performance of its duties, including any professional which were employed in the Debtors' Chapter 11 cases whether by the Debtors or the Creditors Committee. The fees and expenses of such professionals shall be paid by the Reorganized Debtor upon the monthly submission of bills to the Reorganized Debtor and the Post-Confirmation Committee. The payment of the fees and expenses of the Post-Confirmation Committee's retained professionals shall be made in the ordinary course of business and shall not be subject to the approval of the Bankruptcy Court. 10. Neither the Post-Confirmation Committee, nor any of its members, designees or professionals, nor any duly designated agent or representative of the Post-Confirmation Committee, or their respective employees, shall be liable for the act or omission of any other member, designee, agent or representative of the Post-Confirmation Committee. Nor shall any member be liable for any act or omission taken or omitted to be taken in its capacity as a member of the Post-Confirmation Committee, other than acts or omissions resulting from such member's willful misconduct or gross negligence. The Post-Confirmation Committee may, in connection with the performance of its functions, and in its sole and absolute discretion, consult with its counsel, accountants and agents, and shall not be liable for any act taken, omitted to be taken, or suffered to be done in accordance with advice or opinions rendered by such professionals. Notwithstanding such authority, the Post-Confirmation Committee shall be under no obligation to consult with its counsel, accountants or agents, and its determination not to do so shall not result in the imposition of liability on the Post-Confirmation Committee, or its members and/or designees, unless such determination is based on willful negligence or gross negligence. 11. The Post-Confirmation Committee will terminate upon the Reorganized Debtor's satisfying in full all obligations owing by the Reorganized Debtor under both the First Unsecured Creditors Promissory Note and the Second Unsecured Creditors Promissory Note. IV. EFFECT OF CONFIRMATION OF THIS PLAN A. Discharge. The Debtors will not receive a discharge under this Plan pursuant to and in accordance with the provisions of Section 1141 of the Bankruptcy Code because there has been a liquidation of all or substantially all of the property of the Debtors' estates and because the Debtors will not engage in business after the consummation of this Plan. B. Modification of this Plan. The Debtors may modify this Plan at any time before confirmation. However, the Bankruptcy Court may require a new disclosure statement and/or re-voting on this Plan if the Debtors modify this Plan before confirmation. The Debtors may also seek to modify this Plan at any time after confirmation of this Plan so long as (1) this Plan has not been substantially consummated and (2) the Bankruptcy Court authorizes the proposed modifications after notice and a hearing. C. Post-Confirmation Status Reports. Until a final decree closing the Debtors' Chapter 11 cases is entered, the Post-Confirmation Committee shall file a quarterly status report with the Bankruptcy Court explaining what progress has been made toward consummation of the confirmed Plan and shall serve such status reports upon the Office of the United States Trustee, the Post-Confirmation Committee, and those parties who have requested special notice. D. Post-Confirmation Conversion/Dismissal. A creditor or any other party in interest may bring a motion to convert r dismiss these cases under Section 1112(b) of the Bankruptcy Code after this Plan is confirmed if there is a default in performing this Plan. If the Bankruptcy Court orders these cases converted to Chapter 7 after this Plan is confirmed, then all property that had been property of the Chapter 11 estates, and that has not been disbursed pursuant to this Plan, will revest in the Chapter 7 estates, and the automatic stay will be reimposed upon the revested property, but only to the extent that relief from stay was not previously authorized by the Bankruptcy Court during these cases. The Plan Confirmation Order may also be revoked under very limited circumstances. The Bankruptcy Court may revoke the Plan Confirmation Order if it was procured by fraud and if a party in interest brings an adversary proceeding to revoke confirmation within 180 days after the entry of the Plan Confirmation Order. E. Final Decree. Once these estates have been fully administered as referred to in Bankruptcy Rule 3022, the Post-Confirmation Committee shall file a motion with the Bankruptcy Court to obtain a final decree to close these cases. The Reorganized Debtor shall be responsible for the timely payment of all fees incurred pursuant to 28 U.S.C. Section 1930(a)(6) until the entry of a final decree closing these cases. Presented By: ------------ LEVENE, NEALE, BENDER, RANKIN & BRILL L.L.P. By: /s/ Monica Kim --------------- RON BENDER MONICA Y. KIM Attorneys for Chapter 11 Debtors and Plan Proponents Approved By: ------------ WOLF, RIFKIN, SHAPIRO & SCHULMAN, LLP By: /s/ Simon Aron --------------- SIMON ARON Attorneys for Big Dog Holdings, Inc. TABLE OF CONTENTS ----------------- I. INTRODUCTION.............................................................................................2 II. PLAN SUMMARY.............................................................................................3 III. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS....................................................12 A. What Creditors and Interest Holders Will Receive Under this Plan...............................12 B. Unclassified Claims............................................................................12 1. Administrative Expenses...............................................................13 2. Priority Tax Claims...................................................................20 C. Classified Claims and Interests................................................................21 1. Classes of Secured Claims.............................................................21 2. Classes of Priority Unsecured Claims..................................................77 3. Class of General Unsecured Claims.....................................................78 4. Class of Interest Holders.............................................................85 D. Means of Effectuating this Plan and Implementation of this Plan................................86 1. The Reorganized Debtor................................................................86 2. Plan Funding..........................................................................87 3. Substantive Consolidation.............................................................96 4. Post-Confirmation Management and Board of Directors...................................96 5. Purchase and Waiver of Avoidance Causes of Action.....................................96 6. Objections to Claims..................................................................96 7. Disbursing Agent......................................................................97 8. Executory Contracts and Unexpired Leases..............................................97 9. Changes in Rates Subject to Regulatory Commission Approval...........................100 10. Name Change, Termination of Qualifications and Dissolution of Debtors................100 11. Tax-Free Reorganization..............................................................101 12. Exemption From Certain Transfer Taxes................................................101 13. Present Certificated Securities and Promissory Notes Deemed Null and Void............102 14. Retention of Jurisdiction............................................................102 15. Post-Confirmation Committee..........................................................105 IV. EFFECT OF CONFIRMATION OF THIS PLAN....................................................................109 A. Discharge.....................................................................................109 B. Modification of this Plan.....................................................................109 C. Post-Confirmation Status Reports..............................................................110 D. Post-Confirmation Conversion/Dismissal........................................................110 E. Final Decree..................................................................................111
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