SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT by and among THE FINANCIAL INSTITUTIONS NAMED HEREIN as Lenders, WELLS FARGO CAPITAL FINANCE, LLC as Administrative Agent and Co-Lead Arranger MERRILL LYNCH, PIERCE, FENNER AND SMITH INCORPORATED...

EXHIBIT 10.29

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SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

by and among

THE FINANCIAL INSTITUTIONS NAMED HEREIN

as Lenders,

▇▇▇▇▇ FARGO CAPITAL FINANCE, LLC

as Administrative Agent and Co-Lead Arranger

▇▇▇▇▇▇▇ LYNCH, PIERCE, ▇▇▇▇▇▇ AND ▇▇▇▇▇ INCORPORATED

(successor by merger to Banc of America Securities LLC), as Co-Lead Arranger and Co-Bookrunner

BANK OF AMERICA, N.A.

as Syndication Agent

and

PC MALL, INC.
PC MALL SALES, INC.
AF SERVICES, LLC
PC MALL GOV, INC.
ONSALE, INC.
AV ACQUISITION, INC.
MALL ACQUISITION 3, INC.

MALL ACQUISITION SUB 4 INC.

MALL ACQUISITION SUB 5 INC.

PC MALL SERVICES, INC.

OSRP, LLC

and

SARCOM, INC.

as Borrowers

Dated:  As of December 14, 2010

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TABLE OF CONTENTS

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TABLE OF CONTENTS

(continued)

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TABLE OF CONTENTS

(continued)

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TABLE OF CONTENTS

(continued)

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TABLE OF CONTENTS

(continued)

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SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

This Second Amended and Restated Loan and Security Agreement (this “Agreement”), dated as of December 14, 2010, is entered into by and among the financial institutions from time to time parties hereto, whether by execution of an Assignment and Acceptance Agreement (as defined below) or this Agreement (each a “Lender” and collectively “Lenders”), ▇▇▇▇▇ FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, as successor by merger to Wachovia Capital Finance Corporation (Western), as administrative and collateral agent for the Lenders (in such capacity “Agent”) and Co-Lead Arranger, ▇▇▇▇▇▇▇ LYNCH, PIERCE, ▇▇▇▇▇▇ AND ▇▇▇▇▇ INCORPORATED (successor by merger to Banc of America Securities LLC, “ML”) as Co-Lead Arranger and Co-Bookrunner, BANK OF AMERICA, N.A., as Syndication Agent (“BofA”), and PC MALL, INC., a Delaware corporation formerly known as Idea Mall, Inc. (“PC Mall”), PC MALL SALES, INC., a California corporation formerly known as Creative Computers, Inc. (“PC Mall Sales”), AF SERVICES, LLC, a Delaware limited liability company, as successor by merger to AF Services, Inc. (“AF Services”), PC MALL GOV, INC., a Delaware corporation (“PCMG”), ONSALE, INC., a Delaware corporation (“Onsale”), AV ACQUISITION, INC., a Delaware corporation (“AV Acquisition”), MALL ACQUISITION 3, INC., a Delaware corporation (“Acquisition 3”), MALL ACQUISITION SUB 4 INC., a Delaware corporation (“Acquisition 4”), MALL ACQUISITION SUB 5 INC., a Delaware corporation (“Acquisition 5”), PC MALL SERVICES, INC., a Delaware corporation (“Mall Marketing”), OSRP, LLC, a Delaware limited liability company (“OSRP”) and SARCOM, INC., a Delaware corporation (“Sarcom”), jointly and severally as co-borrowers (each a “Borrower” and collectively “Borrowers”).

W I T N E S S E T H:

WHEREAS, Agent, the Lenders party thereto, and certain of the Borrowers previously have entered into that certain Amended and Restated Loan and Security Agreement dated August 1, 2005 (as amended, restated, supplemented or otherwise modified from time to time, the “Original Loan Agreement”); and

WHEREAS, the parties hereto have agreed to amend and restate in their entirety the agreements contained in the Original Loan Agreement as amongst themselves; and

WHEREAS, as affiliated companies under the common ownership of PC Mall, the financial success of each Borrower is largely dependant on the financial success of the other Borrowers.  Although certain of the Borrowers operate separate and distinct core businesses in designated geographical areas, administrative and other service functions are performed for all of the Borrowers under the auspices of AF Services and all of the Borrowers are providing technology-related goods and services for the ultimate benefit of PC Mall and its shareholders.  It would be extremely impractical and unfeasible for each Borrower to report separately its Eligible Accounts and Eligible Inventory and to receive separately the proceeds of advances based upon such Borrower’s Eligible Accounts and Eligible Inventory alone.  Borrowers have therefore requested that Agent and Lenders make funds available to all Borrowers based upon all of their Eligible Accounts and Eligible Inventory.  All advances and credit accommodations will thereby

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benefit all of the Borrowers by providing an available source of credit for all of the Borrowers, as needed, to fund their working capital needs; and

WHEREAS, each Lender is willing to agree (severally and not jointly) to make such loans and provide such financial accommodations to Borrowers on a pro rata basis according to its Commitment (as defined below) on the terms and conditions set forth herein and Agent is willing to act as administrative and collateral agent for Lenders on the terms and conditions set forth herein and in the other Financing Agreements (as defined below); and

WHEREAS, each Borrower hereby restates, ratifies and reaffirms each and every term and condition set forth in the Original Loan Agreement, as amended and restated hereby, and the other Financing Agreements effective as of the date hereof;

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

SECTION 1.  DEFINITIONS.

All terms used herein which are defined in Article 1 or Article 9 of the California Uniform Commercial Code shall have the respective meanings given therein unless otherwise defined in this Agreement.  All references to the plural herein shall also mean the singular and to the singular shall also mean the plural.  All references to Agent, Lenders and Borrowers  pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns.  The words “hereof”, “herein”, “hereunder”, “this Agreement” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.  An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 11.3.  Any accounting term used herein unless otherwise defined in this Agreement shall have the meaning customarily given to such term in accordance with GAAP.  For purposes of this Agreement, the following terms shall have the respective meanings given to them below.

1.1           “Accounts” shall mean all present and future rights of Borrowers to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance.

1.2           “Adjusted Eurodollar Rate” shall mean, with respect to each Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded upwards, if necessary, to the next one-one hundredth (1/100) of one percent (1%)) determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage equal to:  (i) one (1) minus (ii) the Reserve Percentage.  For purposes hereof, “Reserve Percentage” shall mean the reserve percentage, expressed as a decimal, prescribed by any United States or foreign banking authority for determining the reserve requirement which is or would be applicable to deposits of United States dollars in a non-United States or an international banking office of Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with the proceeds of such deposit, whether or not

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the Reference Bank actually holds or has made any such deposits or loans.  The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage.

1.3           “Affected Lender” shall have the meaning set forth in Section 3.9 hereof.

1.4           “Affiliate” shall mean, with respect to a specific Person, another Person that controls or is controlled by or is under common control with, such Person.  For purposes of this definition, “control” means the possession, directly or indirectly through one or more intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract or otherwise; provided, however, that for purposes of the definition of Eligible Accounts and Section 9.12: (a) any Person which owns directly or indirectly 10% or more of the Stock having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership in which a Person is a general partner shall be deemed an Affiliate of such Person.

1.5           “Apple Computer” shall mean Apple Inc. (formerly known as Apple Computer Inc.), a California corporation.

1.6           “Apple Intercreditor Agreement” shall mean that certain Amended and Restated Intercreditor and Release Agreement dated as of November 24, 2010 between Apple Computer and Agent, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced from time to time.

1.7           “Applicable Ratio” shall mean the required Fixed Charge Coverage Ratio with respect to a particular testing period as set forth in the grid in Section 9.15.

1.8           “Appraised Liquidation Value” shall mean, with respect to Eligible Inventory, the appraised value of such Eligible Inventory, expressed as a percentage of the Value thereof, as determined by Agent as of any date on an “orderly liquidation existing channel” basis, net of all estimated liquidation expenses, shrinkage and markdowns, pursuant to an appraisal conducted, at Borrowers’ expense, by an independent appraisal firm acceptable to Agent or, in the absence of such appraisal, such value as otherwise determined by Agent in its sole discretion.

1.9           “Approved Increase” shall have the meaning set forth in Section 2.5(a) hereof.

1.10         “Assignment and Acceptance” shall mean an Assignment and Acceptance substantially in the form of Exhibit A attached hereto delivered to Agent in connection with an assignment of a Lender’s interest hereunder in accordance with the provisions of Section 13.5 hereof.

1.11         “Availability Reserves” shall mean, as of any date of determination, such amounts as Agent may from time to time establish and revise in its commercially reasonable discretion reducing the amount of Revolving Loans and Letter of Credit Accommodations which would otherwise be available to Borrowers under the lending formula(s) provided for herein:  (a) to

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reflect events, conditions, contingencies or risks which, as determined by Agent in good faith, do affect either (i) the Collateral or any other property which is security for the Obligations or its value or (ii) the security interests and other rights of Agent in the Collateral (including the enforceability, perfection and priority thereof) or (b) to reflect Agent’s good faith belief that any collateral report or financial information furnished by or on behalf of any Borrower or any Obligor to any Lender is or may have been incomplete, inaccurate or misleading in any material respect or (c) to reflect any state of facts which Agent determines in good faith constitutes or could constitute an Event of Default.  Without limiting the generality of the foregoing, Agent (i) shall establish on the date hereof and maintain throughout the term of this Agreement and throughout any renewal term an Availability Reserve for an amount equal to two (2) months (or one (1) month in the case of the warehouse in Tennessee or for any location leased for 120 days or less) of Borrowers’ gross rent and other obligations as lessee for each leased premises of Borrowers which is either a warehouse location or is located in a state where a landlord may be entitled to a priority lien on Collateral to secure unpaid rent and with respect to each such property the landlord has not executed a form of waiver and consent acceptable to Agent, (ii) shall establish on the date hereof and maintain throughout the term of this Agreement and throughout any renewal term an Availability Reserve for an amount equal to the greater of the Value of the Inventory subject to the security interest of any Persons who hold a security interest prior to Agent in the sale proceeds of Inventory, unless and until those Persons have released or subordinated their security interests against Borrowers in a manner satisfactory to Agent) or the sum of the Borrowers’ payables and accrued payables to Apple Computer (or such other Persons), (iii) shall establish on the date hereof and maintain throughout the term of this Agreement and throughout any renewal term Availability Reserves for Letter of Credit Accommodations as provided in Section 2.2(c) hereof and without duplication of Section 2.2(c), and (iv) shall establish and maintain throughout the term of this Agreement and any renewal term Availability Reserves for obligations, liabilities or indebtedness (contingent or otherwise) of Borrowers to Agent or any Bank Product Provider arising under or in connection with any Bank Products or as such Affiliate or Person may otherwise require in connection therewith to the extent that such obligations, liabilities or indebtedness constitute Obligations as such term is defined herein or otherwise receive the benefit of the security interest of Agent in any Collateral.

1.12         “Available Increase Amount” shall mean, as of any date of determination, an amount equal to the result of (a) $20,000,000 minus (b) the aggregate principal amount of increases to the Maximum Credit previously made pursuant to Section 2.5 hereof.

1.13         “Average 30 Day Excess Availability” shall mean, for any date of determination, the average of the amount of Excess Availability as of the end of each day during the immediately preceding thirty (30) day period ending on and including such date of determination.

1.14         “Bank Product Provider” shall mean any Lender or any of its Affiliates; provided, however, that no such Person shall constitute a Bank Product Provider with respect to a Bank Product unless and until Agent shall have received a Bank Product Provider Letter Agreement from such Person and with respect to the applicable Bank Product within 10 days after the provision of such Bank Product to the applicable Borrower.

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1.15         “Bank Product Provider Letter Agreement” shall mean a letter agreement in form and substance satisfactory to Borrowers and Agent, duly executed by the applicable Bank Product Provider, Borrowers, and Agent.

1.16         “Bank Products” shall mean any one or more of the following types or services or facilities provided to a Borrower by a Bank Product Provider: (a) credit cards or stored value cards, (b) cash management or related services, including (i) the automated clearinghouse transfer of funds for the account of a Borrower pursuant to agreement or overdraft for any accounts of Borrowers maintained at any Bank Product Provider and (ii) controlled disbursement services or (c) Hedge Agreements if and to the extent permitted hereunder.

1.17         “Blocked Account” shall have the meaning set forth in Section 6.3 hereof.

1.18         “Business Day” shall mean any day other than a Saturday, Sunday, or other day on which commercial banks are authorized or required to close under the laws of the State of New York or the State of California, and a day on which the Reference Bank, Agent and each Lender are open for the transaction of business, except that if a determination of a Business Day shall relate to any Eurodollar Rate Loans, the term Business Day shall also exclude any day on which banks are closed for dealings in dollar deposits in the London interbank market or other applicable Eurodollar Rate market.

1.19         “Capital Expenditures” means, with respect to any Person for any period, the aggregate of all expenditures by such Person and its subsidiaries during such period that are capital expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or financed; provided, however, that Capital Expenditures for any Borrower shall not include the following:

(a)           expenditures of proceeds of insurance settlements, condemnation awards and other settlements in respect of lost, destroyed, damaged or condemned assets, equipment or other property to the extent such expenditures are made to replace or repair such lost, destroyed, damaged or condemned assets, equipment or other property or otherwise to acquire, maintain, develop, construct,  improve, upgrade or repair assets or properties useful in the business of any Borrower;

(b)           [Reserved];

(c)           [Reserved];

(d)           expenditures that are accounted for as capital expenditures of such person and that actually are paid for by a third party (excluding any Borrower) and for which no Borrower has provided or is required to provide or incur, directly or indirectly, any consideration or obligation to such third party or any other person (whether before, during or after such period);

(e)           the book value of any asset owned by such person prior to or during such period to the extent that such book value is included as a capital expenditure during such period as a result of such person reusing or beginning to reuse such asset during such period without a corresponding expenditure actually having been made in such period; provided that (i) any

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expenditure necessary in order to permit such asset to be reused shall be included as a Capital Expenditure during the period that such expenditure actually is made and (ii) such book value shall have been included in Capital Expenditures when such asset was originally acquired;

(f)            the purchase price of equipment purchased during such period to the extent the consideration therefor consists of any combination of (i) used or surplus equipment traded in at the time of such purchase and (ii) the proceeds of a concurrent sale of used or surplus equipment, in each case, in the ordinary course of business;

(g)           expenditures to the extent they are financed with the proceeds of a disposition of used, obsolete, worn out or surplus equipment or property in the ordinary course of business;

(h)           any expenditure made solely with the proceeds of an issuance of equity interests of a Borrower after the date hereof;

(i)            the financed purchase price, together with any acquisition costs, property improvements and amounts attributable to such purchase money financing, of real estate acquisitions and investments made during such period and permitted under this Agreement, including the committed financed portion of the purchase price for the properties listed on Schedule 9.10; provided, however that the (i) financing for the purchase of the property in El Segundo, CA be committed within.180 days following the closing date of the purchase of such property and (ii) the financing for the purchase of each of the Irvine, California and Roswell, Georgia properties be committed within 90 days following the closing date of each such property.

1.20         “Code” shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto.

1.21         “Collateral” shall have the meaning set forth in Section 5 hereof.

1.22         “Commitment” shall mean, as to any Lender, the Revolving Loan Commitment of such Lender, the Term Loan Commitment of such Lender, or the combined Revolving Loan Commitment and Term Loan Commitment of such Lender, as the context requires.

1.23         “Compliance Certificate” shall mean a certificate, in form and substance satisfactory to Agent, by which Borrowers certify compliance with Section 9.15.

1.24         “Credit Card Issuer” shall mean any person who issues or whose members issue credit cards used by customers of any Borrower to purchase goods, including, without limitation, MasterCard or VISA bank credit or debit cards or other bank credit or debit cards, and American Express, Discover, Diners Club, ▇▇▇▇▇ ▇▇▇▇▇▇▇, and other non-bank credit or debit cards.

1.25         “Credit Card/Check Processor” shall mean any servicing or processing agent or any factor or financial intermediary who facilities, services, processes, collects, guarantees or manages the credit authorization, billing transfer and/or payment from a Credit Card Issuer or on

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a check and other procedures with respect to any sales transactions of any Borrower involving credit card, debit card or check purchases by customers.

1.26         “Credit Card/Check Processing Receivables” shall mean all Accounts consisting of the present and future rights of any Borrower to payment by Credit Card Issuers or Credit Card/Check Processors for merchandise sold and delivered to customers of such Borrower who have purchased such goods using a credit card, debit card or check.

1.27         “Defaulting Lender” shall have the meaning set forth in Section 6.10(d) hereof.

1.28         “EBITDA” means, with respect to any fiscal period, the result of (in each case, determined on a consolidated basis in accordance with GAAP):

(a)           Borrowers’ and their subsidiaries consolidated net earnings (or loss), minus

(b)           to the extent included in the calculation of Borrowers’ and their subsidiaries consolidated net earnings (or loss), the sum of: (i) extraordinary gains, (ii) non-cash gains on account of sales of assets, and (iii) interest income, plus

(c)           to the extent deducted in the calculation of Borrowers’ and their subsidiaries consolidated net earnings (or loss), the sum of: (i) non-cash losses including without limitation the writeoff of goodwill and other intangible assets, (ii) non-cash losses on account of sales of assets, (iii) non-cash stock based compensation expense, (iv) interest expense, (v) income taxes, and (vi) depreciation and amortization for such period.

1.29         “Eligible Accounts” shall mean Accounts created by Borrowers which are and continue to be acceptable to Agent based on the criteria set forth below.  In general, Accounts shall be Eligible Accounts if:

(a)           such Accounts arise from the actual and bona fide sale and delivery of goods by Borrowers or rendition of services by Borrowers in the ordinary course of their business which transactions are completed in accordance with the terms and provisions contained in any documents related thereto;

(b)           in the case of Credit Card/Check Processing Receivables, such Accounts are not unpaid more than five (5) days after the date of the original invoice for them, and in the case of all other Accounts, such Accounts are not unpaid more than one hundred twenty (120) (or, on a case-by-case basis in Agent’s sole discretion for Accounts not to exceed $10,000,000 in the aggregate, one hundred eighty (180)) days after the date of the original invoice for them and are not unpaid more than sixty (60) days after the original due date for them;

(c)           such Accounts comply with the terms and conditions contained in Section 7.2(d) of this Agreement, and in the case of Credit Card/Check Processing Receivables, Agent shall have received a direction letter duly executed and delivered by the Credit Card Issuer or Credit Card/Check Processor with respect thereto in form and substance reasonably satisfactory to Agent;

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(d)           such Accounts do not arise from sales on consignment, guaranteed sale, sale and return, sale on approval, or other terms under which payment by the account debtor may be conditional or contingent (except for returns made in the ordinary course of business and in accordance with Borrowers’ present practices);

(e)           the chief executive office of the account debtor with respect to such Accounts is located in the United States of America or Canada, or, at Agent’s option, if the chief executive office of the account debtor with respect to such Accounts is located other than in the United Sates of America or Canada, then if either:  (i) the account debtor has delivered to Borrowers an irrevocable letter of credit issued or confirmed by a bank satisfactory to Agent and payable only in the United States of America and in U.S. dollars, sufficient to cover such Account, in form and substance satisfactory to Agent and, if required by Agent, the original of such letter of credit has been delivered to Agent or Agent’s agent and the issuer thereof notified of the assignment of the proceeds of such letter of credit to Agent, or (ii) such Account is subject to credit insurance payable to Agent issued by an insurer and on terms and in an amount acceptable to Agent, or (iii) such Account is otherwise acceptable in all respects to Agent (subject to such lending formula with respect thereto as Agent may determine);

(f)            such Accounts do not consist of progress ▇▇▇▇▇▇▇▇ (such that the obligation of the account debtors with respect to such Accounts is conditioned upon a Borrower’s satisfactory completion of any further performance under the agreement giving rise thereto), ▇▇▇▇ and hold invoices or retainage invoices, except as to ▇▇▇▇ and hold invoices, if Agent shall have received an agreement in writing from the account debtor, in form and substance satisfactory to Agent, confirming the unconditional obligation of the account debtor to take the goods related thereto and pay such invoice;

(g)           the account debtor with respect to such Accounts has not asserted a counterclaim, defense or dispute and does not have, and does not engage in transactions which may give rise to, any right of setoff against such Accounts (but the portion of the Accounts of such account debtor in excess of the amount at any time and from time to time owed by any Borrower to such account debtor or claimed owed by such account debtor may be deemed Eligible Accounts);

(h)           there are no facts, events or occurrences which would impair the validity, enforceability or collectability of such Accounts (other than the collectability of such Accounts by Agent by virtue of the Federal Assignment of Claims Act of 1940, as amended or any similar state or local law, if applicable), or reduce the amount payable or delay payment thereunder;

(i)            such Accounts are subject to the first priority, valid and perfected security interest of Agent and any goods giving rise thereto are not, and were not at the time of the sale thereof, subject to any liens except those permitted in this Agreement;

(j)            neither the account debtor nor any officer or employee of the account debtor with respect to such Accounts is an officer, employee or agent of or affiliated with any Borrower directly or indirectly by virtue of family membership, ownership, control, management or otherwise;

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(k)           there are no proceedings or actions which are threatened or pending against the account debtors with respect to such Accounts which might result in any material adverse change in any such account debtor’s financial condition;

(l)            such Accounts of a single account debtor or its affiliates do not constitute more than fifteen percent (15%) of all otherwise Eligible Accounts (but the portion of the Accounts not in excess of such percentage may be deemed Eligible Accounts);

(m)          such Accounts are not owed by an account debtor for which more than 50% of the Accounts owing from such account debtor are ineligible pursuant to clause (b) above.

(n)           such Accounts are not owed by consumers (other than Credit Card/Check Processing Receivables);

(o)           [Intentionally Omitted];

(p)           if a bankruptcy petition is filed by or against any Borrower, and without limiting Agent’s or any Lender’s rights and remedies upon such filing, such Accounts are not generated from the sale of Inventory subject to the security interest of IBM Credit Corporation;

(q)           such Accounts are owed by account debtors deemed creditworthy at all times by Agent, as determined by Agent in its commercially reasonable discretion; and

(r)            to the extent such Accounts are owed by the United States of America, any State, political subdivision, agency or instrumentality thereof, with respect to which Borrowers have not fully complied with the Federal Assignment of Claims Act of 1940, as amended, or any similar state or local law, if applicable, such Accounts: (i) do not constitute more than forty percent (40%) of all otherwise Eligible Accounts (but the portion of such Accounts not in excess of such percentage may be deemed Eligible Accounts); (ii) are reported separately from all other Accounts on the applicable borrowing base certificate delivered by Borrowers to Agent; and (iii) do not relate to any single contract (other than GSA Schedule, the Social Security Administration, ▇▇▇▇ ▇▇▇▇ ▇, ▇▇▇▇ ▇▇▇▇ ▇, ▇▇▇ ▇▇▇-▇, Library of Congress and any future contracts entered into by PCMG that may be similar in scope, duration, and have similar terms and conditions as such foregoing contracts) where the consideration to be paid to Borrowers under such contract is greater than $2,500,000 and the term or duration of such contract is greater than one (1) year, unless Borrowers have given Agent separate written notice of such contract (it being understood that Agent, in its sole discretion, may require Borrowers to comply with the Federal Assignment of Claims Act of 1940, as amended, or any similar state or local law, with respect to any such contract which Borrowers are required to give Agent notice of).

Any Accounts which are not Eligible Accounts shall nevertheless be part of the Collateral.

1.30         “Eligible Inventory” shall mean Inventory consisting of finished goods held for resale in the ordinary course of the business of Borrowers which are located at Borrowers’ warehouse location(s) or retail store(s) and which are acceptable to Agent in its Permitted Discretion based on the criteria set forth below.  In general, Eligible Inventory shall not include (a) raw materials or work-in-process; (b) components which are not part of finished goods; (c)

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spare parts for equipment (it being understood that parts held for sale in their then current condition shall not be deemed spare parts for these purposes); (d) packaging and shipping materials; (e) supplies and fixed assets used or consumed in Borrowers’ business; (f) Inventory at premises other than those owned or controlled by Borrowers, except if Agent shall have received an agreement in writing from the person in possession of such Inventory in form and substance satisfactory to Agent acknowledging Agent’s priority security interest in the Inventory, waiving security interests and claims by such person against the Inventory and permitting Agent access to, and the right to remain on, the premises so as to exercise Agent’s rights and remedies and otherwise deal with the Collateral; (g) Inventory in transit, unless such Inventory is (A) provided by Apple Computer and not subject to the reclamation rights of Apple Computer under Section 2.2(a) of the Apple Intercreditor Agreement or (B) in transit to one of Borrowers’ retail stores or warehouse locations under a Letter of Credit Accommodation hereunder, and the ▇▇▇▇ of lading covering such Inventory names Agent as consignee and otherwise contains terms acceptable to Agent, and all originals of such ▇▇▇▇ of lading are in the possession of Agent, Reference Bank or another bailee acceptable to Agent; (h) Inventory subject to a security interest or lien in favor of any person other than Agent except those permitted in this Agreement; (i) ▇▇▇▇ and hold goods; (j) unserviceable or obsolete Inventory; (k) Inventory which is not subject to the valid and perfected security interest of Agent, for itself and the ratable benefit of Secured Parties; (l) returned (except for closed box returns), damaged and/or defective Inventory; (m) Inventory purchased or sold on consignment; (n) Inventory located at service centers; (o) software, books, magazines, manuals, videos and similar Inventory; (p) Inventory purchased under a Letter of Credit Accommodation that is outstanding as contemplated in Section 2.2(c)(i) hereof, and (q) Inventory subject to the perfected security interest of IBM Credit Corporation or Hewlett-Packard Company.  Any Inventory which is not Eligible Inventory shall nevertheless be part of the Collateral.

1.31         “Eligible Transferee” shall mean (a) any affiliate of Lender; (b) any other commercial bank or other financial institution and (c) any “accredited investor” (as defined in Regulation D under the Securities Act of 1933) approved by Agent, and except as otherwise provided in Section 13.5 hereof, as to any such other commercial bank or other financial institution or any such accredited investor, as approved by Borrowers, such approval of Borrowers not to be unreasonably withheld, conditioned or delayed and such approval to be deemed given by Borrowers if no objection from Borrowers is received within ten (10) Business Days after written notice of such proposed assignment has been provided by Agent; provided, that, neither any Borrower nor any affiliate of any Borrower shall qualify as an Eligible Transferee.

1.32         “Environmental Laws” shall mean all foreign, Federal, State and local laws (including common law), legislation, rules, codes, licenses, permits (including any conditions imposed therein), authorizations, judicial or administrative decisions, injunctions or agreements between any Borrower and any Governmental Authority, (a) relating to pollution and the protection, preservation or restoration of the environment (including air, water vapor, surface water, ground water, drinking water, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety, (b) relating to the exposure to, or the use, storage, recycling, treatment, generation, manufacture, processing, distribution, transportation, handling, labeling, production, release or disposal, or threatened release, of Hazardous Materials, or (c) relating to all laws with regard to recordkeeping, notification, disclosure and reporting requirements respecting Hazardous Materials.  The term

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“Environmental Laws” includes (i) the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Federal Superfund Amendments and Reauthorization Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any common law or equitable doctrine that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Materials.

1.33         “Equipment” shall mean all of Borrowers’ now owned and hereafter acquired equipment, machinery, computers and computer hardware and software (whether owned or licensed), vehicles, tools, furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located.

1.34         “ERISA” shall mean the United States Employee Retirement Income Security Act of 1974, as the same now exists or may hereafter from time to time be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto.

1.35         “ERISA Affiliate” shall mean any person required to be aggregated with any Borrower or any of its affiliates under Sections 414(b), 414(c), 414(m) or 414(o) of the Code.

1.36         “Eurodollar Rate” shall mean the rate per annum rate appearing on Bloomberg L.P.’s (the “Service”) Page BBAM1/(Official BBA USD Dollar Libor Fixings) (or on any successor or substitute page of such Service, or any successor to or substitute for such Service) 2 Business Days prior to the commencement of the requested Interest Period, for a term and in an amount comparable to the Interest Period and the amount of the Eurodollar Rate Loan requested (whether as an initial Eurodollar Rate Loan or as a continuation of a Eurodollar Rate Loan or as a conversion of a Eurodollar Rate Loan to a Prime Rate Loan) by Borrowers in accordance with the Agreement, which determination shall be conclusive in the absence of manifest error.  In the event that such rate is not available at such time for any reason, then the “Eurodollar Rate” shall mean the interest rate per annum equal to the arithmetic average of the rates of interest per annum (rounded upwards, if necessary, to the next one-hundredth (1/100) of one percent (1%)) at which Reference Bank is offered deposits of United States dollars in the London interbank market (or other Eurodollar Rate market selected by Borrowers and approved by Agent) on or about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement of such Interest Period in amounts substantially equal to the principal amount of the Eurodollar Rate Loans requested by and available to Borrowers in accordance with this Agreement, with a maturity of comparable duration to the Interest Period selected by Borrowers

1.37         “Eurodollar Rate Loans” shall mean any Loans or portion thereof on which interest is payable based on the Adjusted Eurodollar Rate in accordance with the terms hereof.

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1.38                           “Eurodollar Rate Margin” shall mean, on a monthly basis, the percentage points set forth below based on the “average daily amount” of Excess Availability, as determined by Agent, during the immediately preceding calendar month:

; provided, however, that (i) from the date hereof until the end of the sixth full calendar month ending after the date hereof, the Eurodollar Rate Margin shall be the percentage points specified for Pricing Level I as set forth in this definition; (ii) after the occurrence and during the continuance of an Event of Default, the Eurodollar Rate Margin shall be the percentage points specified for Pricing Level I as set forth in this definition; and (iii) if any borrowing base certificate delivered to Agent is subsequently determined to be incorrect in any material respect, Agent may increase the Eurodollar Rate Margin retroactively to the beginning of the relevant month to the extent that such error caused the Eurodollar Rate Margin to be different from the Eurodollar Rate Margin that would have been in effect if the error was not made.

1.39                           “Event of Default” shall mean the occurrence or existence of any event or condition described in Section 10.1 hereof.

1.40                           “Excess Availability” shall mean the amount, as determined by Agent, calculated at any time, equal to:

(a)                                  the lesser of (i) the amount of the Revolving Loans available to Borrowers as of such time (based on the applicable advance rates set forth in Section 2.1(a) hereof), subject to the sublimits and Availability Reserves from time to time established by Agent hereunder and (ii) the Maximum Credit (less the then outstanding aggregate principal amount of the Term Loan), minus

(b)                                 the amount of all then outstanding and unpaid Obligations (but not including for this purpose the then outstanding principal amount of the Term Loan).

provided, however, that: solely for the purposes of determining (A) the Prime Rate Margin and the Eurodollar Rate Margin, to the extent the amount set forth in clause (a)(i) above exceeds the amount set forth in clause (a)(ii) above at any time, the Excess Availability as of

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such time shall be increased by up to Ten Million Dollars ($10,000,000) of the difference between those two (2) amounts; and (B) whether a FCCR Triggering Event has occurred (other than under clause (d) of the definition thereof), to the extent the amount set forth in clause (a)(i) above exceeds the amount set forth in clause (a)(ii) above at any time, the Excess Availability as of such time shall be increased by the difference between those two (2) amounts.

1.41                           “Excess Availability Threshold” shall mean, as of any date of determination, an amount equal to (a) $13,000,000 if the Maximum Credit is less than or equal to $150,000,000 on such date of determination; (b) $14,000,000 if the Maximum Credit is greater than $150,000,000 but less than or equal to $165,000,000 as of such date of determination; and (c) $15,000,000 if the Maximum Credit is greater than $165,000,000 as of such date of determination.

1.42                           “Excluded Taxes” means, with respect to a Lender or any other recipient of any payment to be made by or on account of any Obligation, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which a Borrower is located.

1.43                           “FCCR Triggering Event” shall mean, as of any date of determination, that (a) if the Maximum Credit is less than or equal to $150,000,000 on such date of determination, either (i) Excess Availability is less than $5,000,000 (or $10,000,000 to the extent the Applicable Ratio for the Subject Quarter relating to such date of determination as set forth in Section 9.15 equals 0.75 to 1.0) as of such date, or (ii) Average 30 Day Excess Availability is less than $13,000,000 as of such date; (b) if the Maximum Credit is greater than $150,000,000 but less than or equal to $165,000,000 as of such date of determination, either (i) Excess Availability is less than $5,500,000 (or $11,000,000 to the extent the Applicable Ratio for the Subject Quarter relating to such date of determination as set forth in Section 9.15 equals 0.75 to 1.0) as of such date, or (ii) Average 30 Day Excess Availability is less than $14,000,000 as of such date; (c) if the Maximum Credit is greater than $165,000,000 as of such date of determination, either (i) Excess Availability is less than $6,000,000 (or $12,000,000 to the extent the Applicable Ratio for the Subject Quarter relating to such date of determination as set forth in Section 9.15 equals 0.75 to 1.0) as of such date, or (ii) Average 30 Day Excess Availability is less than $15,000,000 as of such date; and (d) regardless of the amount of the Maximum Credit, Excess Availability (without giving effect to the proviso contained in the definition thereof) is less than $5,000,000 for a period of five consecutive days ending on such date of determination.

1.44                           “Fee Letter” shall mean that certain fee letter, dated as of the date hereof, among Borrowers and Agent, in form and substance satisfactory to Agent.

1.45                           “Final Maturity Date” shall mean March 31, 2015.

1.46                           “Financing Agreements” shall mean, collectively, this Agreement, the Fee Letter, and all notes, guarantees, security agreements and other agreements, documents and instruments (including the Information Certificates) now or at any time hereafter executed and/or delivered by any Borrower or any Obligor in connection with this Agreement, as the same now exist or

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may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced; provided, that in no event shall the term ‘Financing Agreements’ be deemed to include any Hedge Agreement.

1.47                           “Fixed Charges” shall mean, with respect to any fiscal period and with respect to Borrowers and their subsidiaries determined on a consolidated basis in accordance with GAAP, the sum, without duplication, of (a) Interest Expense accrued (other than interest paid-in-kind, amortization of financing fees, and other non-cash Interest Expense) during such period, (b) principal payments in respect of indebtedness that are required to be paid during such period, and (c) all federal, state, and local income taxes accrued during such period.

1.48                           “Fixed Charge Coverage Ratio” means, with respect to any fiscal period and with respect to Borrowers and their subsidiaries determined on a consolidated basis in accordance with GAAP, the ratio of (i) EBITDA for such period minus Capital Expenditures made (to the extent not already incurred in a prior period) or incurred during such period, to (ii) Fixed Charges for such period.

1.49                           “GAAP” shall mean generally accepted accounting principles in the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Boards which are applicable to the circumstances as of the date of determination consistently applied, except that, for purposes of Section 9.15 hereof, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the audited financial statements delivered to Agent prior to the date hereof.

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

1.51                           “Hazardous Materials” shall mean any hazardous, toxic or dangerous substances, materials and wastes, including, without limitation, hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including, without limitation, materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including, without limitation any that are or become classified as hazardous or toxic under any Environmental Law).

1.52                           “Hedge Agreement” shall mean an agreement between any Borrower and Agent or any Bank Product Provider that is a swap agreement as such term is defined in 11 U.S.C. Section 101, and including any rate swap agreement, basis swap, forward rate agreement, commodity swap, interest rate option, forward foreign exchange agreement, spot foreign exchange agreement, rate cap agreement rate, floor agreement, rate collar agreement, currency

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swap agreement, cross-currency rate swap agreement, currency option, any other similar agreement (including any option to enter into any of the foregoing or a master agreement for any the foregoing together with all supplements thereto) for the purpose of protecting against or managing exposure to fluctuations in interest or exchange rates, currency valuations or commodity prices; sometimes being collectively referred to herein as ‘Hedge Agreements’.

1.53                           “Increase Effective Date” shall have the meaning set forth in Section 2.5(a) hereof.

1.54                           “Increase Joinder” shall have the meaning set forth in Section 2.5(c) hereof.

1.55                           “Information Certificates” shall mean the Information Certificates of Borrowers containing material information with respect to Borrowers, their business and assets provided by or on behalf of Borrowers to Agent in connection with the preparation of this Agreement and the other Financing Agreements and the financing arrangements provided for herein.

1.56                           “Interest Expense” means, for any period, the aggregate of the interest expense of Borrowers and their subsidiaries for such period (including all commissions, discounts, and other fees and charges owed with respect to letters of credit and bankers’ acceptances financing and net costs under Hedge Agreements in respect of interest rates to the extent such net costs are allocable to such period in accordance with GAAP), determined on a consolidated basis in accordance with GAAP.

1.57                           “Interest Period” shall mean for any Eurodollar Rate Loan, a period of approximately one, two, three or six months (or with the consent of each Lender, nine or twelve months) duration as Borrowers may elect, the exact duration to be determined in accordance with the customary practice in the applicable Eurodollar Rate market; provided, that, Borrowers may not elect an Interest Period which will end after the last day of the then-current term of this Agreement.

1.58                           “Inventory” shall mean all of Borrowers’ now owned and hereafter existing or acquired raw materials, work in process, finished goods and all other inventory of whatsoever kind or nature, wherever located.

1.59                           “Inventory Advance Rates” shall mean the advance rates applicable to Eligible Inventory as determined in accordance with Section 2.1(a)(ii)(A).

1.60                           “Inventory Sublimit” shall mean an amount equal to Forty Million Dollars ($40,000,000); provided, however, that if the Maximum Credit is increased to One Hundred Eighty Million Dollars ($180,000,000) or more in accordance with the terms hereof, the Inventory Sublimit shall automatically increase to an amount equal to Fifty Million Dollars ($50,000,000).

1.61                           “Letter of Credit Accommodations” shall mean the letters of credit, merchandise purchase or other guaranties which are from time to time either (a) issued, opened or provided by Agent or any Lender for the account of any Borrower or any Obligor or (b) with respect to which Agent on behalf of Lenders has agreed to indemnify the issuer or guaranteed to the issuer the performance by any Borrower of its obligations to such issuer.

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1.62                           “Loans” shall mean the Revolving Loans and the Term Loan.

1.63                           “Maximum Credit” shall mean, with reference to the Revolving Loans, the Term Loans and the Letter of Credit Accommodations, the amount of One Hundred Sixty Million Dollars ($160,000,000), as such amount may be increased in accordance with Section 2.5 hereof.

1.64                           Net Amount of Eligible Accounts” shall mean the gross amount of Eligible Accounts less returns, discounts, claims, credits and allowances of any nature at any time issued, owing, granted, outstanding, available or claimed with respect thereto.

1.65                           “New Lending Office” shall have the meaning set forth in Section 6.5(e) hereof.

1.66                           “Non-U.S. Lender” shall have the meaning set forth in Section 6.5(e) hereof.

1.67                           “Obligations” shall mean (a) any and all Loans, Letter of Credit Accommodations and all other obligations, liabilities and indebtedness of every kind, nature and description owing by any or all of Borrowers to Agent or any Lender or any issuer of a Letter of Credit Accommodation, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under this Agreement or any of the other Financing Agreements or on account of any Letter of Credit Accommodations, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or after the commencement of any case with respect to such Borrower under the United States Bankruptcy Code or any similar statute (including the payment of interest and other amounts which would accrue and become due but for the commencement of such case, whether or not such amounts are allowed or allowable in whole or in part in such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, or secured or unsecured and (b) for purposes only of Section 5.1 hereof and subject to the priority in right of payment set forth in Section 6.4 hereof, all obligations, liabilities and indebtedness of every kind, nature and description owing by any or all of Borrowers to Agent or any Bank Product Provider arising under or pursuant to any Bank Products, whether now existing or hereafter arising, provided, that, (i) the applicable Bank Product must have been provided on or after the date hereof and Agent shall have received a Bank Product Provider Letter Agreement within 10 days after the date of the provision of the applicable Bank Product to the applicable Borrower and (ii) in no event shall any Bank Product Provider acting in such capacity to whom such obligations, liabilities or indebtedness are owing be deemed a Lender for purposes hereof to the extent of and as to such obligations, liabilities or indebtedness except that each reference to the term “Lender” in Sections 12.1, 12.2, 12.3(b), 12.6, 12.7, 12.9, 12.12 and 13.6 hereof shall be deemed to include such Bank Product Provider and in no event shall the approval of any such person in its capacity as Bank Product Provider be required in connection with the release or termination of any security interest or lien of Agent.

1.68                           “Obligor” shall mean any guarantor, endorser, acceptor, surety or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, other than Borrowers.

1.69                           “Original Loan Agreement” shall have the meaning set forth in the recitals hereto.

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1.70                           “Other Taxes” shall mean any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any of the other Financing Agreements.

1.71                           “Participant” shall mean any person which at any time participates with any Lender in respect of the Loans, the Letter of Credit Accommodations or other Obligations or any portion thereof.

1.72                           “Payment Account” shall have the meaning set forth in Section 6.3 hereof.

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

1.74                           “Person” or “person” shall mean any individual, sole proprietorship, partnership, corporation (including, without limitation, any corporation which elects subchapter S status under the Internal Revenue Code of 1986, as amended), limited liability company, limited liability partnership, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof.

1.75                           “Prime Rate” shall mean the greater of (i) the rate from time to time publicly announced by Reference Bank, or its successors, from time to time as its prime rate, whether or not such announced rate is the best rate available at such bank and (ii) the one-month Eurodollar Rate.

1.76                           “Prime Rate Loans” shall mean any Loans or portion thereof on which interest is payable based upon the Prime Rate in accordance with the terms hereof.

1.77                           “Prime Rate Margin” shall mean, on a monthly basis, the percentage points set forth below based on the “average daily amount” of Excess Availability, as determined by Agent, during the immediately preceding calendar month:

; provided, however, that (i) from the date hereof until the end of the sixth full calendar month ending after the date hereof, the Prime Rate Margin shall be the percentage points

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specified for Pricing Level I as set forth in this definition; (ii) after the occurrence and during the continuance of an Event of Default, the Prime Rate Margin shall be the percentage points specified for Pricing Level I as set forth in this definition; and (iii) if any borrowing base certificate delivered to Agent is subsequently determined to be incorrect in any material respect, Agent may increase the Prime Rate Margin retroactively to the beginning of the relevant month to the extent that such error caused the Prime Rate Margin to be different from the Prime Rate Margin that would have been in effect if the error was not made.

1.78                           “Pro Rata Share” shall mean:

(a)                                  with respect to a Revolving Loan Lender’s obligation to make Revolving Loans and receive payments relative thereto, the fraction (expressed as a percentage) the numerator of which is such Lender’s Revolving Loan Commitment and the denominator of which is the aggregate amount of all of the Revolving Loan Commitments of Revolving Loan Lenders, as adjusted from time to time in accordance with the provisions of Section 13.5 hereof; provided, that, if the Revolving Loan Commitments have been terminated, the numerator shall be the unpaid amount of such Lender’s Revolving Loans and its interest in the Letter of Credit Accommodations and the denominator shall be the aggregate amount of all unpaid Revolving Loans and Letter of Credit Accommodations; and

(b)                                 with respect to a Term Loan Lender’s obligation to make Term Loans and receive payments relative thereto, the fraction (expressed as a percentage) the numerator of which is such Lender’s Term Loan Commitment and the denominator of which is the aggregate amount of all of the Term Loan Commitments of Term Loan Lenders, as adjusted from time to time in accordance with Section 13.5 hereof, provided, that, if the Term Loan Commitments have been terminated, the numerator shall be the unpaid amount of such Lender’s Term Loans and the denomination shall be the aggregate amount of all unpaid Term Loans; and

(c)                                  with respect to all other matters (including the indemnification obligations arising under Section 12.5 hereof), (i) prior to the Revolving Loan Commitments being terminated, the fraction (expressed as a percentage) the numerator of which is such Lender’s Revolving Loan Commitment plus the outstanding principal amount of such Lender’s Term Loans, and the denominator of which is the aggregate amount of Revolving Loan Commitments of all Lenders plus the outstanding principal amount of all Term Loans, and (ii) from and after the time that the Revolving Loan Commitments have been terminated or reduced to zero, the fraction (expressed as a percentage) the numerator of which is the sum of such Lender’s Revolving Loans, Term Loans and its interest in the Letter of Credit Accommodations, and the denominator of which is the aggregate amount of all unpaid Revolving Loans, Term Loans and Letter of Credit Accommodations.

1.79                           “Projections” means Borrowers’ forecasted (a) balance sheets, (b) profit and loss statements, and (c) cash flow statements, all prepared on a basis consistent with Borrowers’ historical financial statements, together with appropriate supporting details and a statement of underlying assumptions.

1.80                           “PTCE 95-60” shall have the meaning set forth in Section 13.5(a) hereof.

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1.81                           “Real Estate” shall mean the real estate owned by Onsale and commonly known as ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇.

1.82                           “Records” shall mean all of Borrowers’ present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of Borrowers with respect to the foregoing maintained with or by any other person).

1.83                           “Reference Bank” shall mean ▇▇▇▇▇ Fargo Bank, N.A. or its successor or such other bank as Agent and Borrowers may from time to time designate.

1.84                           “Register” shall have the meaning set forth in Section 13.5(b) hereof.

1.85                           “Replacement Lender” shall have the meaning set forth in Section 3.9 hereof.

1.86                           “Report” and “Reports” shall have the meaning set forth in Section 12.10(a) hereof.

1.87                           “Required Lenders” shall mean (i) at any time there is more than one Lender, two or more Lenders whose Pro Rata Shares (calculated under clause (c) of the definition of Pro Rata Share) aggregate sixty-six and two-thirds (66 2/3%) percent or more and (ii) at any time there is only one Lender, such Lender.

1.88                           “Revolving Loan Commitment” shall mean, at any time, as to each Revolving Loan Lender, the principal amount set forth below such Lender’s signature on the signature pages hereto designated as the Revolving Loan Commitment or on Schedule 1 to the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 13.5 hereof, as the same may be adjusted from time to time in accordance with the terms hereof; sometimes being collectively referred to herein as “Revolving Loan Commitments.”  Notwithstanding the foregoing, as of any date of determination, each Lender’s Revolving Loan Commitment shall be reduced by the then outstanding amount of such Lender’s Term Loans.

1.89                           “Revolving Loan Lenders” shall mean, collectively, those Lenders making Revolving Loans or providing Letter of Credit Accommodations and their respective successors and assigns; sometimes being referred to herein individually as a “Revolving Loan Lender.”

1.90                           “Revolving Loans” shall mean the loans now or hereafter made by or on behalf of any Revolving Loan Lender or by Agent for the ratable account of any Revolving Loan Lender, to or for the benefit of Borrowers on a revolving basis (involving advances, repayments and readvances) as set forth in Section 2.1 hereof.

1.91                           “Secured Parties” shall mean, collectively, (a) Agent, (b) BofA, (c) the issuer of any Letter of Credit Accommodations, (d) Lenders, and (e) Bank Product Providers (to the extent approved by Agent).

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1.92                           “Settlement Period” shall have the meaning set forth in Section 6.10(b) hereof.

1.93                           “Slow Moving Inventory” shall mean Inventory held by Borrowers for more than one hundred twenty (120) days.

1.94                           “Special Agent Advances” shall have the meaning set forth in Section 12.11(a) hereof.

1.95                           “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).

1.96                           “Subject Quarter” shall have the meaning set forth in Section 9.15 hereof.

1.97                           “Taxes” shall mean any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of any Lender, such taxes (including income taxes, franchise taxes or capital taxes) as are imposed on or measured by such Lender’s net income or capital by any jurisdiction (or any political subdivision thereof).

1.98                           “Term Loan Commitment” shall mean, at any time, as to each Term Loan Lender, the principal amount set forth below such Lender’s signature on the signature pages hereto designated as the Term Loan Commitment or on Schedule 1 to the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 13.5 hereof, as the same may be adjusted from time to time in accordance with the terms hereof; sometimes being collectively referred to herein as “Term Loan Commitments.”

1.99                           “Term Loan Lenders” shall mean, collectively, those Lenders who have made the Term Loans, and their respective successors and assigns; sometimes being referred to herein individually as a “Term Loan Lender.”

1.100                     “Term Loans” shall have the meaning set forth in Section 2.3 hereof; sometimes being referred to herein individually as a “Term Loan.”

1.101                     “Term Notes” shall mean, collectively, those certain Term Promissory Notes, of even date herewith, issued by Borrowers to each Term Loan Lender, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.

1.102                     “Transferee” shall have the meaning set forth in Section 6.5(a) hereof.

1.103                     “UCC” shall mean the Uniform Commercial Code as in effect in the State of California, and any successor statute, as in effect from time to time (except that terms used herein which are defined in the Uniform Commercial Code as in effect in the State of California on the date hereof shall continue to have the same meaning notwithstanding any replacement or amendment of such statute except as Lender may otherwise determine.

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1.104                     “Value” shall mean, as determined by Agent in good faith, with respect to Inventory, the lower of (a) cost under the first-in-first-out method, net of vendor discounts or (b) market value.

SECTION 2.  CREDIT FACILITIES.

2.1                                 Revolving Loans.

(a)                                  Subject to, and upon the terms and conditions contained herein, each Revolving Loan Lender severally (and not jointly) agrees to fund its Pro Rata Share of  Revolving Loans to Borrowers from time to time in amounts requested by Borrowers up to the amount equal to:

(i)                                     ninety percent (90%) of the Net Amount of Eligible Accounts, provided, that, such percentage advance rate shall be reduced by the positive difference, rounded to the nearest tenth of a percent, between (I) the dilution rate on the Accounts, as determined by Agent in good faith based on the ratio of (A) the aggregate amount of reductions in Accounts other than as a result of payments in cash, to (B) the aggregate amount of total sales, and (II) three and one-half of one percent (3.5%), and provided further, that, the total sum available under this Section 2.1(a)(i) based upon Credit Card/Check Processing Receivables shall not exceed Ten Million Dollars ($10,000,000) at any time; and provided further that, if Borrowers provide reports on such Credit Card/Check Processing Receivables under Section 7.1 on a daily basis, the total sum under this Section 2.1(a)(i) based upon Credit Card/Check Processing Receivables shall not exceed Twenty Million Dollars ($20,000,000) at any time; plus

(ii)                                  the lesser of:

(A)                              the sum of (1) sixty percent (60%) of the Value of Eligible Inventory not consisting of office supplies (held for sale by Borrowers), refurbished Inventory, Slow Moving Inventory, or the Inventory described in clause (3) immediately below, not to exceed eighty-five percent (85%) of the Appraised Liquidation Value of such Eligible Inventory, plus (2) the lesser of Two Million Dollars ($2,000,000) or forty percent (40%) of the Value of Eligible Inventory consisting of office supplies (held for sale by Borrowers), refurbished Inventory or Slow Moving Inventory and not consisting of the Inventory described in clause (3) immediately below, not to exceed eighty-five percent (85%) of the Appraised Liquidation Value of such Eligible Inventory, plus (3) eighty percent (80%) of the Value of Eligible Inventory that is in its original closed box, that has been held by Borrowers no more than one hundred twenty (120) days, and for which Apple Computer, upon its repossession thereof, is committed to pay to Agent the sum of the purchase prices thereof, net of certain rebates and other allowances, pursuant to the terms and provisions of the Apple Intercreditor Agreement, provided, that, the total sum available under this Section 2.1(a)(ii)(A) based upon Eligible Inventory that is in transit from Apple Computer to Borrowers shall not exceed Two Million Dollars ($2,000,000) at any time, unless Borrowers have provided Agent with a current borrowing base certificate (separately identifying such in-transit Eligible Inventory and with such supporting documentation acceptable to Agent and Borrowers as Agent may reasonably request), which certificates shall be in form reasonably satisfactory to Agent, in which case, for a period of five (5) Business Days after Lender’s receipt and satisfactory review of such certificates, the total

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sum available hereunder based upon such in-transit Eligible Inventory shall not exceed Ten Million Dollars ($10,000,000); or

(B)                                the Inventory Sublimit, minus

(iii)                               the then undrawn amounts of outstanding Letter of Credit Accommodations, multiplied by the applicable percentages as provided for in Section 2.2(c)(i) or Section 2.2(c)(ii) hereof; minus

(iv)                              any Availability Reserves.

(b)                                 Agent may, in its commercially reasonable discretion, from time to time, upon not less than ten (10) days prior notice to Borrowers reduce the lending formula(s) with respect to Eligible Inventory to the extent that Agent determines that:

(i)                                     the number of days of the turnover, or the mix, of such Inventory for any period has changed in any materially adverse respect; or

(ii)                                  the nature and quality of the Inventory has deteriorated in any material respect.  In determining whether to reduce the lending formula(s), Agent may consider events, conditions, contingencies or risks which are also considered in determining Eligible Accounts, Eligible Inventory or in establishing Availability Reserves.

(c)                                  Except in Agent’s discretion, with the consent of all Lenders, the aggregate amount of the Loans, the Letter of Credit Accommodations and other Obligations outstanding at any time shall not exceed the Maximum Credit.  In the event that the outstanding amount of any component of the Loans and Letter of Credit Accommodations, or the aggregate amount of the outstanding Loans and Letter of Credit Accommodations and other Obligations, exceeds the amounts available under the lending formulas set forth in Section 2.1(a) hereof, the sublimits for Letter of Credit Accommodations set forth in Section 2.2(d) or the Maximum Credit, as applicable, such event shall not limit, waive or otherwise affect any rights of Agent or any Lender in that circumstance or on any future occasions and Borrowers shall, upon demand by Agent, which may be made at any time or from time to time, immediately repay to Agent, for the ratable benefit of Lenders, the entire amount of any such excess(es) for which payment is demanded.

(d)                                 For purposes only of applying the sublimit on Revolving Loans based on Eligible Inventory pursuant to Section 2.1(a)(ii)(B) Agent may treat the then undrawn amounts of outstanding Letter of Credit Accommodations for the purpose of purchasing Eligible Inventory as Revolving Loans to the extent Agent is in effect basing the issuance of the Letter of Credit Accommodations on the Value of the Eligible Inventory being purchased with such Letter of Credit Accommodations.  In determining the actual amounts of such Letter of Credit Accommodations to be so treated for purposes of the sublimit, the outstanding Revolving Loans and Availability Reserves shall be attributed first to any components of the lending formulas in Section 2.1(a) that are not subject to such sublimit, before being attributed to the components of the lending formulas subject to such sublimit.

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2.2                                 Letter of Credit Accommodations.

(a)                                  Subject to, and upon the terms and conditions contained herein, at the request of Borrowers, Agent agrees, for the ratable risk of each Revolving Loan Lender according to its Pro Rata Share, to provide or arrange for Letter of Credit Accommodations for the account of Borrowers containing terms and conditions acceptable to Agent and the issuer thereof.  Any payments made by Agent or any Lender to any issuer thereof and/or related parties in connection with the Letter of Credit Accommodations shall constitute additional Revolving Loans to Borrowers pursuant to this Section 2.

(b)                                 In addition to any charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations, Borrowers shall pay to Agent for the benefit of Revolving Loan Lenders, a letter of credit fee at a per annum rate equal to the Eurodollar Rate Margin on the daily outstanding balance of the Letter of Credit Accommodations for the immediately preceding month (or part thereof), payable in arrears as of the first day of each succeeding month.  Notwithstanding the foregoing, such letter of credit fee shall be increased, at Agent’s option without notice, to two percent (2.00%) per annum above the then applicable rate upon the occurrence and during the continuation of an Event of Default, and for the period on or after the date of termination or non-renewal of this Agreement.  Such letter of credit fee shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed and the obligation of Borrowers to pay such fee shall survive the termination or non-renewal of this Agreement.

(c)                                  No Letter of Credit Accommodations shall be available unless on the date of the proposed issuance of any Letter of Credit Accommodations, the Revolving Loans available to Borrowers (subject to the Maximum Credit and any Availability Reserves) are equal to or greater than:

(i)                                     if the proposed Letter of Credit Accommodation is for the purpose of purchasing Eligible Inventory, the sum of:

(A)                              the product of the Value or Appraised Liquidation Value of such Eligible Inventory multiplied by one minus the Inventory Advance Rate under Section 2.1(a)(ii)(A) as applicable, plus

(B)                                freight, taxes, duty and other amounts which Lender estimates must be paid in connection with such Inventory upon arrival and for delivery to one of Borrowers’ locations for Eligible Inventory within the United States of America; and

(ii)                                  if the proposed Letter of Credit Accommodation is for standby letters of credit guaranteeing the purchase of Eligible Inventory or for any other purpose, an amount equal to one hundred percent (100%) of the face amount thereof and all other commitments and obligations made or incurred by Lender with respect thereto.

Effective on the issuance of each Letter of Credit Accommodation, the amount of Revolving Loans which might otherwise be available to Borrowers shall be reduced by the applicable amount set forth in this Section 2.2(c).

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(d)                                 An Availability Reserve shall be established in the amount set forth in Section 2.2(c)(i) upon the placement of the order for the purchase of the subject Inventory.  Effective upon the issuance of each Letter of Credit Accommodation for a purpose other than the purchase of Inventory, an Availability Reserve shall be established in the amount set forth in Section 2.2(c)(ii).

(e)                                  Except in Agent’s discretion, with the consent of all Lenders, the amount of all outstanding Letter of Credit Accommodations and all other commitments and obligations made or incurred by Agent or any Lender in connection therewith shall not at any time exceed Forty Million Dollars ($40,000,000).  At any time an Event of Default exists or has occurred and is continuing, upon Agent’s request, Borrowers will either furnish cash collateral to secure the reimbursement obligations to the issuer in connection with any Letter of Credit Accommodations or furnish cash collateral to Agent for the Letter of Credit Accommodations, and in either case, the Revolving Loans otherwise available to Borrowers shall not be reduced as provided in Section 2.2(c) to the extent of such cash collateral.

(f)                                    Each Borrower shall indemnify and hold Agent and Lenders harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Agent or any Lender may suffer or incur in connection with any Letter of Credit Accommodations and any documents, drafts or acceptances relating thereto (excluding any of the foregoing to the extent arising from the gross negligence or willful misconduct of Agent or any Lender), including, but not limited to, any losses, claims, damages, liabilities, costs and expenses due to any action taken by any issuer or correspondent with respect to any Letter of Credit Accommodation.  Each Borrower assumes all risks with respect to the acts or omissions of the drawer under or beneficiary of any Letter of Credit Accommodation and for such purposes the drawer or beneficiary shall be deemed such Borrower’s agent.  Each Borrower assumes all risks for, and agree to pay, all foreign, Federal, State and local taxes, duties and levies relating to any goods subject to any Letter of Credit Accommodations or any documents, drafts or acceptances thereunder.  Each Borrower hereby releases and holds Agent and each Lender harmless from and against any acts, waivers, errors, delays or omissions, whether caused by such Borrower, by any issuer or correspondent or otherwise, unless caused by the gross negligence or willful misconduct of Agent or such Lender, with respect to or relating to any Letter of Credit Accommodation.  The provisions of this Section 2.2(f) shall survive the payment of Obligations and the termination or non-renewal of this Agreement.

(g)                                 Nothing contained herein shall be deemed or construed to grant Borrowers any right or authority to pledge the credit of Agent or any Lender in any manner.  Neither Agent nor any Lender shall have any liability of any kind with respect to any Letter of Credit Accommodation provided by an issuer other than Agent or any Lender, unless Agent has duly executed and delivered to such issuer the application or a guarantee or indemnification in writing with respect to such Letter of Credit Accommodation.  Each Borrower shall be bound by any interpretation made in good faith by Agent, or any other issuer or correspondent under or in connection with any Letter of Credit Accommodation or any documents, drafts or acceptances thereunder, notwithstanding that such interpretation may be inconsistent with any instructions of such Borrower.  At any time an Event of Default exists or has occurred and is continuing, Agent shall have the sole and exclusive right and authority to, and no Borrower shall, without the prior written consent of Agent:  (i) approve or resolve any questions of non-compliance of documents,

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(ii) give any instructions as to acceptance or rejection of any documents or goods or (iii) execute any and all applications for steamship or airway guaranties, indemnities or delivery orders, and  at all times, (iv) grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents, and (v) agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letter of Credit Accommodations, or documents, drafts or acceptances thereunder or any letters of credit included in the Collateral.  Agent may take such actions either in its own name or in any Borrower’s name.

(h)                                 Any rights, remedies, duties or obligations granted or undertaken by any Borrower to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been granted or undertaken by such Borrower to Agent for the ratable benefit of Lenders.  Any duties or obligations undertaken by Agent or any Lender to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement by Agent or any Lender in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been undertaken by Borrowers to Agent and Lenders and to apply in all respects to Borrowers.

2.3                                 Term Loan.

(a)                                  On the date hereof, Borrowers shall repay the outstanding principal balance of the term loans under the Original Loan Agreement so that after giving effect to such repayment, the outstanding principal balance thereof equals $2,870,000.  Immediately after such repayment (which shall be made by Borrowers on the date hereof automatically using proceeds of Revolving Loans), and upon the effectiveness of this Agreement, each Term Loan Lender severally (and not jointly) shall have been deemed to make a term loan to Borrowers (each a “Term Loan” and collectively the “Term Loans”) in an amount equal to such Term Loan Lender’s Pro Rata Share of $2,870,000.  The Term Loans shall be (a) evidenced by the Term Notes, (b) repaid with interest in accordance with this Agreement, the Term Notes and other Financing Agreements (including amortization of principal over eighty-four (84) months as more specifically set forth in such Term Notes), and (c) secured by all of the Collateral.

(b)                                 In the event that the outstanding principal balance of the Term Loans ever exceeds seventy percent (70%) of the “Fair Market Value” of the Real Estate as set forth in any appraisal of the Real Estate received by Agent, upon demand by Agent, Borrowers shall promptly (but in any event, with 3 Business Days of such demand) prepay the Term Loans in an amount equal to such excess.

(c)                                  Notwithstanding anything to the contrary contained herein, the Real Estate may be sold or refinanced and Agent shall release its liens against the Real Estate in connection with the sale or refinance thereof, provided, that, (i) no Default or Event of Default has occurred and is continuing at the time of such sale or refinance, or would result therefrom and (ii) at least $2,870,000 of the net proceeds of the sale or refinance are remitted to Agent for application first to any principal outstanding on the Term Loans and any accrued but unpaid interest thereon.  Upon any refinance of the Real Estate in accordance with the foregoing, any indebtedness

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secured solely by the Real Estate and any lien against the Real Estate securing such indebtedness will be permitted for the purposes of Sections 9.8 and 9.9 hereof.

2.4                                 Commitments.  The aggregate amount of each Revolving Loan Lender’s Pro Rata Share of the Revolving Loans and Letter of Credit Accommodations shall not exceed the amount of such Lender’s Revolving Loan Commitment, as the same may from time to time be amended with the written acknowledgment of Agent.  The aggregate amount of each Term Loan Lender’s Pro Rata Share of the Term Loans shall not exceed the amount of such Lender’s Term Loan Commitment, as the same may from time to time be amended, with the written acknowledgment of Agent.

2.5                                 Increase in Maximum Credit.

(a)                                  From time to time the Maximum Credit may be increased (each increase that satisfies the terms and conditions of this Section, an “Approved Increase”) by an amount not in excess of the Available Increase Amount at the option of Borrowers by delivery of a written notice from Borrowers of a proposed increase to Agent if and only if (i) each of the conditions precedent set forth in Section 4.2 are satisfied as of the Increase Effective Date (as if Borrowers were requesting an extension of credit hereunder), (ii) Lenders or other Persons commit to increase or provide Commitments in an aggregate amount equal to the Approved Increase in accordance with Section 2.5(c), and (iii) Borrowers shall have (A) reached agreement with the prospective new Lenders (the “Prospective Lenders”) with respect to the amount of any supplemental closing fee to be paid to such Prospective Lenders on the Increase Effective Date and shall have communicated the amount of such supplemental closing fee to Agent (which closing fee shall not exceed 0.65%), and (B) paid any fees described in clause (A) above to Agent for the account of the Prospective Lenders and Agent, as applicable.  Each such notice shall specify the date on which the proposed increase is to be effective (the “Increase Effective Date”), which date shall not be less than 10 Business Days after the date of such notice.  Each proposed increase shall be in an amount of at least $5,000,000 and integral multiples of $5,000,000 in excess thereof.

(b)                                 So long as each of the requirements set forth in Section 2.2(a) are satisfied, the increased Maximum Credit with respect to an Approved Increase shall become effective, as of such Increase Effective Date.

(c)                                  Agent shall invite each Lender to increase its Commitment (it being understood that no Lender shall be obligated to increase its Commitment) and, if sufficient Lenders do not agree to increases in their Commitments in an aggregate amount equal to the Approved Increase, may invite any other Person who is reasonably satisfactory to Agent and Borrowers to become a Lender in connection with an Approved Increase by executing a joinder agreement, in form and substance reasonably satisfactory to Agent, to which such Person, Borrowers, and Agent are party (the “Increase Joinder”).  Such Increase Joinder or any other joinder agreement reasonably acceptable to the Borrowers and Agent in connection with any Approved Increase may, with the consent of Borrowers and Agent (but without the consent of the Required Lenders or any other Lender other than Prospective Lenders and any existing Lender participating in the applicable Approved Increase), effect such amendments to this Agreement and the other Financing Agreements as may be necessary or appropriate, in the

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opinion of Agent, to effectuate the provisions of this Section 2.5; provided, however, that any amendment to cure any ambiguity, defect, or inconsistency as may be necessary or appropriate, in the opinion of Agent shall require only the consent of Borrowers and Agent.

(d)                                 To the extent any Revolving Loans, Term Loans, or Letter of Credit Accommodations are outstanding on the Increase Effective Date, each of the Lenders having a Commitment prior to the Increase Effective Date (the “Pre-Increase Revolver Lenders”) shall assign to any Lender which is acquiring a new or additional Commitment on the Increase Effective Date (the “Post-Increase Revolver Lenders”), and such Post-Increase Revolver Lenders shall purchase from each Pre-Increase Revolver Lender, at the principal amount thereof, such interests in the Revolving Loans, Term Loans and participation interests in Letter of Credit Accommodations on such Increase Effective Date as shall be necessary in order that, after giving effect to all such assignments and purchases, such Revolving Loans, Term Loans, and participation interests in Letter of Credit Accommodations will be held by Pre-Increase Revolver Lenders and Post-Increase Revolver Lenders ratably in accordance with their Pro Rata Share (calculated under clause (c) of the definition of Pro Rata Share) after giving effect to such increased Commitments.

(e)                                  Borrowers shall take any actions reasonably required by Agent to ensure and demonstrate that the liens granted by the Financing Agreements continue to be perfected under the UCC or otherwise after giving effect to the increase in the Maximum Credit and the establishment of any such new Commitments.

SECTION 3.  INTEREST AND FEES.

3.1                                 Interest.

(a)                                  Except as provided in Sections 3.1(b), (c), (d) and (e) below, Borrowers shall pay to Agent, for the benefit of Lenders, interest on the outstanding principal amount of the non-contingent Obligations at the Prime Rate plus the applicable Prime Rate Margin.

(b)                                 Borrowers may from time to time request that Prime Rate Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate Loans continue for an additional Interest Period.  Such request from Borrowers shall specify the amount of the Prime Rate Loans which will constitute Eurodollar Rate Loans (subject to the limits set forth below) and the Interest Period to be applicable to such Eurodollar Rate Loans.  Subject to the terms and conditions contained herein, three (3) Business Days after receipt by Agent of such a request from Borrowers, such Prime Rate Loans shall be converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case may be, provided, that, (i) no Event of Default, or event which with notice or passage of time or both would constitute an Event of Default exists or has occurred and is continuing, (ii) no party hereto shall have sent any notice of termination or non-renewal of this Agreement, (iii) Borrowers shall have complied with such customary procedures as are established by Agent and specified by Agent to Borrowers from time to time for requests by Borrowers for Eurodollar Rate Loans, (iv) no more than eight (8) Interest Periods may be in effect at any time, (v) the aggregate amount of the Eurodollar Rate Loans must be in an amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof, and (vi) each Lender shall have determined that the Interest Period or Adjusted Eurodollar Rate is available to

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such Lender and can be readily determined as of the date of the request for such Eurodollar Rate Loan by Borrowers.  Any request by Borrowers to convert Prime Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be irrevocable.  Notwithstanding anything to the contrary contained herein, Agent, Lenders and Reference Bank shall not be required to purchase United States Dollar deposits in the London interbank market or other applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if Agent, Lenders and Reference Bank had purchased such deposits to fund the Eurodollar Rate Loans.

(c)                                  Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the last day of the applicable Interest Period, unless Agent has received and approved a request to continue such Eurodollar Rate Loan at least three (3) Business Days prior to such last day in accordance with the terms hereof.  Any Eurodollar Rate Loans shall, at Agent’s option, upon notice by Agent to Borrowers, convert to Prime Rate Loans in the event that (i) an Event of Default or event which, with the notice or passage of time, or both, would constitute an Event of Default, shall exist, (ii) this Agreement shall terminate or not be renewed, or (iii) the aggregate principal amount of the Prime Rate Loans which have previously been converted to Eurodollar Rate Loans or existing Eurodollar Rate Loans continued, as the case may be, at the beginning of an Interest Period shall at any time during such Interest Period exceed either (A) the aggregate principal amount of the Loans then outstanding, or (B) the sum of the Revolving Loans then available to Borrowers under Section 2 hereof.  Borrowers shall pay to Agent, for the benefit of Lenders, upon demand by Agent (or Agent may, at its option, charge any loan account of Borrowers) any amounts required to compensate any Lender, the Reference Bank or any Participant with any Lender for any loss (including loss of anticipated profits), cost or expense incurred by such person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing.

(d)                                 Except as provided in Section 3.1(e) below, Borrowers shall pay to Agent, for the benefit of Lenders, interest on the outstanding principal amount of the Eurodollar Rate Loans at a per annum rate equal to the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the Interest Period selected by Borrowers as in effect three (3) Business Days after the date of receipt by Agent of the request of Borrowers for such Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is higher or lower than any rate previously quoted to Borrowers) plus the applicable Eurodollar Rate Margin.

(e)                                  Notwithstanding the foregoing, Borrowers shall pay to Agent, for the benefit of Lenders, interest, at Agent’s option, with notice to Borrowers, at a rate two (2.0%) percent per annum greater than the applicable rate(s) chargeable above on the non-contingent Obligations for the period from and after the date of termination or non-renewal hereof, or the date of the occurrence of an Event of Default, and for so long as such Event of Default is continuing as determined by Agent and until such time as Agent has received full and final payment of all such Obligations (notwithstanding entry of any judgment against Borrowers).  All interest accruing hereunder on and after the occurrence of any of the events referred to in this Section 3.1(e) shall be payable on demand.

(f)                                    Interest shall be payable by Borrowers to Agent, for the benefit of Lenders, monthly in arrears not later than the first day of each calendar month and shall be

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calculated on the basis of a three hundred sixty (360) day year and actual days elapsed.  The interest rate on non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the day any change in such Prime Rate is announced.

3.2                                 Fee Letter.  Borrowers shall pay to Agent, for the account of Agent, as and when due and payable under the terms of the Fee Letter, the fees set forth in the Fee Letter.

3.3                                 Closing Fee.  Borrowers shall pay to Agent, for the benefit of Lenders in accordance with their Pro Rata Shares (calculated under clause (c) of the definition of Pro Rata Share), a closing fee in an amount equal to One Million Sixty Six Thousand Six Hundred and Sixty Seven Dollars ($1,066,667.00), which fee shall be fully earned as of and payable on the date hereof.

3.4                                 Intentionally Omitted.

3.5                                 Intentionally Omitted.

3.6                                 Unused Line Fee.  Borrowers shall pay to Agent, for the benefit of Lenders in accordance with their Pro Rata Shares (calculated under clause (c) of the definition of Pro Rata Share), monthly, an unused line fee equal to one-quarter of one percent (0.25%) per annum calculated upon the amount, if any, by which the Maximum Credit then in effect, exceeds the average daily principal balance of the outstanding Loans and Letter of Credit Accommodations during the immediately preceding month while this Agreement is in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be payable on the first day of each month in arrears.

3.7                                 Compensation Adjustment.

(a)                                  If after the date of this Agreement the introduction of, or any change in, any law or any rule, regulation, policy, guideline or directive of a Governmental Authority having general application to financial institutions of the same type as Agent or any Lender or any Participant, or any interpretation thereof, or compliance by Agent or any Lender or any Participant therewith:

(i)                                     subjects Agent or any Lender to any tax, duty, charge or withholding on or from payments due from Borrowers (excluding Excluded Taxes), or changes the basis of taxation of payments, in either case in respect of amounts due it hereunder, or

(ii)                                  imposes or increases or deems applicable any reserve requirement or other reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by Agent or any Lender or any Participant, or

(iii)                               imposes any other condition the result of which is to increase the cost to Agent or any Lender or any Participant of making, funding or maintaining the Loans or Letter of Credit Accommodations or reduces any amount receivable by Agent or any Lender or any Participant in connection with the Loans or Letter of Credit Accommodations, or requires

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Agent or any Lender or any Participant to make payment calculated by references to the amount of loans held or interest received by it, by an amount deemed material by Agent or any Lender or any Participant, or

(iv)                              imposes or increases any capital requirement or affects the amount of capital required or expected to be maintained by Agent or any Lender or any Participant or any corporation controlling Agent or any Lender or any Participant, and Agent or any Lender or any Participant determines that such imposition or increase in capital requirements or increase in the amount of capital expected to be maintained is based upon the existence of this Agreement or the Loans or Letter of Credit Accommodations hereunder, all of which may be determined by Agent’s reasonable allocation of the aggregate of its impositions or increases in capital required or expected to be maintained,

and the result of any of the foregoing is to increase the cost to Agent or any Lender or any Participant of making, renewing or maintaining the Loans or Letter of Credit Accommodations, or to reduce the rate of return to Agent or any Lender or any Participant on the Loans or Letter of Credit Accommodations, then upon 10 days’ prior written notice by Agent, Borrowers shall pay to Agent, for the benefit of Lenders, and continue to make periodic payments to Agent, for the benefit of Lenders, such additional amounts as may be necessary to compensate any Lender or any Participant for any such additional cost incurred or reduced rate of return realized.

(b)                                 A certificate of Agent or any Lender claiming entitlement to compensation as set forth above will be conclusive in the absence of manifest error.  Such certificate will set forth the nature of the occurrence giving rise to such compensation, the additional amount or amounts to be paid and the compensation and the method by which such amounts were determined.  In determining any additional amounts due from Borrowers under this Section 3.7, Agent and each Lender shall act reasonably and in good faith and will, to the extent that the increased costs, reductions, or amounts received or receivable relate to Agent or such Lender’s or a Participant’s loans or commitments generally and are not specifically attributable to the Loans and commitments hereunder, use averaging and attribution methods which are reasonable and equitable and which cover all such loans and commitments by Agent or such Lender or such Participant, as the case may be, whether or not the loan documentation for such other loans and commitments permits Agent or such Lender or such Participant to receive compensation costs of the type described in this Section 3.7.

3.8                                 Changes in Laws and Increased Costs of Loans.

(a)                                  Notwithstanding anything to the contrary contained herein, all Eurodollar Rate Loans shall, upon notice by Agent to Borrowers, convert to Prime Rate Loans in the event that (i) any change in applicable law or regulation having general application to financial institutions of the same type as Agent, any Lender, Reference Bank or any Participant, as applicable (or the interpretation or administration thereof) shall either (A) make it unlawful for Agent, any Lender, Reference Bank or any Participant to make or maintain Eurodollar Rate Loans or to comply with the terms hereof in connection with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs to Agent, any Lender, Reference Bank or any Participant of making or maintaining any Eurodollar Rate Loans by an amount deemed by Agent to be material, or (C) reduce the amounts received or receivable by Agent or such Lender in respect

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thereof, by an amount deemed by Agent to be material or (ii) the cost to Agent, any Lender, Reference Bank or any Participant of making or maintaining any Eurodollar Rate Loans shall otherwise increase by an amount deemed by Agent to be material.  Upon demand by Agent, Borrowers shall pay to Agent, for itself or the applicable Lender (or Agent may, at its option, charge any loan account of Borrowers) any amounts required to compensate Agent, or the applicable Lender, Reference Bank or any Participant for any loss (including loss of anticipated profits), cost or expense incurred by such person as a result of the foregoing, including, without limitation, any such loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain the Eurodollar Rate Loans or any portion thereof.  A certificate setting forth the basis for the determination of such amount necessary to compensate the Agent or applicable Lender as aforesaid shall be delivered to Borrowers and shall be conclusive, absent manifest error.  In determining any additional amounts due from Borrowers under this Section 3.8, Agent or the applicable Lender shall act reasonably and in good faith and will, to the extent that the increased costs, reductions, or amounts received or receivable relate to the Agent’s or applicable Lender’s or a Participant’s loans or commitments generally and are not specifically attributable to the Loans and commitments hereunder, use averaging and attribution methods which are reasonable and equitable and which cover all such loans and commitments by the Agent or applicable Lender or such Participant, as the case may be, whether or not the loan documentation for such other loans and commitments permits the Agent, Lender or such Participant to receive compensation costs of the type described in this Section 3.8.

(b)                                 If any payments or prepayments in respect of the Eurodollar Rate Loans are received by Agent or the applicable Lender other than on the last day of the applicable Interest Period (whether pursuant to acceleration, upon maturity or otherwise), including any payments pursuant to the application of collections under Section 6.3 or any other payments made with the proceeds of Collateral, Borrowers shall, within 10 days of receipt of written notice from Agent, pay to Agent, for itself or the applicable Lender (or Agent may, at its option, charge any loan account of Borrowers) any amounts required to compensate Agent, or the applicable Lender, Reference Bank or any Participant for any additional loss (including loss of anticipated profits), cost or expense incurred by such person as a result of such prepayment or payment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain such Eurodollar Rate Loans or any portion thereof.

3.9                                 Mitigation Obligations; Replacement of Lenders.  If any Lender requests compensation under Section 3.7, or if a Borrower is required to pay any additional amount to any Lender or any Governmental Authority pursuant to Section 3.8 (any such Lender, an “Affected Lender”), then such Affected Lender shall use reasonable efforts to promptly designate a different one of its lending offices or to assign its rights and obligations hereunder to another of its offices or branches, if (i) in the reasonable judgment of such Affected Lender, such designation or assignment would eliminate or reduce amounts payable pursuant to Section 3.7 or Section 3.8, as applicable, or would eliminate the illegality or impracticality of funding or maintaining Eurodollar Rate Loans and (ii) in the reasonable judgment of such Affected Lender, such designation or assignment would not subject it to any material unreimbursed cost or expense and would not otherwise be materially disadvantageous to it.  The Borrowers agree to pay all reasonable out-of-pocket costs and expenses incurred by such Affected Lender in

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connection with any such designation or assignment.  If, after such reasonable efforts, such Affected Lender does not so designate a different one of its lending offices or assign its rights to another of its offices or branches so as to eliminate Borrowers’ obligation to pay any future amounts to such Affected Lender pursuant to Section 3.7 or Section 3.8, as applicable, or to enable the Borrowers to obtain Eurodollar Rate Loans, then the Borrowers (without prejudice to any amounts then due to such Affected Lender under Section 3.7 or Section 3.8, as applicable) may, unless prior to the effective date of any such assignment the Affected Lender withdraws its request for such additional amounts under Section 3.7 or Section 3.8, as applicable, or indicates that it is no longer unlawful or impractical to fund or maintain Eurodollar Rate Loans, may seek a substitute Lender reasonably acceptable to Agent to purchase the Obligations owed to such Affected Lender and such Affected Lender’s Commitments hereunder (a “Replacement Lender”), and if such Replacement Lender agrees to such purchase, such Affected Lender shall assign to the Replacement Lender its Obligations and Commitments, pursuant to an Assignment and Acceptance, and upon such purchase by the Replacement Lender, such Replacement Lender shall be deemed to be a “Lender” for purposes of this Agreement and such Affected Lender shall cease to be a “Lender” for purposes of this Agreement.

SECTION 4.  CONDITIONS PRECEDENT.

4.1                                 Conditions Precedent to Agreement.  Each of the following is a condition precedent, except as may be waived in accordance with Section 11.3, to the effectiveness of this Agreement and to this Agreement amending and restating the Original Loan Agreement in its entirety:

(a)                                  all requisite corporate or company action and proceedings in connection with this Agreement and the other Financing Agreements shall be satisfactory in form and substance to Agent, and Agent shall have received all information and copies of all documents, including, without limitation, records of requisite corporate or company action and proceedings which Agent may have requested in its Permitted Discretion in connection therewith, such documents where requested by Agent in its Permitted Discretion or its counsel to be certified by appropriate corporate or company officers or Governmental Authorities;

(b)                                 no material adverse change shall have occurred in the assets, business or prospects of Borrowers since the date of Agent’s latest field examination and no change or event shall have occurred which would impair the ability of any Borrower or any Obligor to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Agent to enforce the Obligations or realize upon the Collateral;

(c)                                  Agent shall have received, in form and substance reasonably satisfactory to Agent, the Term Notes duly executed and delivered by Borrowers;

(d)                                 Agent shall have received an Information Certificate duly executed and delivered by each Borrower.

(e)                                  Agent shall have received, in form and substance reasonably satisfactory to Agent, and reviewed to its reasonable satisfaction, UCC, tax lien, litigation, bankruptcy and intellectual property searches from all offices that Agent deems appropriate in its sole discretion;

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(f)                                    Agent shall have received a letter duly executed by Borrowers authorizing Agent to file appropriate financing statements in such office or offices as may be necessary or, in the reasonable opinion of Agent, desirable to perfect the security interests to be created hereunder;

(g)                                 Agent shall have received evidence that appropriate financing statements have been duly filed in such office or offices as may be necessary or, in the reasonable opinion of Agent, desirable to perfect the Agent’s Liens in and to the Collateral, and Agent shall have received searches reflecting the filing of all such financing statements;

(h)                                 Agent shall have received, in form and substance satisfactory to Agent, an opinion letter of counsel to Borrowers and Obligors with respect to the Financing Agreements and such other matters as Agent may reasonably request;

(i)                                     Agent shall have received the Bank Products Provider Letter Agreement.

(j)                                     Agent shall have received such endorsements to its loan policy of title insurance for its deed of trust against the Real Estate, as amended, as it shall reasonably request;

(k)                                  Agent shall have received the Fee Letter duly executed and delivered by Borrowers;

(l)                                     Agent shall have received, in form and substance satisfactory to Agent, the Apple Intercreditor Agreement duly executed by Apple Computer and certain of the Borrowers; and

(m)                               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 reasonably satisfactory to Agent.

4.2                                 Conditions Precedent to All Loans and Letter of Credit Accommodations.  Each of the following is an additional condition precedent (except as may be waived in accordance with Section 11.3) to Lenders (or Agent on behalf of Lenders) making Loans and/or providing Letter of Credit Accommodations to Borrowers, including the initial Loans and Letter of Credit Accommodations and any future Loans and Letter of Credit Accommodations:

(a)                                  all representations and warranties contained herein and in the other Financing Agreements shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the making of each such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto, except to the extent related to an earlier date, in which case such representations and warranties shall speak only of such earlier date; and

(b)                                 no Event of Default and no event or condition which, with notice or passage of time or both, would constitute an Event of Default, shall exist or have occurred and be continuing on and as of the date of the making of such Loan or providing such Letter of Credit Accommodation and after giving effect thereto.

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SECTION 5.  GRANT OF SECURITY INTEREST.

To secure payment and performance of all Obligations, each Borrower hereby grants to Agent, for itself and the ratable benefit of Secured Parties, a continuing security interest in, a lien upon, and a right of set off against, and hereby assigns to Agent, for itself and the ratable benefit of Secured Parties, as security, all personal property and interests in property of such Borrower, whether now owned or hereafter acquired or existing, and wherever located (collectively, the “Collateral”), including the following:

5.1                                 all Accounts and other indebtedness owed to such Borrower;

5.2                                 all present and future contract rights, general intangibles (including, but not limited to, tax and duty refunds, registered and unregistered patents, trademarks, service marks, copyrights, trade names, applications for the foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer lists, mailing lists, licenses, whether as licensor or licensee, choses in action and other claims and existing and future leasehold interests in equipment, real estate and fixtures), chattel paper, documents, instruments, securities, investment property, letters of credit, proceeds of letters of credit, bankers’ acceptances and guaranties;

5.3                                 all present and future monies, securities, credit balances, deposits, deposit accounts and other property of such Borrower now or hereafter held or received by or in transit to Agent, any Lender or any of their respective affiliates or at any other depository or other institution from or for the account of such Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Accounts and other Collateral, including, without limitation, (a) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral, (b) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (c) goods described in invoices, documents, contracts or instruments with respect to, or otherwise representing or evidencing, Accounts or other Collateral, including, without limitation, returned, repossessed and reclaimed goods, and (d) deposits by and property of account debtors or other persons securing the obligations of account debtors;

5.4                                 all Inventory;

5.5                                 all Equipment;

5.6                                 all Records;

5.7                                 as to Onsale, the Real Estate; and

5.8                                 all products and proceeds of the foregoing, in any form, including, without limitation, insurance proceeds and any claims against third parties for loss or damage to or destruction of any or all of the foregoing.

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SECTION 6.  COLLECTION AND ADMINISTRATION.

6.1                                 Borrowers’ Loan Account.  Agent shall maintain one or more loan account(s) on its books in which shall be recorded (a) all Loans, all Letter of Credit Accommodations and all other Obligations and the Collateral, (b) all payments made by or on behalf of Borrowers and (c) all other appropriate debits and credits as provided in this Agreement, including, without limitation, fees, charges, costs, expenses and interest.  All entries in the loan account(s) shall be made in accordance with Agent’s customary practices as in effect from time to time.

6.2                                 Statements.  Agent shall render to Borrowers each month a statement setting forth the balance in the Borrowers’ loan account(s) maintained by Agent for Borrowers pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses.  Each such statement shall be subject to subsequent adjustment by Agent but shall, absent manifest errors or omissions, be considered correct and deemed accepted by Borrowers and conclusively binding upon Borrowers as an account stated except to the extent that Agent receives a written notice from Borrowers of any specific exceptions of Borrowers thereto within sixty (60) days after the date such statement has been mailed by Agent.  Until such time as Agent shall have rendered to Borrowers a written statement as provided above, the balance in Borrowers’ loan account(s) shall be presumptive evidence of the amounts due and owing to Agent and Lenders by Borrowers.

6.3                                 Collection of Accounts.

(a)                                  Borrowers shall establish and maintain, at their expense, deposit account arrangements and merchant payment arrangements with the banks set forth on Schedule 8.8 and after prior written notice to Agent, such other banks as Borrowers may hereafter select as are acceptable to Agent.  The banks set forth on Schedule 8.8 constitute all of the banks with whom any Borrower has deposit account arrangements and merchant payment arrangements as of the date hereof.

(i)                                     Borrowers shall deposit all proceeds from sales of Inventory in every form (including, without limitation, cash, checks, credit card sales drafts, credit card sales of charge slip or receipts and other forms of daily receipts) and all other proceeds of Collateral that are received at Borrowers’ retail store location(s), on each Business Day into the deposit accounts of Borrowers used solely for such purpose as set forth on Schedule 8.8.  Borrowers shall irrevocably authorize and direct in writing, in form and substance satisfactory to Agent, each of the banks into which proceeds from sales of Inventory and any and all other proceeds of Collateral are at any time deposited as provided above to send by wire transfer on a daily basis all funds deposited in such account, and shall irrevocably authorize and direct in writing their account debtors, Credit Card Issuers and Credit Card/Check Processors to directly remit payments on their Accounts, Credit Card Receivables and all other payments constituting proceeds of Inventory to the Blocked Accounts described in Section 6.3(a)(ii) below. Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, those of such banks used by Borrowers’ retail store locations shall remit the foregoing proceeds received by them to the Blocked Accounts on a weekly basis, instead of a daily basis, provided, that, the aggregate sum of such proceeds held by those banks shall not exceed Five Hundred Thousand Dollars ($500,000) at any time.  Such authorizations and directions shall not be rescinded, revoked or modified without the prior written consent of Agent.

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(ii)                                  Borrowers shall establish and maintain, at their expense, a blocked account or lockboxes and related blocked accounts (in either case, each a “Blocked Account” and collectively the “Blocked Accounts”), as Agent may specify, with such bank or banks as are acceptable to Agent into which Borrowers shall promptly deposit and direct their account debtors to directly remit all payments on Accounts and all payments constituting proceeds of Inventory or other Collateral in the identical form in which such payments are made, whether by cash, check or other manner.  Each bank at which a Blocked Account is established shall enter into an agreement, in form and substance satisfactory to Agent, providing (unless otherwise agreed to by Agent) that all items received or deposited in such Blocked Account are the Collateral of Agent and Lenders, that the depository bank has no lien upon, or right to setoff against, the Blocked Accounts, the items received for deposit therein, or the funds from time to time on deposit therein and that the depository bank will wire, or otherwise transfer, in immediately available funds, on a daily basis, all funds received or deposited into such Blocked Account to such bank account of Agent as Agent may from time to time designate for such purpose (the “Payment Account”).  Borrowers agree that all amounts deposited in the Blocked Accounts or other funds received and collected by Agent or any Lender, whether as proceeds of Inventory, the collection of Accounts or other Collateral or otherwise shall be the Collateral of Agent and Lenders.

(b)                                 For purposes of calculating interest on the Obligations, such payments or other funds received will be applied (conditional upon final collection) to the Obligations one-half of one (1/2) Business Day following the date of receipt of immediately available funds by Agent in the Payment Account (such that Borrowers will pay a charge equal to one-half (1/2) of the additional interest that would have accrued on the sum of such payments or other funds if the sum was applied to the Obligations one (1) Business Day after receipt of immediately available funds by Lenders in the Payment Account).  For purposes of calculating the amount of the Revolving Loans available to Borrowers such payments will be applied (conditional upon final collection) to the Obligations on the Business Day of receipt by Agent in the Payment Account, if such payments are received within sufficient time (in accordance with Agent’s usual and customary practices as in effect from time to time) to credit Borrowers’ loan account on such day, and if not, then on the next Business Day.  In the event that at any time or from time to time there are no Revolving Loans outstanding, Lenders shall be entitled to an administrative charge in an amount equivalent to the interest Lenders would have received on account of the above one-half of one (1/2) Business Day clearance had there been Revolving Loans outstanding.

(c)                                  Borrowers and all of their affiliates, subsidiaries, shareholders, directors, employees or agents shall, acting as trustee for Agent and Lenders, receive, as the property of Agent and Lenders, any monies, cash, checks, notes, drafts or any other payment relating to and/or proceeds of Accounts or from sales of Inventory or other Collateral which come into their possession or under their control and immediately upon receipt thereof, shall deposit or cause the same to be deposited in the Blocked Accounts, or remit the same or cause the same to be remitted, in kind, to Agent.  In no event shall any such monies, checks, notes, drafts or other payments be commingled with any Borrower’s own funds.  Borrowers agree to reimburse Agent and the Lenders on demand for any amounts owed or paid to any bank at which a Blocked Account is established or any other bank or person involved in the transfer of funds to or from the Blocked Accounts arising out of Agent’s or any Lender’s payments to or indemnification of such bank or person, unless such payment or indemnification obligation of Agent or Lender was a result of Agent’s or such Lender’s gross negligence or willful misconduct.  The obligation of

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Borrowers to reimburse Agent and Lenders for such amounts pursuant to this Section 6.3 shall survive the termination or non-renewal of this Agreement.

6.4                                 Payments.  All Obligations shall be payable to the Payment Account as provided in Section 6.3 of this Agreement or such other place as Agent may designate from time to time.  Subject to the other terms and conditions contained herein, Agent shall apply payments received or collected from any Borrower or for the account of any Borrower (including the monetary proceeds of collections or of realization upon any Collateral) as follows: first, to pay any fees, indemnities or expense reimbursements then due to Agent and Lenders from any Borrower; second, to pay interest due in respect of any Loans (and including any Special Agent Advances) or Letter of Credit Accommodations; third, to pay or prepay principal in respect of Special Agent Advances; fourth, to pay principal due in respect of the Loans, on a pro rata basis; fifth, to pay or prepay any other Obligations whether or not then due, in such order and manner as Agent determines and at any time an Event of Default exists or has occurred and is continuing, to provide cash collateral for any Letter of Credit Accommodations or other contingent Obligations (but not including for this purpose any Obligations arising under or pursuant to any Bank Products in accordance with the terms of the applicable Bank Products Letter); and sixth, to pay or prepay any Obligations arising under or pursuant to any Bank Products in accordance with the Bank Products Letter; provided, that, so long as no Event of Default has occurred and is continuing, excess proceeds received from the sale or refinance of Real Estate pursuant to Section 2.3(c) or proceeds generated in the ordinary course of Borrowers’ business on Accounts or Inventory will not be applied to any principal amount not yet due and payable on the Term Loan or to contingent Obligations.  At Agent’s option, all principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Financing Agreements may be charged directly to the loan account(s) of Borrowers.  Borrowers shall make all payments to Agents and the Lenders on the Obligations free and clear of, and without deduction or withholding for or on account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind.  If after receipt of any payment of, or proceeds of Collateral applied to the payment of, any of the Obligations, Agent or any Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Obligations intended to be satisfied by such payment or proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by such Person.  Borrowers shall be liable to pay to Agent and Lenders, and do hereby indemnify and hold Agent and each Lender harmless for the amount of any payments or proceeds surrendered or returned.  This Section 6.4 shall remain effective notwithstanding any contrary action which may be taken by Agent or any Lender in reliance upon such payment or proceeds.  This Section 6.4 shall survive the payment of the Obligations and the termination or non-renewal of this Agreement.

6.5                                 Taxes.

(a)                                  Any and all payments by or on behalf of any Borrower or any Obligor hereunder and under any other Financing Agreement shall be made, in accordance with Section 6.4 of this Agreement, free and clear of and without deduction for any and all Taxes, excluding (i) income taxes imposed on the net income of any Lender (or any transferee or assignee of such Lender, including any Participant, any such transferee or assignee being referred to as a “Transferee”) and (ii) franchise or similar taxes imposed on or determined by reference to the net

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income of any Lender (or Transferee), in each case by the United States of America or by the jurisdiction under the laws of which such Lender (or Transferee) (A) is organized or any political subdivision thereof or (B) has its applicable lending office located.  In addition, each Borrower agrees to pay to the relevant Governmental Authority, in accordance with applicable law, any Other Taxes.

(b)                                 If any Borrower or any Obligor shall be required by law to deduct or withhold in respect of any Taxes or Other Taxes from or in respect of any sum payable hereunder to Agent or any Lender, then:

(i)                                     the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) such Lender (or Agent on behalf of such Lender) receives an amount equal to the sum it would have received had no such deductions or withholdings been made;

(ii)                                  such Borrower or such Obligor shall make such deductions and withholdings;

(iii)                               such Borrower or such Obligor shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and

(iv)                              to the extent not paid to Agent and Lenders pursuant to clause (i) above, such Borrower or such Obligor shall also pay to Agent or any Lender, at the time interest is paid, all additional amounts which Agent or any Lender specifies as necessary to preserve the after-tax yield such Lender would have received if such Taxes or Other Taxes had not been imposed.

(c)                                  Within thirty (30) days after the date of any payment by any Borrower or any Obligor of Taxes or Other Taxes, such Person shall furnish to Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment reasonably satisfactory to Agent.

(d)                                 Borrowers will indemnify Agent and each Lender (or Transferee) for the full amount of Taxes and Other Taxes paid by Agent or such Lender (or Transferee, as the case may be).  If Agent or such Lender (or Transferee) receives a refund in respect of any Taxes or Other Taxes for which Lender (or Transferee) has received payment from any Borrower or any Obligor hereunder, Agent or such Lender (as the case may be) shall credit to the loan account of Borrowers the amount of such refund plus any interest received (but only to the extent of indemnity payments made, or additional amounts paid, by any Borrower or any Obligor under this Section 6.5 with respect to the Taxes or Other Taxes giving rise to such refund).  If a Lender (or any Transferee) claims a tax credit in respect of any Taxes for which it has been indemnified by Borrower or any Obligor pursuant to this Section 6.5, such Lender will apply the amount of the actual dollar benefit received by such Lender as a result thereof, as reasonably calculated by Lender and net of all expenses related thereto, to the Loans.  If Taxes or Other Taxes were not correctly or legally asserted, Agent or such Lender shall, upon Borrower’s request and at

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Borrowers’ expense, provide such documents to Borrower as Borrower may reasonably request, to enable Borrowers to contest such Taxes or Other Taxes pursuant to appropriate proceedings then available to Borrowers (so long as providing such documents shall not, in the good faith determination of Agent, have a reasonable likelihood of resulting in any liability of Agent or any Lender).

(e)                                  In the event any Transferee is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a “Non-U.S. Lender”) such Non-U.S. Lender shall deliver to Borrowers two (2) copies of either United States Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Code, is not a ten percent (10%) shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of any Borrower or any Obligor and is not a controlled foreign corporation related to any Borrower or any Obligor (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from U.S. Federal withholding tax on payments by any Borrower or any Obligor under this Agreement and the other Financing Agreements.  Such forms shall be delivered by any Transferee that is a Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a Participant, on or before the date such Participant becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a “New Lending Office”).  In addition, a Non-U.S. Lender shall upon written notice from Borrowers promptly deliver such new forms as are required by the Code or the regulations issued thereunder to claim exemption from, or reduction in the rate of, U.S. Federal withholding tax upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender.  Notwithstanding any other provision of this Section 6.5(e), a Non-U.S. Lender shall not be required to deliver any form pursuant to this Section 6.5(e) that such Non-U.S. Lender is not legally able to deliver.

(f)                                    Borrowers and Obligors shall not be required to indemnify any Non-U.S. Lender or to pay any additional amounts to any Non-U.S. Lender, in respect of United States Federal withholding tax pursuant to subsections (a) or (d) above to the extent that (i) the obligation to withhold amounts with respect to United States Federal withholding tax was applicable on the date such Non-U.S. Lender became a party to this Agreement (or, in the case of a Transferee that is a Participant, on the date such Participant became a Transferee hereunder) or, with respect to payments to a New Lending Office, the date such Non-U.S. Lender designated such New Lending Office with respect to a Loan; provided, that, this subsection (f) shall not apply (A) to any Transferee or New Lending Office that becomes a Transferee or New Lending Office as a result of an assignment, participation, transfer or designation made at the request of any Borrower or any Obligor and (B) to the extent the indemnity payment or additional amounts any Transferee, acting through a New Lending Office, would be entitled to receive (without regard to this subsection (f)) do not exceed the indemnity payment or additional amounts that the person making the assignment, participation or transfer to such Transferee making the designation of such New Lending Office, would have been entitled to receive in the absence of such assignment, participation, transfer or designation or (ii) the obligation to pay such

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additional amounts would not have arisen but for a failure by such Non-U.S. Lender to comply with the provisions of subsection (e) above.

6.6                                 Authorization to Make Loans.  Agent and each Lender is authorized to make the Loans and provide the Letter of Credit Accommodations based upon telephonic or other instructions received from anyone purporting to be an officer of a Borrower or other authorized person or, at the discretion of Agent or any Lender, if such Loans are necessary to satisfy any Obligations; provided, that, proceeds of Loans shall be remitted by Agent and the Lenders to accounts designated by Borrowers in writing, which accounts shall be accounts of Borrowers unless otherwise agreed by Agent.  All requests for Loans or Letter of Credit Accommodations hereunder shall specify the date on which the requested advance is to be made or Letter of Credit Accommodations established (which day shall be a Business Day) and the amount of the requested Loan.  Requests received at or before 10:30 a.m.  (Los Angeles time) on any Business Day shall be deemed to have been made as of such Business Day.  Requests received on any day that is not a Business Day or received after 10:30 a.m.  (Los Angeles time) on any Business Day shall be deemed to have been made as of the opening of business on the immediately following Business Day.  Subject to the terms and conditions of this Agreement, Agent and the Lenders will make the Loans or commence arranging for the Letter of Credit Accommodations (as requested by Borrowers) on the Business Day the request is deemed to have been made or such later Business Day as may be specified by Borrowers.  All Loans and Letter of Credit Accommodations under this Agreement shall be conclusively presumed to have been made to, and at the request of and for the benefit of, Borrowers when deposited to the credit of Borrowers or otherwise disbursed or established in accordance with the instructions of Borrowers or in accordance with the terms and conditions of this Agreement.

6.7                                 Use of Proceeds.  Borrowers shall use the proceeds of the Loans and Letter of Credit Accommodations provided by or on behalf of Lenders to Borrowers hereunder (a) to repay the outstanding balance of the term loans under the Original Loan Agreement, (b) for costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement and the other Financing Agreements executed in connection herewith and (c) for general operating, working capital and other proper corporate purposes of Borrowers not otherwise prohibited by the terms hereof.  None of the proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security or for the purposes of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the Loans to be considered a “purpose credit” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended.

6.8                                 Pro Rata Treatment.  Except to the extent otherwise provided in this Agreement:  (a) (i) the making and conversion of Revolving Loans shall be made among the Revolving Loan Lenders based on their respective Pro Rate Shares as to the Revolving Loans, and (ii) the making of Term Loans shall be made among the Term Loan Lenders based on their respective Pro Rata Shares as to the Term Loans; and (b) each payment on account of any Obligations to or for the account of one or more of Lenders in respect of any Obligations due on a particular day shall be allocated among the Lenders entitled to such payments based on their respective Pro Rata Shares and shall be distributed accordingly.

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6.9                                 Sharing of Payments, Etc.

(a)                                  Each Borrower agrees that, in addition to (and without limitation of) any right of setoff, banker’s lien or counterclaim any Agent or Lender may otherwise have, each Lender shall be entitled, at its option (but subject, as among Agent and Lenders, to the provisions of Section 6.9(b) hereof), to offset balances held by it for the account of any Borrower at any of its offices, in dollars or in any other currency, against any principal of or interest on any Loans owed to such Lender or any other amount payable to such Lender hereunder, that is not paid when due (regardless of whether such balances are then due to Borrower), in which case it shall promptly notify Borrowers and Agent thereof; provided, that, such Lender’s failure to give such notice shall not affect the validity thereof.

(b)                                 Agent and Lenders agree that no Lender shall, except upon the prior written consent of Agent, exercise any right of setoff, banker’s lien or counterclaim such Lender may have with respect to any property held by such Lender for the account of any Borrower.  If any Lender (including Agent) shall obtain from any Borrower payment of any principal of or interest on any Loan owing to it or payment of any other amount under this Agreement or any other Financing Agreement through the exercise (in accordance with the terms hereof) of any right of setoff, banker’s lien or counterclaim or similar right or otherwise (other than from Agent as provided herein), and, as a result of such payment, such Lender shall have received more than its Pro Rata Share of the principal of the Loans or more than its share of such other amounts then due hereunder or thereunder by such Borrower to such Lender than the percentage thereof received by any other Lender, it shall promptly pay to Agent, for the benefit of Lenders, the amount of such excess and simultaneously purchase from such other Lenders a participation in the Loans or such other amounts, respectively, owing to such other Lenders (or such interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all Lenders shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) in accordance with their respective Pro Rata Shares or as otherwise agreed by Lenders.  To such end all Lenders shall make appropriate adjustments among themselves (by the resale of participation sold or otherwise) if such payment is rescinded or must otherwise be restored.

(c)                                  Each Borrower agrees that any Lender so purchasing a participation pursuant to subsection (b) above (or direct interest) may exercise, in a manner consistent with this Section, all rights of setoff, banker’s lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans or other amounts (as the case may be) owing to such Lender in the amount of such participation.

(d)                                 Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of any Borrower.  If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, assign such rights to Agent for the benefit of Lenders and, in any event, exercise its rights in respect of such secured claim in a manner consistent with the rights of Lenders entitled under this Section to share in the benefits of any recovery on such secured claim.

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6.10                           Settlement Procedures.

(a)                                  In order to administer the credit facility provided hereunder in an efficient manner and to minimize the transfer of funds between Agent and Lenders, Agent may, subject to the terms of this Section, make available, on behalf of Lenders, the full amount of the Loans requested or charged to Borrowers’ loan account(s) or otherwise to be advanced by Lenders pursuant to the terms hereof, without any requirement of prior notice to Lenders of the proposed Loans.

(b)                                 With respect to all Revolving Loans made by Agent on behalf of Revolving Loan Lenders as provided in this Section, the amount of each Revolving Loan Lender’s Pro Rata Share of the outstanding Revolving Loans shall be computed weekly, and shall be adjusted upward or downward on the basis of the amount of the outstanding Revolving Loans as of 5:00 p.m. Los Angeles time on the Business Day immediately preceding the date of each settlement computation; provided, that, Agent retains the absolute right at any time or from time to time to make the above described adjustments at intervals more frequent than weekly, but in no event more than twice in any week.  Agent shall deliver to each of the Revolving Loan Lenders after the end of each week, or at such lesser period or periods as Agent shall determine, a summary statement of the amount of outstanding Revolving Loans for such period (such week or lesser period or periods being hereinafter referred to as a “Settlement Period”).  If the summary statement is sent by Agent and received by a Revolving Loan Lender prior to 2:00 p.m. Los Angeles time, then such Revolving Loan Lender shall make the settlement transfer described in this Section by no later than 2:00 p.m. Los Angeles time on the next Business Day following the date of receipt.  If, as of the end of any Settlement Period, the amount of a Lender’s Pro Rata Share of the outstanding Revolving Loans is more than such Lender’s Pro Rata Share of the outstanding Revolving Loans as of the end of the previous Settlement Period, then such Lender shall forthwith (but in no event later than the time set forth in the preceding sentence) transfer to Agent by wire transfer in immediately available funds the amount of the increase.  Alternatively, if the amount of a Lender’s Pro Rata Share of the outstanding Revolving Loans in any Settlement Period is less than the amount of such Lender’s Pro Rata Share of the outstanding Revolving Loans for the previous Settlement Period, Agent shall forthwith transfer to such Lender by wire transfer in immediately available funds the amount of the decrease.  The obligation of each of the Revolving Loan Lenders to transfer such funds and effect such settlement shall be irrevocable and unconditional and without recourse to or warranty by Agent.  Each of Agent and Revolving Loan Lenders agrees to ▇▇▇▇ its books and records at the end of each Settlement Period to show at all times the dollar amount of its Pro Rate Share of the outstanding Revolving Loans and Letter of Credit Accommodations.  Each Revolving Loan Lender shall only be entitled to receive interest on its Pro Rata Share of the Loans to the extent such Loans have been funded by such Lender.  Because the Agent on behalf of Revolving Loan Lenders may be advancing and/or may be repaid Revolving Loans prior to the time when Lenders will actually advance and/or be repaid such Revolving Loans, interest with respect to Revolving Loans shall be allocated by Agent in accordance with the amount of Revolving Loans actually advanced by and repaid to each Revolving Loan Lender and the Agent and shall accrue from and including the date such Loans are so advanced to but excluding the date such Loans are either repaid by any Borrower or actually settled with the applicable Lender as described in this Section.

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(c)                                  To the extent that Agent has made any such amounts available and the settlement described above shall not yet have occurred, upon repayment of any Loans by any Borrower, Agent may apply such amounts repaid directly to any amounts made available by any Agent pursuant to this Section.  In lieu of weekly or more frequent settlements, Agent may at any time require each Lender to provide Agent with immediately available funds representing its Pro Rata Share of each Loan, prior to Agent’s disbursement of such Loan to any Borrower.  In such event, all Loans under this Agreement shall be made by the Lenders simultaneously and proportionately to their Pro Rata Shares.  No Lender shall be responsible for any default by any other Lender in the other Lender’s obligation to make a Loan requested hereunder nor shall the Commitment of any Lender be increased or decreased as a result of the default by any other Lender in the other Lender’s obligation to make a Loan hereunder.

(d)                                 If Agent is not funding a particular Loan to Borrowers pursuant to this Section on any day, Agent may assume that each Lender will make available to Agent such Lender’s Pro Rata Share of the Revolving Loan requested or otherwise made on such day and Agent may, in its discretion, but shall not be obligated to, cause a corresponding amount to be made available to Borrowers on such day.  If Agent makes such corresponding amount available to Borrowers and such corresponding amount is not in fact made available to Agent by such Lender, Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon for each day from the date such payment was due until the date such amount is paid to Agent at the interest rate provided for in Section 3.1 hereof.  During the period in which such Lender has not paid such corresponding amount to Agent, notwithstanding anything to the contrary contained in this Agreement or any of the other Financing Agreements, the amount so advanced by Agent to any Borrower shall, for all purposes hereof, be a Loan made by Agent for its own account.  Upon any such failure by a Lender to pay Agent, Agent shall promptly thereafter notify Borrowers of such failure and Borrowers shall immediately pay such corresponding amount to Agent for its own account.  A Lender who fails to pay Agent its Pro Rata Share of any Loans made available by the Agent on such Lender’s behalf, or any Lender who fails to pay any other amount owing to Agent, is a “Defaulting Lender”.  Agent shall not be obligated to transfer to a Defaulting Lender any payments made by or on behalf of any Borrower or any Obligor to Agent for the Defaulting Lender’s benefit, nor shall a Defaulting Lender be entitled to the sharing of any payments hereunder.  Amounts payable to a Defaulting Lender shall instead be paid to or retained by Agent.  Agent may hold and, in its discretion, re-lend to any Borrower the amount of all such payments received or retained by it for the account of such Defaulting Lender.  For purposes of voting or consenting to matters with respect to this Agreement and the other Financing Agreements and determining Pro Rata Shares, such Defaulting Lender shall be deemed not to be a Lender and such Defaulting Lender’s Commitment shall be deemed to be zero (0).  This Section shall remain effective with respect to a Defaulting Lender until such default is cured.  The operation of this Section shall not be construed to increase or otherwise affect the Commitment of any Lender, or relieve or excuse the performance by any Borrower or any Obligor of their duties and obligations hereunder.

(e)                                  Nothing in this Section or elsewhere in this Agreement or the other Financing Agreements shall be deemed to require Agent to advance funds on behalf of any Lender or to relieve any Lender from its obligation to fulfill its Commitment hereunder or to prejudice any rights that any Borrower may have against any Lender as a result of any default by any Lender hereunder in fulfilling its Commitment.

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6.11                           Bank Products.  Borrowers or any of their Subsidiaries, may (but no such Person is required to) request that the Bank Product Providers provide or arrange for such Person to obtain Bank Products from Bank Product Providers, and each Bank Product Provider may, in its sole discretion, provide or arrange for such Person to obtain the requested Bank Products.  Borrowers or any of their Subsidiaries that obtain Bank Products shall indemnify and hold Agent harmless from any and all obligations now or hereafter owing to any other Person by any Bank Product Provider in connection with any Bank Products other than for gross negligence or willful misconduct on the part of any such indemnified Person.  This Section 6.11 shall survive the payment of the Obligations and the termination of this Agreement.  Borrowers acknowledge and agree that the obtaining of Bank Products from Bank Product Providers (a) is in the sole discretion of such Bank Product Provider, and (b) is subject to all rules and regulations of such Bank Product Provider.

SECTION 7.  COLLATERAL REPORTING AND COVENANTS.

7.1                                 Collateral Reporting.  Borrowers shall provide Agent with the following documents in a form satisfactory to Agent:  (a) on a weekly basis, or, so long as an FCCR Triggering Event is ongoing (or, after the occurrence of an Event of Default, so long as such Event of Default is continuing), more frequently as Agent may request, (i) schedules of sales made, credits issued and cash received, which, after the occurrence of an Event of Default or the filing of a bankruptcy petition by or against any Borrower, and for so long as such Event of Default is continuing or such bankruptcy petition has not been dismissed, shall separately account for sales of Inventory subject to the security interest of IBM Credit Corporation, (ii) borrowing base certificates, (iii) schedules of Inventory (net of fixed assets) separately identifying Inventory by vendor, type, location and age, with perpetual inventory reports, and (iv) schedules of accounts payable and accrued accounts payable to any vendor holding a security interest in any property of the Borrowers; (b) on a monthly basis, on or before the tenth (10th) Business Day of such month for the immediately preceding month or more frequently as Agent may request, (i) agings of accounts receivable, (ii) agings of accounts payable, accrued accounts payable, lease payables and other payables, and (iii) a certificate from an authorized officer of Borrowers representing that each Borrower has made payment of sales and use taxes during such month or, at Agent’s request, other evidence of such payment; (c) upon Agent’s request, (i) copies of customer statements and credit memos, remittance advices and reports, and copies of deposit slips and bank statements, (ii) copies of shipping and delivery documents, and (iii) copies of purchase orders, invoices and delivery documents for Inventory and Equipment acquired by Borrowers; and (d) such other reports as to the Collateral or other property which is security for the Obligations as Agent shall request in its Permitted Discretion from time to time.  Borrowers shall provide Agent, as soon as available, but in any event not later than five (5) days after receipt by Borrowers, with all statements received from Apple Computer and any other vendor who may hold a security interest in any Borrowers’ assets, together with such additional information as shall be sufficient to enable Agent to monitor the accounts payable and accrued accounts payable to them.  If any of Borrowers’ records or reports of the Collateral or other property which is security for the Obligations are prepared or maintained by an accounting service, contractor, shipper or other agent, Borrowers hereby irrevocably authorize such service, contractor, shipper or agent to deliver such records, reports, and related documents to Agent and to follow Agent’s instructions with respect to further services at any time that an Event of Default exists or has occurred and is continuing.

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7.2                                 Accounts Covenants.

(a)                                  Each Borrower shall notify Agent promptly of the assertion of any claims, offsets, defenses of counterclaims by any account debtor, or any disputes with any of such persons or any settlement, adjustment or compromise thereof, in the schedules, certificates and reports provided pursuant to Section 7.1 hereof.

(b)                                 Each Borrower shall notify Agent promptly of:  (i) any material delay in any Borrower’s performance of any of its obligations to any account debtor or the assertion of any claims, offsets, defenses or counterclaims by any account debtor, or any disputes with account debtors, or any settlement, adjustment or compromise thereof, (ii) all material adverse information relating to the financial condition of any account debtor and (iii) any event or circumstance which, to Borrowers’ knowledge would cause Agent to consider any then existing Accounts as no longer constituting Eligible Accounts.  No credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor, Credit Card Issuer or Credit Card/Check Processor except in the ordinary course of Borrowers’ business in accordance with its most recent past practices and policies.  So long as no Event of Default exists or has occurred and is continuing, Borrowers may settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor, Credit Card Issuer or Credit Card/Check Processor in the ordinary course of Borrowers’ business in accordance with their most recent past practices and policies.  At any time that an Event of Default exists or has occurred and is continuing, Agent shall, at its option, have the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor, Credit Card Issuer or Credit Card/Check Processor or grant any credits, discounts or allowances.  Each Borrower shall notify Agent promptly of (i) any notice of a material default by any Borrower under any of the Credit Card/Check Processing Agreements or of any default which might result in the Credit Card Issuer or Credit Card/Check Processor ceasing to make payments or suspending payments to Borrowers, (ii) any notice from any Credit Card Issuer or Credit Card/Check Processor that such person is ceasing or suspending, or will cease or suspend, any present or future payments due or to become due to Borrowers from such person, or that such person is terminating or will terminate any of the Credit Card/Check Processing Agreements, and (iii) the failure of any Borrower to comply with any material terms of the Credit Card/Check Processing Agreements or any terms thereof which might result in the Credit Card Issuer or Credit Card/Check Processor ceasing or suspending payments to Borrowers.

(c)                                  Without limiting the obligation of Borrowers to deliver any other information to Agent, Borrowers shall promptly report to Agent any return of Inventory by any account debtor.  At any time that Inventory is returned, reclaimed or repossessed, the Account (or portion thereof) which arose from the sale of such returned, reclaimed or repossessed Inventory shall not be deemed an Eligible Account.  In the event any account debtor returns Inventory when an Event of Default exists or has occurred and is continuing, Borrowers shall, upon Agent’s request, (i) hold the returned Inventory in trust for Agent, (ii) segregate all returned Inventory from all of its other property, (iii) dispose of the returned Inventory solely according to Agent’s instructions, and (iv) not issue any credits, discounts or allowances with respect thereto without Agent’s prior written consent.

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(d)                                 With respect to each Account and Credit Card/Check Processing Receivable:  (i) the amounts shown on any invoice delivered to Agent or schedule thereof delivered to Agent shall be true and complete in all material respects, (ii) no payments shall be made thereon except payments delivered to Agent pursuant to the terms of this Agreement, (iii) no credit, discount, allowance or extension or agreement for any of the foregoing shall be granted to any account debtor, Credit Card Issuer or Credit Card/Check Processor except as reported to Agent in accordance with this Agreement and except for credits, discounts, allowances or extensions made or given in the ordinary course of Borrowers’ business in accordance with practices and policies previously disclosed to Agent, (iv) there shall be no setoffs, deductions, contras, defenses, counterclaims or disputes existing or asserted with respect thereto except as reported to Agent in accordance with the terms of this Agreement, (v) none of the transactions giving rise thereto will violate any applicable State or Federal Laws or regulations, all documentation relating thereto will be legally sufficient under such laws and regulations and all such documentation will be legally enforceable in accordance with its terms.

(e)                                  Agent shall have the right at any time or times, in Agent’s name or in the name of a nominee of Agent, to verify the validity, amount or any other matter relating to any Account, Credit Card/Check Processing Receivable or other Collateral, by mail, telephone, facsimile transmission or otherwise.

(f)                                    Borrowers shall deliver or cause to be delivered to Agent, with appropriate endorsement and assignment, with full recourse to Borrowers, all chattel paper and instruments which Borrowers now own or may at any time acquire immediately upon Borrowers’ receipt thereof, except as Agent may otherwise agree.

(g)                                 Agent may, at any time or times that an Event of Default exists or has occurred and is continuing, (i) notify any or all account debtors, Credit Card Issuers or Credit Card/Check Processors that the Accounts and Credit Card/Check Processing Receivables have been assigned to Agent and that Agent and the Lenders have a security interest therein and Agent may direct any or all account debtors, Credit Card Issuers or Credit Card/Check Processors to make payments of Accounts and Credit Card/Check Processing Receivables directly to Agent, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit, return of merchandise or otherwise, and upon any terms or conditions, any and all Accounts and Credit Card/Check Processing Receivables or other obligations included in the Collateral and thereby discharge or release the account debtor, Credit Card Issuer, Credit Card/Check Processor or any other party or parties in any way liable for payment thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Accounts and Credit Card/Check Processing Receivables or such other obligations, but without any duty to do so, and Agent shall not be liable for its failure to collect or enforce the payment thereof or for the negligence of its agents or attorneys with respect thereto and (iv) take whatever other action Agent may deem necessary or desirable for the protection of its interests.  At any time that an Event of Default exists or has occurred and is continuing, at Agent’s request, all invoices and statements sent to any account debtor shall state that the Accounts due from such account debtor and such other obligations have been assigned to Agent and are payable directly and only to Agent and Borrowers shall deliver to Agent such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Agent may require.

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7.3                                 Inventory Covenants.  With respect to the Inventory:

(a)                                  Borrowers shall at all times maintain inventory records reasonably satisfactory to Agent, keeping correct and accurate records itemizing and describing the kind, type, quality and quantity of Inventory, Borrowers’ cost therefor and daily withdrawals therefrom and additions thereto;

(b)                                 Borrowers shall conduct, at their option, either periodic cycle counts or a physical count of the Inventory once every twelve (12) months, but at any time as Agent may reasonably request upon the occurrence and during the continuance of an Event of Default.  Promptly following such counts, Borrower shall supply Agent with a report in the form and with such specificity as may be reasonably satisfactory to Agent;

(c)                                  Borrowers shall not remove any Inventory from the locations set forth or permitted herein, without the prior written consent of Agent, except for sales of Inventory in the ordinary course of Borrowers’ business and except to move Inventory directly from one location set forth or permitted herein to another such location;

(d)                                 (i) upon Agent’s request, Borrowers shall, at their expense, no more than one (1) time in any twelve (12) month period, but at any time or times as Agent may request upon the occurrence and during the continuance of an Event of Default, deliver or cause to be delivered to Agent a full written appraisal as to the Inventory in form, scope and methodology acceptable to Agent and addressing such issues as Agent may require in its commercially reasonable judgment, issued by a technology appraiser listed on Schedule 7.3 or otherwise acceptable to Agent and Borrowers, and addressed to Agent and Lenders or upon which Agent and Lenders are expressly permitted to rely (with the understanding that Agent may revise the definition of ‘Eligible Inventory’ hereunder or establish Availability Reserves as Agent may deem advisable in its sole discretion based upon the results of such updated appraisals); (ii) at any time upon the occurrence and during the continuance of an Event of Default, and up to two (2) times in any twelve month period immediately following any month where the average amount of outstanding Loans, Letter of Credit Accommodations and other Obligations which are made with respect to Inventory in such month is greater than $25,000,000, upon Agent’s request, Borrowers shall, at their expense, deliver or cause to be delivered to Agent a desktop appraisal as to the Inventory in form, scope and methodology acceptable to Agent and addressing such issues as Agent may require in its commercially reasonable judgment, issued by an appraiser acceptable to Agent, and addressed to Agent and Lenders or upon which Agent and Lenders are expressly permitted to rely (with the understanding that Agent may revise the definition of ‘Eligible Inventory’ hereunder or establish Availability Reserves as Agent may deem advisable in its sole discretion based upon the results of such updated appraisals);

(e)                                  Borrowers shall produce, use, store and maintain the Inventory, with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with applicable laws (including, but not limited to, the requirements of the Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders related thereto);

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(f)                                    Borrowers assume all responsibility and liability arising from or relating to the production, use, sale or other disposition of the Inventory;

(g)                                 Borrowers shall not sell Inventory to any customer on approval, or any other basis which entitles the customer to return or may obligate Borrowers to repurchase such Inventory (except in the ordinary course of Borrowers’ business pursuant to their existing policies and in accordance with their industry standards);

(h)                                 Borrowers shall keep the Inventory in good and marketable condition;

(i)                                     Borrowers shall not, without prior written notice to Agent, acquire or accept any Inventory on consignment or approval (except in the ordinary course of Borrowers’ business pursuant to their existing policies, in accordance with Borrowers’ industry standards, and consistent with Borrowers’ historical practices, so long as the amount of Inventory on consignment is reported on each borrowing base certificate delivered hereunder); and

(j)                                     upon the occurrence and during the continuance of an Event of Default, Borrowers shall not return any Inventory to its vendors without the prior consent of Agent.

7.4                                 Equipment Covenants.  With respect to the Equipment:

(a)                                  upon Agent’s request, Borrowers shall, at their expense, at any time or times as Agent may request upon the occurrence and during the continuation of an Event of Default, deliver or cause to be delivered to Agent written reports or appraisals as to the Equipment in form, scope and methodology reasonably acceptable to Agent and by an appraiser acceptable to Agent;

(b)                                 Borrowers shall keep the Equipment in good order, repair, running and marketable condition (ordinary wear and tear excepted);

(c)                                  Borrowers shall use the Equipment with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with all applicable laws;

(d)                                 the Equipment is and shall be used in Borrowers’ business and not for personal, family, household or farming use;

(e)                                  Borrowers shall not remove any Equipment from the locations set forth or permitted herein, except to the extent necessary to have any Equipment repaired or maintained in the ordinary course of the business of Borrowers or to move Equipment directly from one such location set forth or permitted herein to another such location and except for the movement of motor vehicles used by or for the benefit of Borrowers in the ordinary course of business;

(f)                                    the Equipment is now and shall remain personal property and Borrowers shall not permit any of the Equipment to be or become a part of or affixed to real property; and

(g)                                 Borrowers assume all responsibility and liability arising from the use of the Equipment.

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7.5                                 Power of Attorney.  Each Borrower hereby irrevocably designates and appoints Agent (and all persons designated by Agent) as such Borrower’s true and lawful attorney-in-fact, and authorizes Agent, in such Borrower’s or Agent’s name, to:

(a)                                  at any time an Event of Default has occurred and is continuing:

(i)                                     demand payment on Accounts, Credit Card/Check Processing Receivables or other proceeds of Inventory or other Collateral;

(ii)                                  enforce payment of Accounts, Credit Card/Check Processing Receivables or other Obligations included in the Collateral by legal proceedings or otherwise;

(iii)                               exercise all of such Borrower’s rights and remedies to collect any Account, Credit Card/Check Processing Receivables or other proceeds of Inventory or other Collateral;

(iv)                              sell or assign any Account and Credit Card/Check Processing Receivables upon such terms, for such amount and at such time or times as the Agent deems advisable;

(v)                                 settle, adjust, compromise, extend or renew any Accounts and Credit Card/Check Processing Receivables;

(vi)                              discharge and release any Accounts and Credit Card/Check Processing Receivables or other Obligations included in the Collateral;

(vii)                           prepare, file and sign such Borrower’s name on any proof of claim in bankruptcy or other similar document against an account debtor;

(viii)                        notify the post office authorities to change the address for delivery of such Borrower’s mail to an address designated by Agent, and open and dispose of all mail addressed to such Borrower, provided, that, any such mail received by Agent that does not constitute checks or other items of payment shall be forwarded by Agent to such Borrower promptly after receipt by Agent; and

(ix)                                do all acts and things which are necessary, in Agent’s good faith determination, to fulfill Borrowers’ obligations under this Agreement and the other Financing Agreements; and

(b)                                 at any time, subject to the terms of the agreement(s) relating to the Blocked Account(s) to:

(i)                                     take control in any manner of any item of payment or proceeds thereof;

(ii)                                  have access to any lockbox or postal box into which Borrowers’ mail is deposited;

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(iii)                               endorse such Borrower’s name upon any items of payment or proceeds thereof and deposit the same in the Agent’s account for application to the Obligations;

(iv)                              endorse such Borrower’s name upon any chattel paper, document, instrument, invoice, or similar document or agreement relating to any Accounts or Credit Card/Check Processing Receivables or any goods pertaining thereto or any other Collateral;

(v)                                 sign such Borrower’s name on any verification of Accounts or Credit Card/Check Processing Receivables and notices thereof to account debtors, Credit Card Issuers or Credit Card/Check Processors; and

(vi)                              execute in such Borrower’s name and file any UCC financing statements or amendments thereto as deemed appropriate by Agent to perfect its security interests in the Collateral.

Each Borrower hereby releases Agent and each Lender and each of their respective officers, employees and designees from any liabilities arising from any act or acts under this power of attorney and in furtherance thereof, whether of omission or commission, except as a result of the gross negligence or willful misconduct of Agent’s or such Lender’s or their respective officers, employees or designees as determined pursuant to a final non-appealable order of a court of competent jurisdiction.

7.6                                 Right to Cure.  After the occurrence and during the continuance of an Event of Default, Agent may, at its option, (a) cure any default by any Borrower under any agreement with a third party or pay or bond on appeal any judgment entered against any Borrower, (b) discharge taxes, liens, security interests or other encumbrances at any time levied on or existing with respect to the Collateral and (c) pay any amount, incur any expense or perform any act which, in Agent’s judgment, is necessary or appropriate to preserve, protect, insure or maintain the Collateral and the rights of Agent and Lenders with respect thereto.  Agent and Lenders may add any amounts so expended to the Obligations and charge Borrowers’ account therefor, such amounts to be repayable by Borrowers on demand.  Agent and Lenders shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrowers.  Any payment made or other action taken by Agent or any Lender under this Section 7.6 shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly.

7.7                                 Access to Premises.  From time to time as requested by Agent, at the cost and expense of Borrowers, no more than three (3) times in any twelve (12) month period, but at any time or times as Agent may request upon the occurrence and during the continuance of an Event of Default, (a) Agent or its designee shall have complete access to all of Borrowers’ premises during normal business hours and after two (2) Business Days prior notice to Borrowers, or at any time and without notice to Borrowers if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying and auditing the Collateral and all of Borrowers’ books and records, including, without limitation, the Records, and (b) Borrowers shall promptly furnish to Agent such copies of such books and records or extracts therefrom as Agent may reasonably request, and (c)Agent may use during normal business hours such of Borrowers’ personnel, equipment, supplies and premises as may be reasonably necessary for the

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foregoing and if an Event of Default exists or has occurred and is continuing for the collection of Accounts or Credit Card/Check Processing Receivables and realization of other Collateral.

7.8                                 Real Estate Covenant.  With respect to the Real Estate, until repayment of the Term Loan or at any time an Event of Default has occurred and is continuing, upon Agent’s request, Borrowers shall, at their expense, no more than one (1) time in any twelve (12) month period, but at any time or times as Agent may request upon the occurrence and during the continuation of an Event of Default, deliver or cause to be delivered to Agent an appraisal as to the Real Estate in form, scope and methodology reasonably acceptable to Agent and by an appraiser acceptable to Agent.

SECTION 8.  REPRESENTATIONS AND WARRANTIES.

Each Borrower hereby represents and warrants to Agent and Lenders the following (which shall survive the execution and delivery of this Agreement), the truth and accuracy of which are a continuing condition of the making of Loans and the providing of Letter of Credit Accommodations by Lender to Borrowers:

8.1                                 Existence, Power and Authority; Subsidiaries.  Each Borrower is a corporation or limited liability company duly organized or formed, as applicable, and in good standing under the laws of its state of incorporation or formation, as applicable, and is duly qualified as a foreign corporation or limited liability company and in good standing in all states or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except for those jurisdictions in which the failure to so qualify would not have a material adverse effect on such Borrower’s financial condition, results of operation or business or the rights of Agent or any Lender in or to any of the Collateral.  The execution, delivery and performance of this Agreement, the other Financing Agreements to which any Borrower is a party and the transactions contemplated hereunder and thereunder are all within such Borrower’s corporate or limited liability company powers, have been duly authorized and are not in contravention of (a) law or the terms of such Borrower’s certificate of incorporation or formation, by-laws or operating agreement, or other organizational documentation, or (b) any indenture, agreement or undertaking to which such Borrower is a party or by which such Borrower or its property are bound, except in the case of this clause (b) as could not reasonable be expected to have a material adverse effect on such Borrower’s financial condition, results of operation or business or the rights of Agent or any Lender in or to any of the Collateral.  This Agreement and the other Financing Agreements to which any Borrower is a party constitute legal, valid and binding obligations of such Borrower enforceable in accordance with their respective terms.  Borrowers do not have any subsidiaries except as set forth on the Information Certificates.

8.2                                 Financial Statements; No Material Adverse Change.  All financial statements relating to Borrowers which have been or may hereafter be delivered by Borrowers to Agent or any Lender have been prepared in accordance with GAAP and fairly present the financial condition and the results of operations of Borrowers as at the dates and for the periods set forth therein.  Except as disclosed in any interim financial statements furnished by Borrowers to Agent or any Lender prior to the date of this Agreement, there has been no material adverse change in the assets, liabilities, properties and condition, financial or otherwise, of Borrowers, since the

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date of the most recent audited financial statements furnished by Borrowers to Agent or any Lender prior to the date of this Agreement.

8.3                                 Chief Executive Office; Collateral Locations.  The chief executive office of Borrowers and Borrowers’ Records concerning Accounts and Credit Card/Check Processing Receivables are located only at the address set forth below and their only other places of business and the only other locations of Collateral, if any, are the addresses set forth in the Information Certificates, subject to the right of Borrowers to establish new locations in accordance with Section 9.2 below.  The Information Certificates or any notices delivered pursuant to Section 9.2 correctly identify any of such locations which are not owned by Borrowers and set forth the owners and/or operators thereof and, to the best of Borrowers’ knowledge, the holders of any mortgages on such locations.

8.4                                 Priority of Liens; Title to Properties.  The security interests and liens granted to Agent, for itself and the ratable benefit of Secured Parties, under this Agreement and the other Financing Agreements to which any Borrower is a party constitute valid and perfected first priority liens and security interests in and upon the Collateral to which such Borrower now has or hereafter acquires rights, subject only to the liens indicated on Schedule 8.4 hereto and the other liens permitted under Section 9.8 hereof.  Each Borrower has good and marketable title to all of its properties and assets subject to no liens, mortgages, pledges, security interests, encumbrances or charges of any kind, except those granted to Agent, for itself and the ratable benefit of Secured Parties, and such others as are specifically listed on Schedule 8.4 hereto or permitted under Section 9.8 hereof.

8.5                                 Tax Returns.  Each Borrower has filed, or caused to be filed, in a timely manner all tax returns, reports and declarations which are required to be filed by it (without requests for extension except as previously disclosed in writing to Agent and Lenders).  All information in such tax returns, reports and declarations is complete and accurate in all material respects.  Each Borrower has paid or caused to be paid prior to delinquency all taxes due and payable or claimed due and payable in any assessment received by it, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and with respect to which adequate reserves have been set aside on its books.  Adequate provision has been made for the payment of all accrued and unpaid Federal, State, county, local, foreign and other taxes whether or not yet due and payable and whether or not disputed.

8.6                                 Litigation.  Except as set forth on the Information Certificates, there is no present investigation by any governmental agency pending, or to the Borrowers’ actual knowledge threatened, against or affecting any Borrower, its assets or business and there is no action, suit, proceeding or claim by any Person pending, or to the Borrowers’ actual knowledge threatened, against any Borrower or its assets or goodwill, or against or affecting any transactions contemplated by this Agreement, which if adversely determined against Borrowers would result in any material adverse change in the assets or business of Borrowers or would impair the ability of any Borrower to perform its obligations hereunder or under any of the other Financing Agreements to which it is a party or of Agent or any Lender to enforce any Obligations or realize upon a material portion of the Collateral.

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