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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

May 6, 2004
Date of Report (date of earliest event reported)

Overstock.com, Inc.
(Exact name of Registrant as specified in its charter)

Delaware   000-49799   87-0634302
(State or other jurisdiction of
incorporation or organization)
  (Commission
File Number)
  (I.R.S. Employer
Identification Number)

6322 South 3000 East, Suite 100
Salt Lake City, Utah 84121
(Address of principal executive offices)

(801) 947-3100
(Registrant's telephone number, including area code)

(Former name or former address, if changed since last report)




Item 5. Other Events.

        On May 6, 2004, Overstock.com, Inc. entered into a Loan and Security Agreement with Wells Fargo Foothill, Inc. and related security agreements and other agreements described in the Loan and Security Agreement.

        The Agreement provides for advances to us of up to a maximum of $20 million. The amount actually available to us will vary from time to time, depending on, among other factors, the amount of our eligible inventory and the amount of our eligible accounts receivable. Our obligations under the Agreement and all related agreements are secured by all or substantially all of our assets. The initial term of the Agreement is two years, expiring on May 5, 2006, and we have an option to extend it for a third year.

        Advances under the Agreement bear interest at either (a) a base rate (Wells Fargo Bank's prime rate) plus a varying percentage between 0% and 1.0%, or (b) LIBOR plus a varying percentage between 2.5% and 3.5%. The Agreement includes a contingent financial covenant relating to our consolidated net earnings or loss, minus extraordinary gains and interest income, plus interest expense, income taxes, depreciation and amortization. The Agreement also includes negative covenants that prohibit a variety of actions without the lender's approval, including covenants that limit our ability to (a) incur debt, (b) create liens, (c) enter into any merger or similar transaction or purchase all or substantially all of the assets of another person, (d) sell assets, (e) change our name, (f) make certain changes to our business, (g) optionally prepay indebtedness, (h) consign inventory, (i) pay dividends on, or purchase, acquire or redeem shares of, our capital stock (j) change our method of accounting (k) make investments, (l) enter into transactions with our affiliates, (m) store any of our inventory or equipment with third parties, or (n) make capital expenditures.

        The Agreement requires us to pay a prepayment fee of $400,000 if we terminate the Agreement during its first year, and $200,000 if we terminate the Agreement during its second year, other than with proceeds of a financing provided by Wells Fargo Bank, National Association, or any affiliate of Wells Fargo Bank, and except as otherwise provided in the Agreement. The Agreement also requires us to pay a variety of other fees and expenses.

        Wells Fargo Foothill, Inc. is a direct or indirect subsidiary of Wells Fargo & Company and an affiliate of Wells Fargo Bank, National Association. We have a $3.5 million credit facility with Wells Fargo Bank, which we use to procure letters of credit from time to time. Certain of our officers and directors have banking relationships with Wells Fargo Bank.

        On April 27, 2004, the stockholders of Overstock.com, Inc. approved an amendment of our 2002 Stock Option Plan to increase the number of shares of common stock reserved for issuance under the Plan by 1,000,000 shares.


EXHIBIT INDEX

Exhibit Number
  Description
99.1   Loan and Security Agreement dated as of May 6, 2004 between Overstock.com, Inc. and Wells Fargo Foothill, Inc

99.2

 

Copyright Security Agreement dated as of May 6, 2004 between Overstock.com, Inc. and Wells Fargo Foothill, Inc

99.3

 

Patent Security Agreement dated as of May 6, 2004 between Overstock.com, Inc. and Wells Fargo Foothill, Inc

99.4

 

Securities Pledge Agreement dated as of May 6, 2004 between Overstock.com, Inc. and Wells Fargo Foothill, Inc

99.5

 

Trademark Security Agreement dated as of May 6, 2004 between Overstock.com, Inc. and Wells Fargo Foothill, Inc

99.6

 

Overstock.com, Inc. 2002 Stock Option Plan, as amended


SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 

 

OVERSTOCK.COM, INC.

 

 

By:

 

/s/  
DAVID K. CHIDESTER      
David K. Chidester
Vice President, Finance

Date: May 6, 2004

 

 


EXHIBIT INDEX

Exhibit Number
  Description
99.1   Loan and Security Agreement dated as of May 6, 2004 between Overstock.com, Inc. and Wells Fargo Foothill, Inc

99.2

 

Copyright Security Agreement dated as of May 6, 2004 between Overstock.com, Inc. and Wells Fargo Foothill, Inc

99.3

 

Patent Security Agreement dated as of May 6, 2004 between Overstock.com, Inc. and Wells Fargo Foothill, Inc

99.4

 

Securities Pledge Agreement dated as of May 6, 2004 between Overstock.com, Inc. and Wells Fargo Foothill, Inc

99.5

 

Trademark Security Agreement dated as of May 6, 2004 between Overstock.com, Inc. and Wells Fargo Foothill, Inc

99.6

 

Overstock.com, Inc. 2002 Stock Option Plan, as amended



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[Execution Copy]



Exhibit 99.1


LOAN AND SECURITY AGREEMENT

by and between

OVERSTOCK.COM, INC.
as Borrower,

and

WELLS FARGO FOOTHILL, INC.
as Lender

Dated as of May 6, 2004



TABLE OF CONTENTS

 
   
   
  Page
1.   DEFINITIONS AND CONSTRUCTION   1

 

 

1.1

 

Definitions

 

1

 

 

1.2

 

Accounting Terms

 

19

 

 

1.3

 

Code

 

19

 

 

1.4

 

Construction

 

19

 

 

1.5

 

Schedules and Exhibits

 

19

2.

 

LOAN AND TERMS OF PAYMENT.

 

19

 

 

2.1

 

Revolver Advances.

 

19

 

 

2.2

 

[Intentionally Omitted].

 

20

 

 

2.3

 

Borrowing Procedures and Settlements.

 

20

 

 

2.4

 

Payments.

 

20

 

 

2.5

 

Overadvances

 

22

 

 

2.6

 

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

 

22

 

 

2.7

 

Cash Management.

 

23

 

 

2.8

 

Crediting Payments

 

24

 

 

2.9

 

Designated Account

 

24

 

 

2.10

 

Maintenance of Loan Account; Statements of Obligations

 

24

 

 

2.11

 

Fees

 

25

 

 

2.12

 

Letters of Credit.

 

25

 

 

2.13

 

LIBOR Option.

 

27

 

 

2.14

 

Capital Requirements

 

29

3.

 

CONDITIONS; TERM OF AGREEMENT.

 

29

 

 

3.1

 

Conditions Precedent to the Initial Extension of Credit

 

29

 

 

3.2

 

Conditions Subsequent to the Initial Extension of Credit

 

31

 

 

3.3

 

Conditions Precedent to all Extensions of Credit

 

32

 

 

3.4

 

Term

 

32

 

 

3.5

 

Effect of Termination

 

32

 

 

3.6

 

Early Termination by Borrower

 

33

4.

 

CREATION OF SECURITY INTEREST.

 

33

 

 

4.1

 

Grant of Security Interest

 

33

 

 

4.2

 

Negotiable Collateral

 

33

 

 

4.3

 

Collection of Accounts, General Intangibles, and Negotiable Collateral

 

33

 

 

4.4

 

Filing of Financing Statements; Commercial Tort Claims; Delivery of Additional Documentation Required.

 

34

 

 

4.5

 

Power of Attorney

 

35

 

 

4.6

 

Right to Inspect

 

35

 

 

4.7

 

Control Agreements

 

35

5.

 

REPRESENTATIONS AND WARRANTIES.

 

35

 

 

5.1

 

No Encumbrances

 

36

 

 

5.2

 

Eligible Accounts

 

36

 

 

5.3

 

Eligible Inventory

 

36

 

 

5.4

 

Equipment

 

36

 

 

5.5

 

Location of Inventory and Equipment

 

36

 

 

5.6

 

Inventory Records

 

36

 

 

5.7

 

State of Incorporation; Location of Chief Executive Office; FEIN; Organizational Identification Number; Commercial Tort Claims.

 

36

 

 

5.8

 

Due Organization and Qualification; Subsidiaries.

 

37

 

 

5.9

 

Due Authorization; No Conflict.

 

37

 

 

5.10

 

Litigation

 

38

 

 

5.11

 

No Material Adverse Change

 

38

 

 

5.12

 

Fraudulent Transfer.

 

39

 

 

5.13

 

Employee Benefits

 

39

 

 

5.14

 

Environmental Condition

 

39

 

 

5.15

 

Brokerage Fees

 

39

 

 

5.16

 

Intellectual Property.

 

39

 

 

5.17

 

Leases

 

40

 

 

5.18

 

Deposit Accounts and Securities Accounts

 

40

 

 

5.19

 

Complete Disclosure

 

40

 

 

5.20

 

Indebtedness

 

40

 

 

5.21

 

[Intentionally Omitted]

 

41

 

 

5.22

 

Taxes and Payments

 

41

6.

 

AFFIRMATIVE COVENANTS.

 

41

 

 

6.1

 

Accounting System

 

41

 

 

6.2

 

Collateral Reporting

 

41

 

 

6.3

 

Financial Statements, Reports, Certificates

 

42

 

 

6.4

 

Guarantor Reports.

 

44

 

 

6.5

 

[Intentionally Omitted]

 

44

 

 

6.6

 

Maintenance of Properties

 

44

 

 

6.7

 

Taxes

 

44

 

 

6.8

 

Insurance.

 

44

 

 

6.9

 

Location of Inventory and Equipment

 

45

 

 

6.10

 

Compliance with Laws

 

45

 

 

6.11

 

Leases

 

45

 

 

6.12

 

Existence

 

45

 

 

6.13

 

Environmental.

 

45

 

 

6.14

 

Disclosure Updates

 

45

 

 

6.15

 

Formation of Subsidiaries

 

45

 

 

6.16

 

Intellectual Property.

 

46

7.

 

NEGATIVE COVENANTS.

 

47

 

 

7.1

 

Indebtedness

 

47

 

 

7.2

 

Liens

 

48

 

 

7.3

 

Restrictions on Fundamental Changes.

 

48

 

 

7.4

 

Disposal of Assets

 

48

 

 

7.5

 

Change Name

 

48

 

 

7.6

 

Nature of Business

 

49

 

 

7.7

 

Prepayments and Amendments

 

49

 

 

7.8

 

[Intentionally Omitted].

 

49

 

 

7.9

 

Consignments

 

49

 

 

7.10

 

Distributions

 

49

 

 

7.11

 

Accounting Methods

 

49

 

 

7.12

 

Investments

 

49

 

 

7.13

 

Transactions with Affiliates

 

50

 

 

7.14

 

Suspension

 

50

 

 

7.15

 

[Intentionally Omitted].

 

50

 

 

7.16

 

Use of Proceeds

 

50

 

 

7.17

 

Inventory and Equipment with Bailees

 

50

 

 

7.18

 

Financial Covenants.

 

50

8.

 

EVENTS OF DEFAULT.

 

51

9.

 

LENDER'S RIGHTS AND REMEDIES.

 

53

 

 

9.1

 

Rights and Remedies

 

53

 

 

9.2

 

Remedies Cumulative

 

54

10.

 

TAXES AND EXPENSES.

 

54

11.

 

WAIVERS; INDEMNIFICATION.

 

55

 

 

11.1

 

Demand; Protest

 

55

 

 

11.2

 

Lender's Liability for Borrower Collateral

 

55

 

 

11.3

 

Indemnification

 

55

12.

 

NOTICES.

 

56

13.

 

CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

 

56

14.

 

ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

 

57

 

 

14.1

 

Assignments and Participations.

 

57

 

 

14.2

 

Successors

 

59

15.

 

AMENDMENTS; WAIVERS.

 

59

 

 

15.1

 

Amendments and Waivers

 

59

 

 

15.2

 

No Waivers; Cumulative Remedies

 

59

16.

 

GENERAL PROVISIONS.

 

59

 

 

16.1

 

Effectiveness

 

59

 

 

16.2

 

Section Headings

 

59

 

 

16.3

 

Interpretation

 

59

 

 

16.4

 

Severability of Provisions

 

59

 

 

16.5

 

Withholding Taxes

 

59

 

 

16.6

 

Counterparts; Electronic Execution

 

60

 

 

16.7

 

Revival and Reinstatement of Obligations

 

60

 

 

16.8

 

Confidentiality.

 

60

 

 

16.9

 

Integration

 

60

EXHIBITS AND SCHEDULES

Exhibit C-1   Form of Compliance Certificate
Exhibit L-1   Form of LIBOR Notice

Schedule D-1

 

Designated Account
Schedule E-1   Eligible Inventory Locations
Schedule L-1   Lender's Account
Schedule P-1   Permitted Liens
Schedule R-1   Real Property Collateral
Schedule 2.7(a)   Cash Management Banks
Schedule 5.5   Locations of Inventory and Equipment
Schedule 5.7(a)   States of Organization
Schedule 5.7(b)   Chief Executive Offices
Schedule 5.7(c)   FEIN and Organizational Identification Numbers
Schedule 5.7(d)   Commercial Tort Claims
Schedule 5.8(b)   Capitalization of Borrower
Schedule 5.8(c)   Capitalization of Borrower's Subsidiaries
Schedule 5.10   Litigation
Schedule 5.14   Environmental Matters
Schedule 5.16(a)   Intellectual Property
Schedule 5.16(b)   Source Code Licenses
Schedule 5.18   Deposit Accounts and Securities Accounts
Schedule 5.20   Permitted Indebtedness
Schedule 5.22   Taxes and Payments

LOAN AND SECURITY AGREEMENT

        THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of May 6, 2004, by and between WELLS FARGO FOOTHILL, INC., a California corporation ("Lender"), and OVERSTOCK.COM, INC., a Delaware corporation ("Borrower").

        The parties agree as follows:

1.    DEFINITIONS AND CONSTRUCTION.

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

If Quarterly Daily Average Liquidity Amount is:

  Base Rate Margin means:
 
Greater than $15,000,000   0.00 %

Greater than $7,500,000 but less than or equal to $15,000,000

 

0.50

%

Less than or equal to $7,500,000

 

1.00

%

If Quarterly Daily Average Liquidity Amount is:

  LIBOR Rate Margin means:

 
Greater than $15,000,000   2.50 %
Greater than $7,500,000 but less than or equal to $15,000,000   3.00 %
Less than or equal to $7,500,000   3.50 %

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

        1.3    Code.    Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein; provided, however, that to the extent that the Code is used to define any term herein and such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 shall govern.

        1.4    Construction.    Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms "includes" and "including" are not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in the other Loan Documents to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein to the satisfaction or repayment in full of the Obligations shall mean the repayment in full in cash (or cash collateralization in accordance with the terms hereof) of all Obligations other than contingent indemnification Obligations and other than any Bank Product Obligations that, at such time, are allowed by the applicable Bank Product Provider to remain outstanding and are not required to be repaid or cash collateralized pursuant to the provisions of this Agreement. Any reference herein to any Person shall be construed to include such Person's successors and assigns. Any requirement of a writing contained herein or in the other Loan Documents shall be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein.

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

2.    LOAN AND TERMS OF PAYMENT.

        2.1    Revolver Advances.    

        2.2    [Intentionally Omitted].    

        2.3    Borrowing Procedures and Settlements.    

        2.4    Payments.    

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

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

        2.7    Cash Management.    

        2.8    Crediting Payments.    The receipt of any payment item by Lender (whether from transfers to Lender by the Cash Management Banks pursuant to the Cash Management Agreements or otherwise) shall not be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made to the Lender's Account or unless and until such payment item is honored when presented for payment. Should any payment item not be honored when presented for payment, then Borrower shall be deemed not to have made such payment and interest shall be calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Lender only if it is received into the Lender's Account on a Business Day on or before 11:00 a.m. (California time). If any payment item is received into the Lender's Account on a non-Business Day or after 11:00 a.m. (California time) on a Business Day, it shall be deemed to have been received by Lender as of the opening of business on the immediately following Business Day.

        2.9    Designated Account.    Lender is authorized to make the Advances, and Lender is authorized to issue the Letters of Credit, under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person or, without instructions, if pursuant to Section 2.6(d). Borrower agrees to establish and maintain the Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Advances requested by Borrower and made by Lender hereunder. Unless otherwise agreed by Lender and Borrower, any Advance requested by Borrower and made by Lender hereunder shall be made to the Designated Account.

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

        2.11    Fees.    Borrower shall pay to Lender the following fees and charges, which fees and charges shall be non-refundable when paid (irrespective of whether this Agreement is terminated thereafter):

        2.12    Letters of Credit.    

        2.13    LIBOR Option.    

        2.14    Capital Requirements.    If, after the date hereof, Lender determines that (i) the adoption of or change in any law, rule, regulation or guideline regarding capital requirements for banks or bank holding companies, or any change in the interpretation or application thereof by any Governmental Authority charged with the administration thereof, or (ii) compliance by Lender or its parent bank holding company with any guideline, request, or directive of any such entity regarding capital adequacy (whether or not having the force of law), has the effect of reducing the return on Lender's or such holding company's capital as a consequence of Lender's obligations hereunder to a level below that which Lender or such holding company could have achieved but for such adoption, change, or compliance (taking into consideration Lender's or such holding company's then existing policies with respect to capital adequacy and assuming the full utilization of such entity's capital) by any amount deemed by Lender to be material, then Lender may notify Borrower thereof. Following receipt of such notice, Borrower agrees to pay Lender on demand the amount of such reduction of return of capital as and when such reduction is determined, payable within 90 days after presentation by Lender of a statement in the amount and setting forth in reasonable detail Lender's calculation thereof and the assumptions upon which such calculation was based (which statement shall be deemed true and correct absent manifest error). In determining such amount, Lender may use any reasonable averaging and attribution methods.

3.    CONDITIONS; TERM OF AGREEMENT.

        3.1    Conditions Precedent to the Initial Extension of Credit.    The obligation of Lender to make the initial extension of credit provided for hereunder, is subject to the fulfillment, to the satisfaction of Lender (the making of such initial extension of credit by Lender being conclusively deemed to be its satisfaction or waiver of the following), of each of the following conditions precedent:

        3.2    Conditions Subsequent to the Initial Extension of Credit.    The obligation of Lender to continue to make Advances (or otherwise extend credit hereunder) is subject to the fulfillment, on or before the date applicable thereto, of each of the conditions subsequent set forth below (the failure by Borrower to so perform or cause to be performed constituting an Event of Default):

        3.3    Conditions Precedent to all Extensions of Credit.    The obligation of Lender to make any Advances hereunder at any time (or to extend any other credit hereunder) shall be subject to the following conditions precedent:

        3.4    Term.    This Agreement shall continue in full force and effect for a term ending on the later of (a) the second anniversary of the Closing Date and (b) if Borrower properly exercises the Extension Option in accordance with the terms and conditions set forth below, the third anniversary of the Closing Date (such later date, the "Maturity Date"). If Borrower intends to extend the Maturity Date to the third anniversary of the Closing Date (the "Extension Option"), Borrower shall be required to (a) deliver written notice of such intent to Lender at any time during the period commencing 120 days prior to the second anniversary of the Closing Date and ending 60 days prior to the second anniversary of the Closing Date, and (b) pay $50,000 to Lender on or before on the second anniversary of the Closing Date in consideration of Lender agreeing to such extension of the Maturity Date. The foregoing notwithstanding, Lender shall have the right to terminate its obligations under this Agreement immediately and without notice during the continuation of an Event of Default.

        3.5    Effect of Termination.    On the date of termination of this Agreement, all Obligations (including contingent reimbursement obligations of Borrower with respect to outstanding Letters of Credit and including all Bank Product Obligations) immediately shall become due and payable without notice or demand (including (a) either (i) providing cash collateral to be held by Lender in an amount equal to 105% of the Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to Lender, and (b) providing cash collateral (in an amount determined by Lender as sufficient to satisfy the reasonably estimated credit exposure) to be held by Lender for the benefit of the Bank Product Providers with respect to the Bank Product Obligations). No termination of this Agreement, however, shall relieve or discharge Borrower or its Subsidiaries of their duties, Obligations, or covenants hereunder or under any other Loan Documents and the Lender's Liens in the Collateral shall remain in effect until all Obligations have been paid in full and Lender's obligations to provide additional credit hereunder have been terminated. When this Agreement has been terminated and all of the Obligations have been paid in full and Lender's obligations to provide additional credit under the Loan Documents have been terminated irrevocably, Lender will, at Borrower's sole expense, execute and deliver any termination statements, lien releases, mortgage releases, re-assignments of trademarks, discharges of security interests, and other similar discharge or release documents (and, if applicable, in recordable form) as are reasonably necessary to release, as of record, the Lender's Liens and all notices of security interests and liens previously filed by Lender with respect to the Obligations.

        3.6    Early Termination by Borrower.    Borrower has the option, at any time upon prior written notice to Lender (the number of prior days to be agreed to separately between Borrower and Lender), to terminate this Agreement by paying to Lender, in cash, the Obligations (including (a) either (i) providing cash collateral to be held by Lender in an amount equal to 105% of the Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to Lender, and (b) providing cash collateral (in an amount determined by Lender as sufficient to satisfy the reasonably estimated credit exposure) to be held by Lender for the benefit of the Bank Product Providers with respect to the Bank Product Obligations), in full, together with the Applicable Prepayment Premium. If Borrower has sent a notice of termination pursuant to the provisions of this Section, then Lender's obligations to extend credit hereunder shall terminate and Borrower shall be obligated to repay the Obligations (including (a) either (i) providing cash collateral to be held by Lender in an amount equal to 105% of the Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to Lender, and (b) providing cash collateral (in an amount determined by Lender as sufficient to satisfy the reasonably estimated credit exposure) to be held by Lender for the benefit of the Bank Product Providers with respect to the Bank Product Obligations), in full, together with the Applicable Prepayment Premium, on the date set forth as the date of termination of this Agreement in such notice. In the event of the termination of this Agreement and repayment of the Obligations at any time prior to the Maturity Date, for any of the following reasons: (a) termination upon the election of Lender to terminate after the occurrence and during the continuation of an Event of Default, (b) foreclosure and sale of Collateral, (c) sale of the Collateral in any Insolvency Proceeding, or (d) restructure, reorganization, or compromise of the Obligations by the confirmation of a plan of reorganization or any other plan of compromise, restructure, or arrangement in any Insolvency Proceeding; then, in view of the impracticability and extreme difficulty of ascertaining the actual amount of damages to Lender or profits lost by Lender as a result of such early termination, and by mutual agreement of the parties as to a reasonable estimation and calculation of the lost profits or damages of Lender, Borrower shall pay the Applicable Prepayment Premium to Lender, measured as of the date of such termination.

4.    CREATION OF SECURITY INTEREST.

        4.1    Grant of Security Interest.    Borrower hereby grants to Lender, for the benefit of Lender and the Bank Product Providers, a continuing security interest in all of its right, title, and interest in all currently existing and hereafter acquired or arising Borrower Collateral in order to secure prompt repayment of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. The Lender's Liens in and to the Borrower Collateral shall attach to all Borrower Collateral without further act on the part of Lender or Borrower. Anything contained in this Agreement or any other Loan Document to the contrary notwithstanding, except for Permitted Dispositions, Borrower and its Subsidiaries have no authority, express or implied, to dispose of any item or portion of the Collateral.

        4.2    Negotiable Collateral.    In the event that any Borrower Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, and if and to the extent that Lender determines that perfection or priority of Lender's security interest is dependent on or enhanced by possession, Borrower, promptly upon the request of Lender, shall endorse and deliver physical possession of such Negotiable Collateral to Lender.

        4.3    Collection of Accounts, General Intangibles, and Negotiable Collateral.    At any time after the occurrence and during the continuation of an Event of Default, Lender or Lender's designee may (a) notify Account Debtors of Borrower that Borrower's Accounts, chattel paper, or General Intangibles have been assigned to Lender or that Lender has a security interest therein, or (b) collect Borrower's Accounts, chattel paper, or General Intangibles directly and charge the collection costs and expenses to the Loan Account. Borrower agrees that it will hold in trust for Lender, as Lender's trustee, any of its or its Subsidiaries' Collections that it receives and immediately will deliver such Collections to Lender or a Cash Management Bank in their original form as received by Borrower or its Subsidiaries.

        4.4    Filing of Financing Statements; Commercial Tort Claims; Delivery of Additional Documentation Required.    

        4.5    Power of Attorney.    Borrower hereby irrevocably makes, constitutes, and appoints Lender (and any of Lender's officers, employees, or agents designated by Lender) as Borrower's true and lawful attorney, with power to (a) at any time that a Default or Event of Default shall have occurred and be continuing or a Triggering Event Date shall have occurred, if Borrower refuses to, or fails timely to execute and deliver any of the documents described in Section 4.4, sign the name of Borrower on any of the documents described in Section 4.4, (b) at any time that an Event of Default has occurred and is continuing, sign Borrower's name on any invoice or bill of lading relating to the Borrower Collateral, drafts against Account Debtors, or notices to Account Debtors, (c) send requests for verification of Borrower's or its Subsidiaries' Accounts, (d) at any time that a Cash Sweep Instruction is in effect, endorse Borrower's name on any of its payment items (including all of its Collections) that may come into Lender's possession, (e) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under Borrower's policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (f) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting Borrower's or its Subsidiaries' Accounts, chattel paper, or General Intangibles directly with Account Debtors, for amounts and upon terms that Lender determines to be reasonable, and Lender may cause to be executed and delivered any documents and releases that Lender determines to be necessary. The appointment of Lender as Borrower's attorney, and each and every one of its rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed and Lender's obligations to extend credit hereunder are terminated.

        4.6    Right to Inspect.    Lender (through any of its officers, employees, or agents) shall have the right, from time to time hereafter to inspect the Books and make copies or abstracts thereof and to check, test, and appraise the Collateral, or any portion thereof, in order to verify Borrower's and its Subsidiaries' financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral.

        4.7    Control Agreements.    Borrower agrees that it will and will cause its Subsidiaries to take any or all reasonable steps in order for Lender to obtain control in accordance with Sections 8-106, 9-104, 9-105, 9-106, and 9-107 of the Code with respect to (subject to the proviso contained in Section 7.12) all of its or their Securities Accounts, Deposit Accounts, electronic chattel paper, Investment Property, and letter-of-credit rights. Upon the occurrence and during the continuance of a Default or Event of Default, Lender may notify any bank or securities intermediary to liquidate the applicable Deposit Account or Securities Account or any related Investment Property maintained or held thereby and remit the proceeds thereof to the Lender's Account.

5.    REPRESENTATIONS AND WARRANTIES.

        In order to induce Lender to enter into this Agreement, Borrower makes the following representations and warranties to Lender which shall be true, correct, and complete, in all material respects, as of the date hereof, and shall be true, correct, and complete, in all material respects, as of the Closing Date, and at and as of the date of the making of each Advance (or other extension of credit) made thereafter, as though made on and as of the date of such Advance (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement:

        5.1    No Encumbrances.    Borrower and its Subsidiaries have good and indefeasible title to, or a valid leasehold interest in, their personal property assets and good and marketable title to, or a valid leasehold interest in, their Real Property, in each case, free and clear of Liens except for Permitted Liens.

        5.2    Eligible Accounts.    As to each Account that is identified by Borrower as an Eligible Account in a borrowing base report submitted to Lender, such Account is (a) a bona fide existing payment obligation of the applicable Account Debtor created by the sale and delivery of Inventory or the rendition of services to such Account Debtor in the ordinary course of Borrower's business, (b) owed to Borrower without any known defenses, disputes, offsets, counterclaims, or rights of return or cancellation; provided, however, that Accounts shall not be excluded from Eligible Accounts merely because they are made under or in accordance with Borrower's customary return policies and other customary terms of sale, as in effect from time to time, so long as Lender has received prior written notice of any changes to such policies or terms, and (c) not excluded as ineligible by virtue of one or more of the excluding criteria set forth in the definition of Eligible Accounts.

        5.3    Eligible Inventory.    As to each item of Inventory that is identified by Borrower as Eligible Inventory in a borrowing base report submitted to Lender, such Inventory is (a) of good and merchantable quality, free from known defects, and (b) not excluded as ineligible by virtue of one or more of the excluding criteria set forth in the definition of Eligible Inventory.

        5.4    Equipment.    All of the Equipment of Borrower and its Subsidiaries is used or held for use in their business and is fit for such purposes.

        5.5    Location of Inventory and Equipment.    The Inventory and Equipment of Borrower and its Subsidiaries are not stored with a bailee, warehouseman, or similar party and are located only at, or in-transit between, the locations identified on Schedule 5.5 (as such Schedule may be updated pursuant to Section 6.9).

        5.6    Inventory Records.    Borrower keeps correct and accurate records itemizing and describing the type, quality, and quantity of its and its Subsidiaries' Inventory and the book value thereof.

        5.7    State of Incorporation; Location of Chief Executive Office; FEIN; Organizational Identification Number; Commercial Tort Claims.    

        5.8    Due Organization and Qualification; Subsidiaries.    

        5.9    Due Authorization; No Conflict.    

        5.10    Litigation.    Other than those matters disclosed on Schedule 5.10 and other than matters existing on the Closing Date or arising after the Closing Date that reasonably could not be expected to result in a Material Adverse Change, there are no actions, suits, or proceedings pending or, to the best knowledge of Borrower, threatened against Borrower or any of its Subsidiaries.

        5.11    No Material Adverse Change.    All financial statements relating to Borrower and its Subsidiaries that have been delivered by Borrower to Lender have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and present fairly in all material respects, Borrower's and its Subsidiaries' financial condition as of the date thereof and results of operations for the period then ended. There has not been a Material Adverse Change with respect to Borrower and its Subsidiaries since the date of the latest financial statements submitted to Lender on or before the Closing Date.

        5.12    Fraudulent Transfer.    

        5.13    Employee Benefits.    None of Borrower, any of its Subsidiaries, or any of their ERISA Affiliates maintains or contributes to any Benefit Plan.

        5.14    Environmental Condition.    Except as set forth on Schedule 5.14, (a) to Borrower's knowledge, none of Borrower's or its Subsidiaries' properties or assets has ever been used by Borrower, its Subsidiaries, or by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such use, production, storage, handling, treatment, release or transport was in violation, in any material respect, of any applicable Environmental Law, (b) to Borrower's knowledge, none of Borrower's or its Subsidiaries' properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, (c) neither Borrower nor any of its Subsidiaries has received notice that a Lien arising under any Environmental Law has attached to any revenues or to any Real Property owned or operated by Borrower or its Subsidiaries, and (d) neither Borrower nor its Subsidiaries has received a summons, citation, notice, or directive from the United States Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by Borrower or its Subsidiaries resulting in the releasing or disposing of Hazardous Materials into the environment.

        5.15    Brokerage Fees.    Neither Borrower nor any of its Subsidiaries has utilized the services of any broker or finder in connection with Borrower's obtaining financing from Lender under this Agreement and no brokerage commission or finders fee is payable by Borrower or its Subsidiaries in connection herewith.

        5.16    Intellectual Property.    

        5.17    Leases.    Borrower and its Subsidiaries enjoy peaceful and undisturbed possession under all leases material to their business and to which they are parties or under which they are operating, and all of such leases are valid and subsisting and no material default by Borrower or its Subsidiaries (or, to the knowledge of Borrower or its Subsidiaries, by the lessors thereunder) exists under any of them.

        5.18    Deposit Accounts and Securities Accounts.    Set forth on Schedule 5.18 is a listing of all of Borrower's and its Subsidiaries' Deposit Accounts and Securities Accounts, including, with respect to each bank or securities intermediary (a) the name and address of such Person, and (b) the account numbers of the Deposit Accounts or Securities Accounts maintained with such Person.

        5.19    Complete Disclosure.    All factual information (taken as a whole) furnished by or on behalf of Borrower or its Subsidiaries in writing to Lender (including all information contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection with this Agreement, the other Loan Documents, or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of Borrower or its Subsidiaries in writing to Lender will be, true and accurate, in all material respects, on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. On the Closing Date, the Closing Date Business Plan represents, and as of the date on which any other Projections are delivered to Lender, such additional Projections represent Borrower's good faith estimate of its and its Subsidiaries' future performance for the periods covered thereby.

        5.20    Indebtedness.    Set forth on Schedule 5.20 is a true and complete list of all Indebtedness of Borrower and its Subsidiaries outstanding immediately prior to the Closing Date that is to remain outstanding after the Closing Date and such Schedule accurately reflects the aggregate principal amount of such Indebtedness and describes the principal terms thereof.

        5.21    [Intentionally Omitted].    

        5.22    Taxes and Payments.    Borrower and its Subsidiaries have filed all federal and state income tax returns and all other material tax returns, domestic and foreign, required to be filed by them and have paid all taxes and assessments payable by them which have become due, except for those contested in good faith and adequately disclosed and fully provided for on the financial statements of Borrower and its Subsidiaries, in accordance with GAAP and for which Borrower and its Subsidiaries, as applicable, have provided adequate reserves (in the good faith judgment of the management of Borrower and its Subsidiaries). Borrower and its Subsidiaries have provided adequate reserves (in the good faith judgment of the management of Borrower and its Subsidiaries) for the payment of all federal, state, local and foreign income taxes applicable for the current fiscal year to date. Except as set forth on Schedule 5.22, there is no action, suit, proceeding, investigation, audit, or claim now pending or, to the knowledge of Borrower threatened, by any authority regarding any taxes relating to Borrower or its Subsidiaries that could reasonably be expected to result in a material liability to Borrower or its Subsidiaries. Except as set forth on Schedule 5.22, as of the Closing Date, none of the Borrower or its Subsidiaries have entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of Borrower or its Subsidiaries, or is aware of any circumstances that would cause the taxable years or other taxable periods of Borrower or its Subsidiaries not to be subject to the normally applicable statute of limitations.

6.    AFFIRMATIVE COVENANTS.

        Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the Obligations, Borrower shall and shall cause each of its Subsidiaries to do all of the following:

        6.1    Accounting System.    Maintain a system of accounting that enables Borrower to produce financial statements in accordance with GAAP and maintain records pertaining to the Collateral that contain information as from time to time reasonably may be requested by Lender. Borrower also shall keep a reporting system that shows all additions, sales, claims, returns, and allowances with respect to its and its Subsidiaries' sales.

        6.2    Collateral Reporting.    Provide Lender with the following documents at the following times in form satisfactory to Lender:

Weekly   (a)    a detailed report regarding Borrower's cash and Cash Equivalents including an indication of which amounts constitute Qualified Cash;

Monthly (not later than the 10th day of each month), except as provided below.

 

(b)    a sales journal, collection journal, and credit register since the last such schedule, a report regarding credit memoranda that have been issued since the last such report, and a calculation of the Borrowing Base as of such date,

 

 

(c)    notice of all claims, offsets, or disputes asserted by Account Debtors with respect to Borrower's and its Subsidiaries' Accounts,

 

 

(d)    Inventory reports specifying the cost and the wholesale market value of Borrower's and its Subsidiaries' Inventory, by category, with additional detail showing additions to and deletions therefrom, together with a reconciliation to the respective month-end general ledgers and financial statements,

 

 

(e)    a detailed calculation of the Borrowing Base (including detail regarding those Accounts of Borrower that are not Eligible Accounts),

 

 

(f)    a detailed aging, by total, of the Accounts of Borrower, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Lender,

 

 

(g)    a listing of held checks,

 

 

(h)    a summary aging, by vendor, of Borrower's and its Subsidiaries' accounts payable and any book overdraft, together with a reconciliation to the respective month-end general ledgers and financial statements, and

 

 

(i)    a calculation of Dilution for the month most recently ended.

 

 

If a Triggering Event Date occurs, all such reports shall be delivered weekly, until such time (if any) as Lender, in its sole discretion, notifies Borrower that such reporting may revert back to a monthly basis.

Quarterly

 

(j)    a detailed list of Borrower's and its Subsidiaries' customers, and

 

 

(k)    a report regarding Borrower's and its Subsidiaries' accrued, but unpaid,
ad valorem taxes,

Upon request by Lender

 

(l)    copies of invoices in connection with Borrower's and its Subsidiaries' Accounts, credit memos, remittance advices, deposit slips, shipping and delivery documents in connection with Borrower's and its Subsidiaries' Accounts and, for Inventory and Equipment acquired by Borrower or its Subsidiaries, purchase orders and invoices, and

 

 

(m)    such other reports as to the Collateral or the financial condition of Borrower and its Subsidiaries, as Lender may request.

        In addition, Borrower agrees to cooperate fully with Lender to facilitate and implement a system of electronic collateral reporting in order to provide electronic reporting of each of the items set forth above.

        6.3    Financial Statements, Reports, Certificates.    Deliver to Lender:

        In addition, Borrower agrees that no Subsidiary of Borrower will have a fiscal year different from that of Borrower. Borrower also agrees to cooperate with Lender to allow Lender to consult with its independent certified public accountants if Lender reasonably requests the right to do so and that, in such connection, its independent certified public accountants are authorized to communicate with Lender and to release to whatever financial information concerning Borrower or its Subsidiaries that Lender reasonably may request.

        6.4    Guarantor Reports.    Cause each Guarantor to deliver its annual financial statements at the time when Borrower provides its audited financial statements to Lender, but only to the extent such Guarantor's financial statements are not consolidated with Borrower's financial statements, and copies of all federal income tax returns as soon as the same are available and in any event no later than 30 days after the same are required to be filed by law.

        6.5    [Intentionally Omitted].    

        6.6    Maintenance of Properties.    Maintain and preserve all of its properties which are necessary or useful in the proper conduct to its business in good working order and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all material leases to which it is a party as lessee, so as to prevent any loss or forfeiture thereof or thereunder.

        6.7    Taxes.    Cause all assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against Borrower, its Subsidiaries, or any of their respective assets to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Borrower will and will cause its Subsidiaries to make timely payment or deposit of all tax payments and withholding taxes required of it and them by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Lender with proof satisfactory to Lender indicating that Borrower and its Subsidiaries have made such payments or deposits.

        6.8    Insurance.    

        6.9    Location of Inventory and Equipment.    Keep Borrower's and its Subsidiaries' Inventory and Equipment only at the locations identified on Schedule 5.5 and their chief executive offices only at the locations identified on Schedule 5.7(b); provided, however, that Borrower may amend Schedule 5.5 and Schedule 5.7 so long as such amendment occurs by written notice to Lender not less than 30 days prior to the date on which such Inventory or Equipment is moved to such new location or such chief executive office is relocated, so long as such new location is within the continental United States, and so long as, at the time of such written notification, Borrower provides to Lender a Collateral Access Agreement with respect thereto.

        6.10    Compliance with Laws.    Comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental Authority, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change.

        6.11    Leases.    Pay when due all rents and other amounts payable under any material leases to which Borrower or any of its Subsidiaries is a party or by which Borrower's or any such Subsidiaries' properties and assets are bound, unless such payments are the subject of a Permitted Protest.

        6.12    Existence.    At all times preserve and keep in full force and effect Borrower's and its Subsidiaries' valid existence and good standing and any rights and franchises material to their businesses.

        6.13    Environmental.    

        6.14    Disclosure Updates.    Promptly and in no event later than 5 Business Days after obtaining knowledge thereof, notify Lender if any written information, exhibit, or report furnished to Lender contained, at the time it was furnished, any untrue statement of a material fact or omitted to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made. The foregoing to the contrary notwithstanding, any notification pursuant to the foregoing provision will not cure or remedy the effect of the prior untrue statement of a material fact or omission of any material fact nor shall any such notification have the effect of amending or, modifying this Agreement or any of the Schedules hereto.

        6.15    Formation of Subsidiaries.    If Borrower or any Guarantor intends to form any direct or indirect Subsidiary or acquire any direct or indirect Subsidiary after the Closing Date, Borrower or such Guarantor shall provide at least five (5) days prior written notice to Lender. At the time that Borrower or such Guarantor forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Closing Date, Borrower or such Guarantor shall (a) cause such new Subsidiary to provide to Lender a joinder to this Agreement or the Guaranty and Guarantor Security Agreement, or cause such new Subsidiary to enter into the Guaranty and Guarantor Security Agreement (if such agreements were not previously entered into), together with such other security documents (including Mortgages with respect to any Real Property of such new Subsidiary and joinders to the Copyright Security Agreement, Patent Security Agreement and Trademark Security Agreement), as well as appropriate financing statements (and with respect to all property subject to a Mortgage, fixture filings), all in form and substance satisfactory to Lender (including being sufficient to grant Lender a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary), (b) enter into, and cause such new Subsidiary to enter into, an Intercompany Subordination Agreement, in form and substance satisfactory to Lender, (c) provide to Lender a pledge agreement and appropriate certificates and powers or financing statements, hypothecating all of the direct or beneficial ownership interest in such new Subsidiary, in form and substance satisfactory to Lender, and (d) provide to Lender all other documentation, including one or more opinions of counsel satisfactory to Lender, which in its opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above (including policies of title insurance or other documentation with respect to all property subject to a Mortgage). Any document, agreement, or instrument executed or issued pursuant to this Section 6.15 shall be a Loan Document.

        6.16    Intellectual Property.    

7.    NEGATIVE COVENANTS.

        Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the Obligations, Borrower will not and will not permit any of its Subsidiaries to do any of the following:

        7.1    Indebtedness.    Create, incur, assume, suffer to exist, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except:

        7.2    Liens.    Create, incur, assume, or suffer to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced, renewed, or extended under Section 7.1(d) and so long as the replacement Liens only encumber those assets that secured the refinanced, renewed, or extended Indebtedness).

        7.3    Restrictions on Fundamental Changes.    

        7.4    Disposal of Assets.    Other than Permitted Dispositions, convey, sell, lease, license, assign, transfer, or otherwise dispose of any of Borrower's or its Subsidiaries' assets.

        7.5    Change Name.    Change Borrower's or any of its Subsidiaries' names, FEINs, organizational identification number, state of organization or organizational identity; provided, however, that Borrower or any of its Subsidiaries may change their names upon at least 30 days prior written notice to Lender of such change and so long as, (a) at the time of such written notification, Borrower or its Subsidiary provides any financing statements necessary to perfect and continue perfected the Lender's Liens and (b) immediately after such name change Borrower provides Lender with evidence of such name change (including copies of any related public filings).

        7.6    Nature of Business.    Make any change in the principal nature of Borrower's business as an online liquidator or retailer (it being agreed that changes in the categories or types of goods and services offered by Borrower as of the Closing Date and changes in the manner in which Borrower offers such goods and services as of the Closing Date shall not be considered a fundamental change in the nature of Borrower's business as an online liquidator or retailer).

        7.7    Prepayments and Amendments.    Except in connection with a refinancing permitted by Section 7.1(d),

        7.8    [Intentionally Omitted].    

        7.9    Consignments.    Consign any of its or their Inventory or sell any of its or their Inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale; provided, however, that this Section 7.9 shall not prohibit or restrict in any way Borrower's ability to offer or sell any of its Inventory in accordance with Borrower's customary returns policies and other customary terms of sale, as in effect from time to time so long as Lender has received prior written notice of any changes to such policies or terms.

        7.10    Distributions.    Make any distribution or declare or pay any dividends (in cash or other property, other than common Stock) on, or purchase, acquire, redeem, or retire any of Borrower's Stock, of any class, whether now or hereafter outstanding; provided, however, that this Section 7.10 shall not prohibit or restrict in any way Borrower's ability to repurchase or otherwise acquire shares of Borrower's Stock pursuant to terms of stock purchase agreements or similar agreements or arrangements pursuant to which Borrower has or may in the future have the right to repurchase shares of Borrower's Stock from former employees of, or former consultants to, Borrower as a result of a termination of any such person's employment by or service to Borrower or otherwise in accordance with similar provisions of any restricted stock awards or similar arrangements entered into by Borrower from time to time if (i) after giving effect thereto the aggregate amount of such purchases, redemptions, retirements and acquisitions paid or made after the Closing Date is not in excess of $2,000,000, and (ii) immediately prior to and after giving effect thereto (a) no Default or Event of Default shall have occurred and be continuing or will result therefrom and (b) no Triggering Event Date shall have occurred or will result therefrom.

        7.11    Accounting Methods.    Modify or change its fiscal year or its method of accounting (other than as may be required to conform to GAAP) or enter into, modify, or terminate any agreement currently existing, or at any time hereafter entered into with any third party accounting firm or service bureau for the preparation or storage of Borrower's or its Subsidiaries' accounting records without said accounting firm or service bureau agreeing to provide Lender information regarding Borrower's and its Subsidiaries' financial condition.

        7.12    Investments.    Except for Permitted Investments, directly or indirectly, make or acquire any Investment or incur any liabilities (including contingent obligations) for or in connection with any Investment; provided, however, that Borrower and its Subsidiaries shall not have Permitted Investments (other than in the Cash Management Accounts) in Deposit Accounts or Securities Accounts in an aggregate amount in excess of $25,000.00 at any one time unless Borrower or its Subsidiary, as applicable, and the applicable securities intermediary or bank have entered into Control Agreements governing such Permitted Investments in order to perfect (and further establish) the Lender's Liens in such Permitted Investments. Subject to the foregoing proviso, Borrower shall not and shall not permit its Subsidiaries to establish or maintain any Deposit Account or Securities Account unless Lender shall have received a Control Agreement in respect of such Deposit Account or Securities Account.

        7.13    Transactions with Affiliates.    Directly or indirectly enter into or permit to exist any transaction with any Affiliate of Borrower except for transactions that (a) are in the ordinary course of Borrower's business, (b) are upon fair and reasonable terms, (c) if they involve one or more payments by Borrower or its Subsidiaries in excess of $25,000.00, are fully disclosed to Lender, and (d) are no less favorable to Borrower or its Subsidiaries, as applicable, than would be obtained in an arm's length transaction with a non-Affiliate.

        7.14    Suspension.    Suspend or go out of a substantial portion of its or their business.

        7.15    [Intentionally Omitted].    

        7.16    Use of Proceeds.    Use the proceeds of the Advances for any purpose other than (a) on the Closing Date, to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, and (b) thereafter, consistent with the terms and conditions hereof, for its lawful and permitted purposes.

        7.17    Inventory and Equipment with Bailees.    Store the Inventory or Equipment of Borrower or its Subsidiaries at any time now or hereafter with a bailee, warehouseman, or similar party.

        7.18    Financial Covenants.    

Applicable Amount

  Applicable Period
$ (1,500,000 ) For the 3-month period ending March 31, 2004
$ (1,975,000 ) For the 4-month period ending April 30, 2004
$ (2,425,000 ) For the 5-month period ending May 31, 2004
$ (3,175,000 ) For the 6-month period ending June 30, 2004
$ (3,675,000 ) For the 7-month period ending July 31, 2004
$ (4,275,000 ) For the 8-month period ending August 31, 2004
$ (4,925,000 ) For the 9-month period ending September 30, 2004
$ (4,950,000 ) For the 10-month period ending October 31, 2004
$ (3,425,000 ) For the 11-month period ending November 30, 2004
$ 450,000   For the 12-month period ending December 31, 2004
$ 450,000   For the 12-month period ending each month thereafter
Applicable Amount

  Applicable Period
$5,640,000   For the fiscal year ended December 31, 2004
$5,640,000   For the fiscal year ended December 31, 2005
An amount determined by Lender based upon 120% of the Projections delivered pursuant to Section 6.3(c); provided, that if Lender does not receive such Projections or Borrower and Lender cannot agree (for any reason) on covenants acceptable to Borrower and Lender, then the Applicable Amount shall be $5,640,000   For each fiscal year thereafter

8.    EVENTS OF DEFAULT.

        Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement:

        8.1        If Borrower fails to pay when due and payable, or when declared due and payable, all or any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due Lender, reimbursement of Lender Expenses, or other amounts constituting Obligations); provided, however, that in the case of Overadvances that are caused by the charging of interest, fees, or Lender Expenses to the Loan Account, such event shall not constitute an Event of Default if, within 3 Business Days of its receipt of telephonic notice of such Overadvance, Borrower eliminates such Overadvance;

        8.2        If Borrower or any of its Subsidiaries fails to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in this Agreement or in any of the other Loan Documents;

        8.3        If any material portion of the consolidated assets of the Borrower and its Subsidiaries is attached, seized, subjected to a writ or distress warrant, levied upon, or comes into the possession of any third Person;

        8.4        If an Insolvency Proceeding is commenced by Borrower or any of its Subsidiaries;

        8.5        If an Insolvency Proceeding is commenced against Borrower, or any of its Subsidiaries, and any of the following events occur: (a) Borrower or such Subsidiary consents to the institution of such Insolvency Proceeding against it, (b) the petition commencing the Insolvency Proceeding is not timely controverted; provided, however, that, during the pendency of such period, Lender shall be relieved of its obligations to extend credit hereunder, (c) the petition commencing the Insolvency Proceeding is not dismissed within 45 calendar days of the date of the filing thereof; provided, however, that, during the pendency of such period, Lender shall be relieved of its obligation to extend credit hereunder, (d) an interim trustee is appointed to take possession of all or any substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, Borrower or any of its Subsidiaries, or (e) an order for relief shall have been entered therein;

        8.6        If Borrower or any of its Subsidiaries is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs;

        8.7        If a notice of Lien, levy, or assessment is filed of record with respect to any of Borrower's or any of its Subsidiaries' assets by the United States, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien, whether choate or otherwise, upon any of Borrower's or any of its Subsidiaries' assets and the same is not paid before such payment is delinquent;

        8.8        If a judgment or other claim becomes a Lien or encumbrance upon any material portion of Borrower's or any of its Subsidiaries' assets;

        8.9        If there is a default in any material agreement to which Borrower or any of its Subsidiaries is a party and such default (a) occurs at the final maturity of the obligations thereunder, or (b) results in a right by the other party thereto, irrespective of whether exercised, to accelerate the maturity of Borrower's or its Subsidiaries' obligations thereunder or to terminate such agreement;

        8.10        If Borrower or any of its Subsidiaries makes any payment on account of Indebtedness that has been contractually subordinated in right of payment to the payment of the Obligations, except to the extent such payment is permitted by the terms of the subordination provisions applicable to such Indebtedness;

        8.11        If any misstatement or misrepresentation exists as of the date when made or deemed made, in any warranty, representation, statement, or Record made to Lender by or on behalf of Borrower or its Subsidiaries;

        8.12        If the Obligation of any Guarantor under its Guaranty is limited or terminated by operation of law or by such Guarantor thereunder;

        8.13        If this Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on or security interest in the Collateral covered hereby or thereby, except as a result of a disposition of the applicable Collateral in a transaction permitted under this Agreement;

        8.14        Any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by Borrower or its Subsidiaries, or a proceeding shall be commenced by Borrower or its Subsidiaries, or by any Governmental Authority having jurisdiction over Borrower or its Subsidiaries seeking to establish the invalidity or unenforceability thereof, or Borrower or its Subsidiaries, shall deny that Borrower or its Subsidiaries has any liability or obligation purported to be created under any Loan Document; or

        8.15        If any Change of Control shall occur.

9.    LENDER'S RIGHTS AND REMEDIES.

        9.1    Rights and Remedies.    Upon the occurrence, and during the continuation, of an Event of Default, Lender (at its election but without notice of its election and without demand) may do any one or more of the following, all of which are authorized by Borrower:

        The foregoing to the contrary notwithstanding, upon the occurrence of any Event of Default described in Section 8.4 or Section 8.5, in addition to the remedies set forth above, without any notice to Borrower or any other Person or any act by the Lender, Lender's obligation to extent credit hereunder shall terminated and the Obligations then outstanding, together with all accrued and unpaid interest thereon and all fees and all other amounts due under this Agreement and the other Loan Documents, shall automatically and immediately become due and payable, without presentment, demand, protest, or notice of any kind, all of which are expressly waived by Borrower.

        9.2    Remedies Cumulative.    The rights and remedies of Lender under this Agreement, the other Loan Documents, and all other agreements shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election, or acquiescence by it.

10.    TAXES AND EXPENSES.

        If Borrower fails to pay any monies (whether taxes, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, Lender, in its sole discretion and without prior notice to Borrower, may do any or all of the following: (a) make payment of the same or any part thereof, (b) set up such reserves against the Borrowing Base or the Maximum Revolver Amount as Lender deems necessary to protect Lender from the exposure created by such failure, or (c) in the case of the failure to comply with Section 6.8 hereof, obtain and maintain insurance policies of the type described in Section 6.8 and take any action with respect to such policies as Lender deems prudent. Any such amounts paid by Lender shall constitute Lender Expenses and any such payments shall not constitute an agreement by Lender to make similar payments in the future or a waiver by Lender of any Event of Default under this Agreement. Lender need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing.

11.    WAIVERS; INDEMNIFICATION.

        11.1    Demand; Protest.    Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any time held by Lender on which Borrower may in any way be liable.

        11.2    Lender's Liability for Borrower Collateral.    Borrower hereby agrees that: (a) so long as Lender complies with its obligations, if any, under the Code, Lender shall not in any way or manner be liable or responsible for: (i) the safekeeping of the Borrower Collateral, (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the Borrower Collateral shall be borne by Borrower.

        11.3    Indemnification.    Borrower shall pay, indemnify, defend, and hold the Lender-Related Persons, and each Participant (each, an "Indemnified Person") harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, liabilities, costs, fines, penalties, and damages, and all reasonable attorneys, experts and consultants fees and disbursements and other costs and expenses actually incurred in connection therewith or in connection with the enforcement of this indemnification (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a result of or related to the execution, delivery, enforcement, performance, or administration (including any restructuring or workout with respect hereto) of this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby or the monitoring of Borrower's and its Subsidiaries' compliance with the terms of the Loan Documents, and (b) with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner related thereto (all the foregoing, collectively, the "Indemnified Liabilities"). The foregoing to the contrary notwithstanding, Borrower shall have no obligation to any Indemnified Person under this Section 11.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person. This provision shall survive the termination of this Agreement and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which Borrower was required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by Borrower with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

12.    NOTICES.

        Unless otherwise provided in this Agreement, all notices or demands by Borrower or Lender to the other relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, electronic mail (at such email addresses as Borrower or Lender, as applicable, may designate to each other in accordance herewith), or telefacsimile to Borrower or Lender, as the case may be, at its address set forth below:

If to Borrower:   OVERSTOCK.COM, INC.
    6322 South 3000 East, Suite 100
    Salt Lake City, Utah 84121
    Attn: Attn: VP, Finance
    Fax No. (801) 947-3144

with copies to:

 

BRACEWELL & PATTERSON, L.L.P.
    111 Congress, Suite 2300
    Austin, Texas 78701
    Attn: Tom Adkins, Esq.
    Fax No. (512) 479-3940

If to Lender:

 

WELLS FARGO FOOTHILL, INC.
    2450 Colorado Avenue
    Suite 3000 West
    Santa Monica, California 90404
    Attn: Business Finance Manager
    Fax No.: 310-453-7413

with copies to:

 

MORRISON & FOERSTER LLP
    425 Market Street
    San Francisco, California 94105
    Attn: F. Daniel Leventhal, Esq.
    Fax No. 415-268-7522

        Lender and Borrower may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other party. All notices or demands sent in accordance with this Section 12, other than notices by Lender in connection with enforcement rights against the Borrower Collateral under the provisions of the Code, shall be deemed received on the earlier of the date of actual receipt or three (3) Business Days after the deposit thereof in the mail. Borrower acknowledges and agrees that notices sent by Lender in connection with the exercise of enforcement rights against Borrower Collateral under the provisions of the Code shall be deemed sent when deposited in the mail or personally delivered, or, where permitted by law, transmitted by telefacsimile or any other method set forth above.

13.    CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

14.    ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

        14.1    Assignments and Participations.    

        14.2    Successors.    This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Borrower may not assign this Agreement or any rights or duties hereunder without Lender's prior written consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by Lender shall release Borrower from its Obligations. Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder pursuant to Section 14.1 hereof and, except as expressly required pursuant to Section 14.1 hereof, no consent or approval by Borrower is required in connection with any such assignment.

15.    AMENDMENTS; WAIVERS.

        15.1    Amendments and Waivers.    No amendment or waiver of any provision of this Agreement or any other Loan Document (other than Bank Product Agreements), and no consent with respect to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by Lender and Borrower and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

        15.2    No Waivers; Cumulative Remedies.    No failure by Lender to exercise any right, remedy, or option under this Agreement or any other Loan Document, or delay by Lender in exercising the same, will operate as a waiver thereof. No waiver by Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by Lender on any occasion shall affect or diminish Lender's rights thereafter to require strict performance by Borrower of any provision of this Agreement. Lender's rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy that Lender may have.

16.    GENERAL PROVISIONS.

        16.1    Effectiveness.    This Agreement shall be binding and deemed effective when executed by Borrower and Lender.

        16.2    Section Headings.    Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement.

        16.3    Interpretation.    Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against Lender or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.

        16.4    Severability of Provisions.    Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

        16.5    Withholding Taxes.    All payments made by Borrower hereunder or under any note or other Loan Document will be made without setoff, counterclaim, or other defense. In addition, all such payments will be made free and clear of, and without deduction or withholding for, any present or future Taxes, and in the event any deduction or withholding of Taxes is required, Borrower shall comply with the penultimate sentence of this Section 16.5, "Taxes" shall mean, any taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, any tax imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein measured by or based on the net income or net profits of Lender) and all interest, penalties or similar liabilities with respect thereto. If any Taxes are so levied or imposed, Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement, any note, or Loan Document, including any amount paid pursuant to this Section 16.5 after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein; provided, however, that Borrower shall not be required to increase any such amounts if the increase in such amount payable results from Lender's own willful misconduct or gross negligence (as finally determined by a court of competent jurisdiction). Borrower will furnish to Lender as promptly as possible after the date the payment of any Tax is due pursuant to applicable law certified copies of tax receipts evidencing such payment by Borrower.

        16.6    Counterparts; Electronic Execution.    This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis.

        16.7    Revival and Reinstatement of Obligations.    If the incurrence or payment of the Obligations by Borrower or any Guarantor or the transfer to Lender of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Lender is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of Lender related thereto, the liability of Borrower or any such Guarantor(s) automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made.

        16.8    Confidentiality.    Lender agrees that material, non-public information regarding Borrower and its Subsidiaries, their operations, assets, and existing and contemplated business plans shall be treated by Lender in a confidential manner, and shall not be disclosed by Lender to Persons who are not parties to this Agreement, except: (a) to attorneys for and other advisors, accountants, auditors, and consultants to Lender, (b) to Subsidiaries and Affiliates of Lender (including the Bank Product Providers), provided that any such Subsidiary or Affiliate shall have agreed to receive such information hereunder subject to the terms of this Section 16.8, (c) as may be required by statute, decision, or judicial or administrative order, rule, or regulation, (d) as may be agreed to in advance by Borrower or its Subsidiaries or as requested or required by any Governmental Authority pursuant to any subpoena or other legal process, (e) as to any such information that is or becomes generally available to the public (other than as a result of prohibited disclosure by Lender), (f) in connection with any assignment, prospective assignment, sale, prospective sale, participation or prospective participations, or pledge or prospective pledge of Lender's interest under this Agreement, provided that any such assignee, prospective assignee, purchaser, prospective purchaser, participant, prospective participant, pledgee, or prospective pledgee shall have agreed in writing to receive such information hereunder subject to the terms of this Section, and (g) in connection with any litigation or other adversary proceeding involving parties hereto which such litigation or adversary proceeding involves claims related to the rights or duties of such parties under this Agreement or the other Loan Documents. The provisions of this Section 16.8 shall survive for 2 years after the payment in full of the Obligations.

        16.9    Integration.    This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof.

        [Signature page to follow]

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

    OVERSTOCK.COM, INC.,
a Delaware corporation, as Borrower

 

 

By:

 

    /s/  
DAVID K. CHIDESTER      
    Name:       David K. Chidester
    Title:       Vice President, Finance

 

 

WELLS FARGO FOOTHILL, INC.,
a California corporation, as Lender

 

 

By:

 

    /s/  
CHARLES W. KIM      
    Name:       Charles W. Kim
    Title:       Vice President

Signature Page to Loan and Security Agreement



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LOAN AND SECURITY AGREEMENT by and between OVERSTOCK.COM, INC. as Borrower, and WELLS FARGO FOOTHILL, INC. as Lender Dated as of May 6, 2004

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Exhibit 99.2


COPYRIGHT SECURITY AGREEMENT

by and between

OVERSTOCK.COM, INC.,

as Grantor

and

WELLS FARGO FOOTHILL, INC.,

as Lender

Dated as of May 6, 2004

Table of Contents

Section

   
  Page
PARTIES   1
PRELIMINARY STATEMENTS   1
  1.   Grant of Security   1
  2.   Security for Obligations   1
  3.   The Grantor Remains Liable   2
  4.   Representations and Warranties   2
  5.   Further Assurances   4
  6.   Transfers and Other Liens   5
  7.   The Lender Appointed Attorney-in-Fact   5
  8.   The Lender May Perform   6
  9.   The Lender's Duties   6
  10.   Remedies   6
  11.   Indemnity and Expenses   7
  12.   Amendments, Waivers, Etc   7
  13.   Addresses for Notices   7
  14.   Continuing Security Interest; Assignments Under the Loan Agreement   7
  15.   Release and Termination   8
  16.   Governing Law; Terms   8
  17.   Consent to Jurisdiction   8
  18.   Waiver of Jury Trial   8
  19.   Severability   9
  20.   Supplement to Loan Agreement   9
  21.   Section Headings   9
  22.   Integration   9

Schedule I—Copyrights and Copyright Registrations

Schedule II—Exclusive Licenses

        THIS COPYRIGHT SECURITY AGREEMENT (this "Agreement"), dated as of May 6, 2004, is entered into by and between OVERSTOCK.COM, INC., a Delaware corporation (the "Grantor"), and WELLS FARGO FOOTHILL,  INC., a California corporation, as lender (the "Lender") under the Loan Agreement (as hereinafter defined).

PRELIMINARY STATEMENTS

        (1)   The Grantor has entered into a Loan and Security Agreement, dated as of May 6, 2004 (as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"), with the Lender. (Capitalized terms used herein but not defined shall have the meanings given them in the Loan Agreement, and the rules of construction set forth in Section 1.4 of the Loan Agreement shall apply hereto.)

        (2)   It is a condition precedent to the making of the initial Advance by the Lender under the Loan Agreement (or any other extension of credit provided for thereunder) that the Grantor shall have granted the security interests contemplated by this Agreement.

        NOW, THEREFORE, in consideration of the premises and in order to induce the Lender to make the initial Advance (or otherwise extend credit) under the Loan Agreement, and subject to the terms of the Loan Agreement, the Grantor hereby agrees with the Lender for its benefit and the benefit of its Affiliates (the Lender and its Affiliates collectively referred to herein as the "Secured Parties") as follows:

        SECTION 1. Grant of Security. The Grantor hereby grants to the Lender for its benefit and the ratable benefit of the other Secured Parties a continuing security interest in the Grantor's right, title and interest in and to all currently existing and hereafter acquired or arising Copyright Collateral (as defined below) in order to secure the Secured Obligations (as defined below). The Lender's Liens in and to the Copyright Collateral shall attach to all Copyright Collateral without further act on the part of Lender or Grantor. For the purposes of this Agreement, "Copyright Collateral" shall mean all of Grantor's right, title and interest in and to:

        (a)   All registered and unregistered works of authorship, copyrights and copyright registrations, and any renewals thereof, including (i) the right to sue or otherwise recover for any and all past, present and future infringements and misappropriations thereof, (ii) all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including payments under all licenses entered into in connection therewith, and damages and payments for past or future infringements thereof), and (iii) all rights corresponding thereto throughout the world and all other rights of any kind whatsoever of the Grantor accruing thereunder or pertaining thereto (collectively, the "Copyrights"). For the purposes of this Agreement, the Copyrights shall include each copyright and application identified in Schedule I attached hereto and made a part hereof (which the Grantor may amend from time to time, provided that notice and copies thereof are promptly provided to the Lender).

        (b)   All license agreements with any other Person in connection with any of the Copyrights or such other Person's copyrights, whether the Grantor is a licensor or licensee under any such license agreement, subject, in each case, to the terms of such license agreements, including, terms requiring consent to a grant of a security interest, and any right to prepare for sale, sell and advertise for sale, all Inventory (as defined in the Loan Agreement) now or hereafter owned by the Grantor and now or hereafter covered by such licenses (collectively, the "Licenses"). For the purposes of this Agreement, the Licenses shall include the exclusive license agreements listed on Schedule II attached hereto and made a part hereof (which the Grantor may amend from time to time, provided that notice and copies thereof are promptly provided to the Lender).

        SECTION 2. Security for Obligations. The grant of a security interest in the Copyright Collateral by the Grantor pursuant to this Agreement secures the (a) prompt payment and performance of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and (b) prompt payment and performance by the Grantor of each of its obligations, covenants and duties now or hereafter existing under this Agreement and the other Loan Documents to which it is a party (collectively, the "Secured Obligations"). Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts that constitute part of the Secured Obligations and would be owed by the Grantor to the Secured Parties under the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the any Secured Party or the Grantor.

        SECTION 3. The Grantor Remains Liable. Anything herein to the contrary notwithstanding, (a) the Grantor shall remain liable under the contracts and agreements included in the Copyright Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Lender of any of the rights hereunder shall not release the Grantor from any of its duties or obligations under the contracts and agreements included in the Copyright Collateral, and (c) no Secured Party shall have any obligation or liability under the contracts and agreements included in the Copyright Collateral by reason of this Agreement, nor shall any Secured Party be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

        SECTION 4. Representations and Warranties. The Grantor represents and warrants to the Secured Parties as to the Grantor and its Copyright Collateral as follows:

        (a)   The Grantor is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and qualified to do business in each jurisdiction in which the failure to be so qualified could reasonably be expected to have a Material Adverse Change; has all necessary rights, franchises and privileges and corporate power and authority to execute, deliver and perform this Agreement and to conduct its business as currently conducted; and has taken all necessary action to execute, deliver and perform this Agreement.

        (b)   This Agreement has been duly executed and delivered by the Grantor and when executed and delivered constitutes the legally valid and binding obligation of the Grantor, enforceable against the Grantor in accordance with its terms, except in each case as enforceability may be affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and by equitable principles.

        (c)   The Grantor owns, or holds licenses in, the Copyrights that are reasonably necessary to the conduct of its business as currently conducted. Attached hereto as Schedule I (which Grantor may amend from time to time provided that notice and copies thereof are promptly provided to Lender) is a true, correct, and complete listing of all copyrights and applications for registration of copyrights as to which the Grantor is the owner or licensor of an exclusive license. Attached hereto as Schedule II (which Grantor may amend from time to time provided that notice and copies thereof are promptly provided to Lender) is a true, correct, and complete listing of all copyrights and applications for copyrights as to which the Grantor is an exclusive licensee. None of the Licenses to use Copyrights disclosed on Schedule I or Schedule II requires consent for the Grantor to grant the security interest granted hereunder in the Grantor's right, title and interest in and to such Copyright Collateral.

        (d)   Except as may be expressly permitted under the Loan Agreement, no security agreement, effective financing statement or other instrument similar in effect covering all or any part of the Copyright Collateral, that has not been terminated or released, is on file in any recording office in any jurisdiction in which Grantor owns any Copyright Collateral (including the U.S. Copyright Office), except such as may have been filed in favor of the Lender relating to this Agreement or any other Loan Document, and the Grantor has not consented to the filing of financing or continuation statements covering all or part of the Copyright Collateral under the Code or any other applicable procedure, regulation or law of any foreign jurisdiction in which Copyrights are used, or the filing of any other document or notice similar in effect (which has not been released or terminated) with the U.S. Copyright Office or any of its counterpart agencies in foreign jurisdictions in which the Grantor uses any Copyright Collateral.

        (e)   The Grantor has made all necessary payments, filings and recordations to protect and maintain its interest in the Copyright registrations and applications for registration set forth in Schedule I, including (i) making all necessary registration, maintenance and renewal fee payments; and (ii) filing all necessary documents, including all applications for registration of Copyrights.

        (f)    Each copyright and application for registration of a copyright of the Grantor set forth in Schedule I is subsisting and has not been adjudged invalid, unregistrable or unenforceable, in whole or in part, and, to the best of the Grantor's knowledge, is valid, registrable and enforceable. Each License of the Grantor identified in Schedule II is validly subsisting and has not been adjudged invalid or unenforceable, in whole or in part, and, to the best of the Grantor's knowledge, is valid and enforceable. The Grantor has notified the Lender in writing of all uses of any item of Copyright Collateral of which the Grantor is aware which could reasonably be expected to lead to such item becoming invalid or unenforceable, other than any such uses that would not cause or result in a Material Adverse Change.

        (g)   Except as may be expressly permitted under the Loan Agreement, the Grantor has not made a previous assignment, sale, transfer or agreement constituting a present or future assignment, sale, transfer or encumbrance of any of the Copyright Collateral that has not been terminated or released. The Grantor has not granted any license (other than those listed on Schedule II hereto), release, covenant not to sue, or non-assertion assurance to any Person with respect to any part of the Copyright Collateral so as to cause or result in a Material Adverse Change.

        (h)   No consent of any other Person and no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or other third party, as applicable, is required either (i) for the grant by the Grantor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by the Grantor, (ii) for the perfection or maintenance of the security interest created hereby (including the first priority nature of such security interest), except for the filing of financing and continuation statements under the Code and any other applicable procedure, regulation or law of any foreign jurisdictions in which the Grantor uses Copyright Collateral, and the filing with the U.S. Copyright Office and any counterpart agencies in foreign jurisdictions in which the Grantor uses Copyright Collateral of any other document or notice of similar effect, which financing statements, filings and other documents have been duly filed, will be filed by the Lender or which the Lender and Grantor has agreed need not be filed, or (iii) for the exercise by the Lender of its rights provided for in this Agreement or the remedies in respect of the Copyright Collateral pursuant to this Agreement, except that filings with the U.S. Copyright Office and any counterpart agencies in foreign jurisdictions in which the Grantor uses Copyright Collateral may be necessary in order to record the transfer of such Copyright Collateral upon foreclosure.

        (i)    Except for the licenses listed on Schedule II hereto and any non-exclusive licenses to which the Grantor is a party, the Grantor has no knowledge of the existence of any third-party rights or any claims with respect thereto that is likely to be made and adversely determined under any item of Copyright Collateral contained on Schedule I.

        (j)    No claim has been made and is continuing or threatened that the use by the Grantor of any item of Copyright Collateral is invalid or unenforceable or that the use by the Grantor of any Copyright Collateral does or may violate the rights of any Person, other than any such claim which would not cause or result in a Material Adverse Change. To the best of the Grantor's knowledge, there is currently no infringement or unauthorized use of any item of Copyright Collateral contained on Schedule I.

        (k)   The Grantor has no knowledge of the existence of any copyright or license agreement held or claimed by any other Person that would preclude the Grantor from distributing, marketing, selling or providing any product or service currently distributed, marketed, sold or provided by it, as the case may be, under or in connection with any of the Copyright Collateral (except, in each case, to the extent that the Grantor has granted an exclusive license to another Person, as set forth in Schedule II), or that would interfere with the ability of the Grantor to carry on its business as currently carried on, and the Grantor has no knowledge of any pending or threatened claim that would, if adversely decided, preclude or interfere with the business of the Grantor as currently carried on under any of the Copyright Collateral, other than in the case of any of the foregoing any such copyright, license agreement or claim that would not cause or result in a Material Adverse Change.

        SECTION 5. Further Assurances. (a) The Grantor shall from time to time, at its sole expense, promptly authorize, execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Lender may reasonably request, in order to perfect and protect any security interest granted hereby or to enable the Lender to exercise and enforce its rights and remedies hereunder with respect to any part of the Copyright Collateral. Without limiting the generality of the foregoing, the Grantor will authorize, execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as Lender, in its Permitted Discretion, deems necessary or desirable, in order to perfect and preserve the security interest granted hereby.

        (b)   The Grantor hereby authorizes the Lender to file one or more financing or continuation statements, and amendments thereto (including by recording this Agreement with the U.S. Copyright Office and its counterpart agencies in all foreign jurisdictions in which Copyrights are used) relating to all or any part of the Copyright Collateral without the signature of the Grantor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Copyright Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

        (c)   The Grantor will furnish to the Lender from time to time statements and schedules further identifying and describing the Copyright Collateral and such other reports in connection with the Copyright Collateral as the Lender may reasonably request, all in reasonable detail.

        (d)   The Grantor agrees that, should it obtain an ownership or any other interest in any Copyright, Copyright registration or License which is not a part of the Copyright Collateral as of the Closing Date, (i) the Grantor shall promptly notify the Agent thereof, (ii) the provisions of Section 1 shall automatically apply thereto, and (iii) any such Copyright, Copyright registration or License thereof shall automatically become Copyright Collateral. The Grantor shall provide the Lender with written notice in accordance with Section 13 of its intent to register any Copyrights or Licenses with the U.S. Copyright Office not less than five (5) Business Days prior to the date of the proposed registration. The Grantor authorizes the Lender to modify this Agreement by amending Schedules I and II (and will cooperate reasonably with the Lender in effecting any such amendment) to include any Copyright, Copyright registration or application for such Copyright or License, as applicable, which becomes part of the Copyright Collateral under this Section.

        (e)   With respect to each Copyright, Copyright registration and License, to which it is now or later becomes owner of or party to that is reasonably necessary to the conduct of its business as currently conducted, the Grantor agrees, subject to the last two sentences of this subsection, to take all necessary steps, including making all necessary payments and filings in connection with registration, maintenance and renewal of Copyrights, in the U.S. Copyright Office and any other appropriate Governmental Authority to maintain each such Copyright, Copyright registration and License. Any expenses incurred in connection with such activities, as between any Secured Party and the Grantor, shall be borne solely by Grantor. The Grantor shall not register with the U.S. Copyright Office any unregistered Copyright or License (whether in existence on the date hereof or thereafter acquired, arising, or developed) unless the Grantor has provided the Lender with the prior written notice of its intent to effect such registration as provided in subsection (d) above. The Grantor shall not discontinue use of or otherwise abandon any Copyright (or application for registration thereof) without the written consent of Lender, unless (i) Grantor shall have previously determined that such use or the pursuit or maintenance of such application or registration is no longer desirable in the conduct of the Grantor's business and that the loss thereof will not cause or result in a Material Adverse Change, in which case, the Grantor will give notice of any such abandonment to the Lender pursuant to the terms of Section 13, or (ii) such abandonment or failure to pursue such filing is expressly permitted under the Loan Agreement.

        (f)    The Grantor agrees to notify the Lender promptly and in writing if it learns (i) that any item of the Copyright Collateral contained on Schedule I has been finally determined to have been abandoned or dedicated, except as a result of the Grantor's exercise of its rights under the last sentence of Section 4(e), or (ii) of any adverse determination or the institution of any proceeding (including the institution of any proceeding in the U.S. Copyright Office or any other appropriate Governmental Authorities in foreign jurisdictions) regarding any item of the Copyright Collateral that would cause or result in a Material Adverse Change.

        (g)   In the event that the Grantor becomes aware that any item of the Copyright Collateral is infringed or misappropriated by a third party, the Grantor shall promptly notify the Lender and shall take such actions as the Grantor or the Lender reasonably deems appropriate under the circumstances to protect such Copyright Collateral, including suing for infringement or misappropriation and for an injunction against such infringement or misappropriation, unless any such infringement or misappropriation would not cause or result in a Material Adverse Change. Any expense incurred in connection with such activities, as between any Secured Party and the Grantor, shall be borne solely by the Grantor.

        (h)   The Grantor shall to the extent it deems reasonable in its best business judgment use proper statutory notice or other proper notice designation in connection with its use of each of its works of authorship in accordance with the applicable procedure, regulation or law of each applicable jurisdiction.

        (i)    The Grantor shall continue to take all commercially reasonable steps which it deems reasonably necessary to preserve and protect the Copyright Collateral.

        SECTION 6. Transfers and Other Liens. The Grantor shall not, (a) except for Permitted Dispositions, sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any item of the Copyright Collateral, or (b) create or suffer to exist any Lien upon or with respect to any of the Copyright Collateral except for the security interest created by this Agreement or Permitted Liens.

        SECTION 7. The Lender Appointed Attorney-in-Fact. The Grantor hereby irrevocably appoints the Lender as the Grantor's attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Lender's discretion after the occurrence and during the continuance of an Event of Default, to take any action and to execute any instrument that the Lender may deem necessary or advisable to accomplish the purposes of this Agreement, including:

        (a)   to ask for, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Copyright Collateral,

        (b)   to receive, indorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above, and

        (c)   to file any claims or take any action or institute any proceedings that the Lender may deem necessary or desirable for the collection of any payments relating to any of the Copyright Collateral or otherwise to enforce the rights of the Lender with respect to any of the Copyright Collateral.

        To the extent permitted by law, the Grantor hereby ratifies all that the Lender shall lawfully do or cause to be done as attorney-in-fact for the Grantor. This power of attorney is a power coupled with an interest and is irrevocable.

        SECTION 8. The Lender May Perform. If the Grantor fails to perform any agreement contained herein, the Lender may itself perform, or cause performance of, such agreement after reasonable notice to the Grantor to the extent practicable, and the expenses of the Lender incurred in connection therewith shall be payable by the Grantor under Section 11.

        SECTION 9. The Lender's Duties. The powers conferred on the Lender hereunder are solely to protect its interest in the Copyright Collateral and shall not impose any duty upon the Lender to exercise any such powers. Except for the safe custody of any Copyright Collateral in its possession and the accounting for any moneys actually received by it hereunder, the Lender shall have no duty as to any Copyright Collateral or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Copyright Collateral. The Lender shall be deemed to have exercised reasonable care in the custody and preservation of any Copyright Collateral in its possession if such Copyright Collateral is accorded treatment substantially equal to that which the Lender accords its own property.

        SECTION 10. Remedies. If any Event of Default shall have occurred and be continuing and if the Lender has taken or is taking remedial actions in respect of the Collateral that is Inventory or Accounts:

        (a)   The Lender may exercise in respect of the Copyright Collateral, in addition to other rights and remedies provided for herein or otherwise available to it and to the fullest extent permitted by law, all the rights and remedies of a secured party upon default under the Code (whether or not the Code applies to the affected Copyright Collateral) and also may (i) require the Grantor to, and the Grantor hereby agrees that it will at its sole expense and upon request of the Lender forthwith, assemble all or part of the documents and things embodying the Copyright Collateral as directed by the Lender and make them available to the Lender at a place to be designated by the Lender that is reasonably convenient to both parties, (ii) occupy any premises owned or leased by the Grantor where documents and things embodying the Copyright Collateral or any part thereof are assembled for a reasonable period in order to effectuate the Lender's rights and remedies hereunder or under law, without obligation to the Grantor in respect of such occupation, and (iii) without notice except as specified below, sell the Copyright Collateral or any part thereof in one or more parcels at public or private sale, at any of the Lender's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Lender may deem commercially reasonable. In the event of any sale, assignment, or other disposition of any of the Copyright Collateral, the Grantor shall supply to the Lender or its designee the Grantor's know-how and expertise, and documents and things embodying the same, relating to the manufacture, distribution, advertising and sale of products or the provision of services relating to any Copyright Collateral subject to such disposition, and the Grantor's customer lists and other records and documents relating to such Copyright Collateral and to the manufacture, distribution, advertising and sale of such products and services. The Grantor agrees that, to the extent notice of sale shall be required by applicable law, at least ten (10) days' notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Lender shall not be obligated to make any sale of Copyright Collateral regardless of notice of sale having been given. The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

        (b)   All cash proceeds received by the Lender in respect of any sale of, collection from, or other realization upon all or any part of the Copyright Collateral may, in the discretion of the Lender, be held by the Lender as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Lender pursuant to Section 11) in whole or in part by the Lender for its benefit and the ratable benefit of the other Secured Parties against, all or any part of the Secured Obligations in accordance with Section 2.4 of the Loan Agreement. Any surplus of such cash or cash proceeds held by the Lender and remaining after payment in full of all the Secured Obligations shall be paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus.

        (c)   The Lender may exercise any and all rights and remedies of the Grantor under or otherwise in respect of the Copyright Collateral.

        (d)   All payments received by the Grantor under or in connection with any of the Copyright Collateral shall be received in trust for the benefit of the Lender, shall be segregated from other funds of the Grantor and shall be forthwith paid over to the Lender in the same form as so received (with any necessary endorsement).

        SECTION 11. Indemnity and Expenses. (a) The Grantor agrees to indemnify the Lender-Related Persons (each, an "Indemnified Party") from and against any and all claims, losses and liabilities arising out of or resulting from this Agreement (including enforcement of this Agreement), except claims, losses or liabilities resulting from an Indemnified Party's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction.

        (b)   The Grantor will upon demand pay to the Lender the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that any Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Copyright Collateral, (iii) the exercise or enforcement of any of the rights of the Secured Parties hereunder or (iv) the failure by the Grantor to perform or observe any of the provisions hereof.

        SECTION 12. Amendments, Waivers, Etc. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender and, in the case of an amendment, by the Lender and the Grantor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Lender to exercise, and no delay in exercising any right hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right.

        SECTION 13. Addresses for Notices. Any communications between the parties hereto or notices provided herein to be given shall be sent in accordance with the provisions of, and to the addresses set forth in, Section 12 of the Loan Agreement.

        SECTION 14. Continuing Security Interest; Assignments Under the Loan Agreement. This Agreement shall create a continuing security interest in the Copyright Collateral and shall (a) remain in full force and effect until the later of the payment in full in cash of all of the Secured Obligations and the effective date of termination or expiration of the Loan Agreement, (b) be binding upon the Grantor, its successors and assigns and (c) inure, together with the rights and remedies of the Lender hereunder, to the benefit of the Lender, its Affiliates and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), each Secured Party may assign or otherwise transfer all or any portion of its rights and obligations under this Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to a Secured Party herein or otherwise, in each case as provided in Section 14 of the Loan Agreement.

        SECTION 15. Release and Termination. (a) Upon any sale, lease, transfer or other disposition of any item of Copyright Collateral in accordance with the terms of the Loan Documents (other than sales of Inventory and grants of non-exclusive licenses, in each case, in the ordinary course of business), the Lender will, at the Grantor's sole expense, execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence the release of such item of Copyright Collateral from the security interest granted hereby; provided, however, that (i) at the time of such request and such release and after giving effect thereto no Default shall have occurred and be continuing, (ii) the Grantor shall have delivered to the Lender, at least ten (10) Business Days prior to the date of the proposed release, a written request for release describing the item of the Copyright Collateral and the terms of the sale, lease, transfer or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a form of release for execution by the Lender and a certification by the Grantor to the effect that the transaction is in compliance with the Loan Documents and as to such other matters as the Lender may request, and (iii) the proceeds of any such sale, lease, transfer or other disposition required to be applied in accordance with Section 2.4 of the Loan Agreement shall be paid to, or in accordance with the instructions of, the Lender at the closing.

        (b)   Upon the later of the payment in full in cash of all of the Secured Obligations and the effective date of termination or expiration of the Loan Agreement, the security interest granted hereby shall terminate and all rights to the Copyright Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof shall revert to the Grantor. Upon any such termination, the Lender will, at the Grantor's sole expense, authorize, execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination.

        SECTION 16. Governing Law; Terms. THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Unless otherwise defined herein or in the Loan Agreement, terms used in Article 9 of the Code are used herein as therein defined.

        SECTION 17. Consent to Jurisdiction. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COPYRIGHT COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. GRANTOR, LENDER AND (BY THEIR ACCEPTANCE HEREOF) THE OTHER SECURED PARTIES WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 17.

        SECTION 18. Waiver of Jury Trial. GRANTOR, LENDER AND (BY THEIR ACCEPTANCE HEREOF) THE OTHER SECURED PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. GRANTOR, LENDER AND THE OTHER SECURED PARTIES REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

        SECTION 19. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

        SECTION 20. Supplement to Loan Agreement. The terms and provisions of this Agreement are intended as a supplement to the terms and provisions of the Loan Agreement. The Grantor acknowledges that the rights and remedies of the Secured Parties are more fully set forth in the Loan Agreement and the other Loan Documents and all such rights and remedies are cumulative.

        SECTION 21. Section Headings. The section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

        SECTION 22. Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the subject matter contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof.

[SIGNATURE PAGES TO FOLLOW]

        IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly executed and delivered by its officers thereunto duly authorized as of the date first above written.


 

 

GRANTOR:

 

 

OVERSTOCK.COM, INC.,
a Delaware corporation, as Grantor

 

 

By:

 

/s/  
DAVID K. CHIDESTER      
    Name:   David K. Chidester
    Title:   Vice President, Finance

LENDER:

 

 

Agreed and consented to as of the date first above written:

 

 

WELLS FARGO FOOTHILL, INC.,
a California corporation, as Lender

 

 

By:

 

/s/  
CHARLES W. KIM      

 

 
Name:   Charles W. Kim    
Title:   Vice President    



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COPYRIGHT SECURITY AGREEMENT by and between OVERSTOCK.COM, INC., as Grantor and WELLS FARGO FOOTHILL, INC., as Lender Dated as of May 6, 2004

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Exhibit 99.3


PATENT SECURITY AGREEMENT

by and between

OVERSTOCK.COM, INC.,

as Grantor

and

WELLS FARGO FOOTHILL, INC.,

as Lender

Dated as of May 6, 2004

Table of Contents

Section

   
  Page
PARTIES   1
PRELIMINARY STATEMENTS   1
  1.   Grant of Security   1
  2.   Security for Obligations   1
  3.   The Grantor Remains Liable   2
  4.   Representations and Warranties   2
  5.   Further Assurances   4
  6.   Transfers and Other Liens   5
  7.   The Lender Appointed Attorney-in-Fact   5
  8.   The Lender May Perform   6
  9.   The Lender's Duties   6
  10.   Remedies   6
  11.   Indemnity and Expenses   7
  12.   Amendments, Waivers, Etc   7
  13.   Addresses for Notices   7
  14.   Continuing Security Interest; Assignments Under the Loan Agreement   7
  15.   Release and Termination   7
  16.   Governing Law; Terms   8
  17.   Consent to Jurisdiction   8
  18.   Waiver of Jury Trial   8
  19.   Severability   8
  20.   Supplement to Loan Agreement   9
  21.   Section Headings   9
  22.   Integration   9

Schedule I—Issued Patents and Patent Applications

Schedule II—Exclusive Licenses

        THIS PATENT SECURITY AGREEMENT (this "Agreement"), dated as of May 6, 2004, is entered into by and between OVERSTOCK.COM, INC., a Delaware corporation (the "Grantor"), and WELLS FARGO FOOTHILL,  INC., a California corporation, as lender (the "Lender") under the Loan Agreement (as hereinafter defined).

PRELIMINARY STATEMENTS

        (1)   The Grantor entered into a Loan and Security Agreement, dated as of May 6, 2004 (as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"), with the Lender. (Capitalized terms used herein but not defined shall have the meanings given them in the Loan Agreement, and the rules of construction set forth in Section 1.4 of the Loan Agreement shall apply hereto.)

        (2)   It is a condition precedent to the making of the initial Advance by the Lender under the Loan Agreement (or any other extension of credit provided for thereunder) that the Grantor shall have granted the security interests contemplated by this Agreement.

        NOW, THEREFORE, in consideration of the premises and in order to induce the Lender to make the initial Advance (or otherwise extend credit) under the Loan Agreement, and subject to the terms of the Loan Agreement, the Grantor hereby agrees with the Lender for its benefit and the benefit of its Affiliates (the Lender and its Affiliates collectively referred to herein as the "Secured Parties") as follows:

        SECTION 1. Grant of Security. The Grantor hereby grants to the Lender for its benefit and the ratable benefit of the other Secured Parties a continuing security interest in the Grantor's right, title and interest in and to all currently existing and hereafter acquired or arising Patent Collateral (as defined below) in order to secure Secured Obligations (as defined below). The Lender's Liens in and to the Patent Collateral shall attach to all Patent Collateral without further act on the part of Lender or Grantor. For the purposes of this Agreement, "Patent Collateral" shall mean all Grantor's right, title and interest in and to:

        (a)   All patents, patent applications and patentable inventions, including (i) all inventions and improvements described and claimed therein, and patentable inventions, (ii) the right to sue or otherwise recover for any and all past, present and future infringements and misappropriations thereof, (iii) all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including payments under all licenses entered into in connection therewith, and damages and payments for past or future infringements thereof), and (iv) all rights corresponding thereto throughout the world and all reissues, divisions, continuations, continuations-in-part, substitutes, renewals, and extensions thereof, all improvements thereon, and all other rights of any kind whatsoever of the Grantor accruing thereunder or pertaining thereto (collectively, the "Patents"). For the purposes of this Agreement, the Patents shall include each patent and patent application identified in Schedule I attached hereto and made a part hereof (which the Grantor may amend from time to time, provided that notice and copies thereof are promptly provided to the Lender).

        (b)   All license agreements with any other Person in connection with any of the Patents or such other Person's patents, whether the Grantor is a licensor or licensee under any such license agreement, subject, in each case, to the terms of such license agreements, including terms requiring consent to a grant of a security interest, and any right to prepare for sale, sell and advertise for sale, all Inventory (as defined in the Loan Agreement) now or hereafter owned by the Grantor and now or hereafter covered by such licenses (collectively, the "Licenses"). For the purposes of this Agreement, the Licenses shall include the license agreements listed on Schedule II attached hereto and made a part hereof.

        SECTION 2. Security for Obligations. The grant of a security interest in the Patent Collateral by the Grantor pursuant to this Agreement secures the (a) prompt payment and performance of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and (b) prompt payment and performance by the Grantor of each of its obligations, covenants and duties now or hereafter existing under this Agreement and the other Loan Documents to which it is a party (collectively, the "Secured Obligations"). Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts that constitute part of the Secured Obligations and would be owed by the Grantor to the Secured Parties under the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Secured Party or the Grantor.

        SECTION 3. The Grantor Remains Liable. Anything herein to the contrary notwithstanding, (a) the Grantor shall remain liable under the contracts and agreements included in the Patent Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Lender of any of the rights hereunder shall not release the Grantor from any of its duties or obligations under the contracts and agreements included in the Patent Collateral, and (c) no Secured Party shall have any obligation or liability under the contracts and agreements included in the Patent Collateral by reason of this Agreement, nor shall any Secured Party be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

        SECTION 4. Representations and Warranties. The Grantor represents and warrants to the Secured Parties as to the Grantor and its Patent Collateral as follows:

        (a)   The Grantor is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and qualified to do business in each jurisdiction in which the failure to be so qualified could reasonably be expected to have a Material Adverse Change; has all necessary rights, franchises and privileges and corporate power and authority to execute, deliver and perform this Agreement and to conduct its business as currently conducted; and has taken all necessary action to execute, deliver and perform this Agreement.

        (b)   This Agreement has been duly executed and delivered by the Grantor and when executed and delivered constitutes the legally valid and binding obligation of the Grantor, enforceable against the Grantor in accordance with its terms, except in each case as enforceability may be affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and by equitable principles.

        (c)   The Grantor owns, or holds licenses in, the Patents that are reasonably necessary to the conduct of its business as currently conducted. Attached hereto as Schedule I (which Grantor may amend from time to time provided that notice and copies thereof are promptly provided to Lender) is a true, correct, and complete listing of all Patents and applications for Patents as to which the Grantor is the owner or licensor of an exclusive license. Attached hereto as Schedule II (which Grantor may amend from time to time provided that notice and copies thereof are promptly provided to Lender) is a true, correct, and complete listing of all Patents and applications for Patents as to which the Grantor is an exclusive licensee. None of the Licenses to use Patents disclosed on Schedule I or Schedule II requires consent for the Grantor to grant the security interest granted hereunder in the Grantor's right, title and interest in and to the Patent Collateral.

        (d)   Except as may be expressly permitted under the Loan Agreement, no security agreement, effective financing statement or other instrument similar in effect covering all or any part of the Patent Collateral, that has not been terminated or released, is on file in any recording office in any jurisdiction in which Grantor owns any Patent Collateral (including the U.S. Patent and Trademark Office), except such as may have been filed in favor of the Lender relating to this Agreement or any other Loan Document, and the Grantor has not consented to the filing of financing or continuation statements covering all or part of the Patent Collateral under the Code or any other applicable procedure, regulation or law of any foreign jurisdiction in which Patents are owned, or the filing of any other document or notice similar in effect (which has not been released or terminated) with the U.S. Patent and Trademark Office or any of its counterpart agencies in foreign jurisdictions in which the Grantor owns any Patent Collateral.

        (e)   The Grantor has made all necessary payments, filings and recordations to protect and maintain its interest in the Patents set forth in Schedule I, including (i) making all necessary registration, maintenance and renewal fee payments; and (ii) filing all necessary documents, including all Patent applications.

        (f)    Each patent and patent application of the Grantor set forth in Schedule I is subsisting and has not been adjudged invalid, unpatentable or unenforceable, in whole or in part, and, to the best of the Grantor's knowledge, is valid, subsisting, patentable and enforceable. Each License of the Grantor identified in Schedule II is validly subsisting and has not been adjudged invalid or unenforceable, in whole or in part, and, to the best of the Grantor's knowledge, is valid and enforceable. The Grantor has notified the Lender in writing of all uses of any item of Patent Collateral of which the Grantor is aware which could reasonably be expected to lead to such item becoming invalid or unenforceable, other than any such uses that would not cause or result in a Material Adverse Change.

        (g)   Except as may be expressly permitted under the Loan Agreement, the Grantor has not made a previous assignment, sale, transfer or agreement constituting a present or future assignment, sale, transfer or encumbrance of any of the Patent Collateral that has not been terminated or released. The Grantor has not granted any license (other than those listed on Schedule II hereto), shop right, release, covenant not to sue, or non-assertion assurance to any Person with respect to any part of the Patent Collateral so as to cause or result in a Material Adverse Change.

        (h)   No consent of any other Person and no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or other third party, as applicable, is required either (i) for the grant by the Grantor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by the Grantor, (ii) for the perfection or maintenance of the security interest created hereby (including the first priority nature of such security interest), except for the filing of financing and continuation statements under the Code and any other applicable procedure, regulation or law of any foreign jurisdictions in which the Grantor owns Patent Collateral, and the filing with the U.S. Patent and Trademark Office and any counterpart agencies in foreign jurisdictions in which the Grantor owns Patent Collateral of any other document or notice of similar effect, which financing statements, filings and other documents have been duly filed, will be filed by the Lender, or which the Lender and Grantor has agreed need not be filed, or (iii) for the exercise by the Lender of its rights provided for in this Agreement or the remedies in respect of the Patent Collateral pursuant to this Agreement, except that filings with the U.S. Patent and Trademark Office and any counterpart agencies in foreign jurisdictions in which the Grantor owns Patent Collateral may be necessary in order to record the transfer of such Patent Collateral upon foreclosure.

        (i)    Except for the licenses listed on Schedule II hereto and any non-exclusive licenses to which the Grantor is a party, the Grantor has no knowledge of the existence of any third-party rights or any claims with respect thereto that is likely to be made and adversely determined under any item of Patent Collateral contained on Schedule I.

        (j)    No claim has been made and is continuing or threatened that the use by the Grantor of any item of Patent Collateral is invalid or unenforceable or that the use by the Grantor of any Patent Collateral does or may violate the rights of any Person, other than any such claim which would not cause or result in a Material Adverse Change. To the best of the Grantor's knowledge, there is currently no infringement or unauthorized use of any item of Patent Collateral contained on Schedule I.

        (k)   The Grantor has no knowledge of the existence of any patent or license agreement held or claimed by any other Person that would preclude the Grantor from distributing, marketing, selling or providing any product or service currently distributed, marketed, sold or provided by it, as the case may be, under or in connection with any of the Patent Collateral (except, in each case, to the extent that the Grantor has granted an exclusive license to another Person, as set forth in Schedule II), or that would interfere with the ability of the Grantor to carry on its business as currently carried on, and the Grantor has no knowledge of any pending or threatened claim that would, if adversely decided, preclude or interfere with the business of the Grantor as currently carried on under any of the Patent Collateral, other than in the case of any of the foregoing any such patent, license agreement or claim that would not cause or result in a Material Adverse Change.

        SECTION 5. Further Assurances. (a) The Grantor shall from time to time, at its sole expense, promptly authorize, execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Lender may reasonably request, in order to perfect and protect any security interest granted hereby or to enable the Lender to exercise and enforce its rights and remedies hereunder with respect to any part of the Patent Collateral. Without limiting the generality of the foregoing, the Grantor will authorize, execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as Lender, in its Permitted Discretion, deems necessary or desirable in order to perfect and preserve the security interest granted hereby.

        (b)   The Grantor hereby authorizes the Lender to file one or more financing or continuation statements, and amendments thereto (including by recording this Agreement with the U.S. Patent and Trademark Office and its counterpart agencies in all applicable foreign jurisdictions) relating to all or any part of the Patent Collateral without the signature of the Grantor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Patent Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

        (c)   The Grantor will furnish to the Lender from time to time statements and schedules further identifying and describing the Patent Collateral and such other reports in connection with the Patent Collateral as the Lender may reasonably request, all in reasonable detail.

        (d)   The Grantor agrees that, should it obtain an ownership or any other interest in any Patent or License, which is not a part of the Patent Collateral as of the Closing Date, (i) the provisions of Section 1 shall automatically apply thereto, (ii) any such Patent or License shall automatically become Patent Collateral, and (iii) with respect to any ownership interest in any Patent or any exclusive license to a Patent that Grantor is advised is the subject of an application or registration that the Grantor obtains, it shall give prompt written notice thereof to the Lender in accordance with Section 13. The Grantor authorizes the Lender to modify this Agreement by amending Schedules I and II (and will cooperate reasonably with the Lender in effecting any such amendment) to include any Patent or application for such Patent or License, as applicable, which becomes part of the Patent Collateral under this Section.

        (e)   With respect to each Patent and License to which it is now or later becomes owner of or party to that is reasonably necessary to the conduct of its business as currently conducted, the Grantor agrees, subject to the last sentence of this subsection, to take all necessary steps, including making all necessary payments and filings in connection with the issuance, maintenance and renewal of Patents, in the U.S. Patent and Trademark Office and any other appropriate Governmental Authorities, to (i) maintain each such Patent and License, and (ii) pursue each such patent application, now or hereafter included in the Patent Collateral, including the filing of divisional, continuation, continuation-in-part and substitute applications, the filing of applications for reissue, renewal or extensions, the payment of maintenance fees, and the participation in interference, reexamination, opposition, infringement and misappropriation proceedings in the United States and any foreign jurisdictions in which the Grantor owns such Patents. Any expenses incurred in connection with such activities, as between any Secured Party and the Grantor, shall be borne solely by Grantor. The Grantor shall not abandon or decide not to pursue any right to file any patent application, or abandon any patent pending application or patent, without the written consent of Lender, unless (i) Grantor shall have previously determined that such abandonment or pursuit of such filing is no longer desirable in the conduct of the Grantor's business and that the loss thereof will not cause or result in a Material Adverse Change, in which case, the Grantor will give notice of any such abandonment to the Lender pursuant to the terms of Section 13, or (ii) such abandonment or failure to pursue such filing is expressly permitted under the Loan Agreement.

        (f)    The Grantor agrees to notify the Lender promptly and in writing if it learns (i) that any item of the Patent Collateral contained on Schedule I has been finally determined to have been abandoned or dedicated, except as a result of the Grantor's exercise of its rights under the last sentence of Section 4(e), or (ii) of any adverse determination or the institution of any proceeding (including the institution of any proceeding in the U.S. Patent and Trademark Office or any other appropriate Governmental Authorities in foreign jurisdictions) regarding any item of the Patent Collateral that would cause or result in a Material Adverse Change.

        (g)   In the event that the Grantor becomes aware that any item of the Patent Collateral is infringed or misappropriated by a third party, the Grantor shall promptly notify the Lender and shall take such actions as the Grantor or the Lender reasonably deems appropriate under the circumstances to protect such Patent Collateral, including suing for infringement or misappropriation and for an injunction against such infringement or misappropriation, unless any such infringement or misappropriation would not cause or result in a Material Adverse Change. Any expense incurred in connection with such activities, as between any Secured Party and the Grantor, shall be borne solely by the Grantor.

        (h)   The Grantor shall to the extent it deems reasonable in its best business judgment mark its products with the numbers of the appropriate patents or the designation "patent pending," as the case may be, in accordance with 35 U.S.C. Section 287(a) or, for sales outside of the United States, in accordance with the counterpart of U.S.C. Section 287(a), if any, of the patent laws of the applicable jurisdiction.

        (i)    The Grantor shall continue to take all commercially reasonable steps which it deems reasonably necessary under the circumstances to preserve and protect the Patent Collateral and the secrecy of all trade secrets of the Grantor, including any in the Patent Collateral.

        SECTION 6. Transfers and Other Liens. The Grantor shall not, (a) except for Permitted Dispositions, sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any item of the Patent Collateral or (b) create or suffer to exist any Lien upon or with respect to any of the Patent Collateral except for the security interest created by this Agreement or Permitted Liens.

        SECTION 7. The Lender Appointed Attorney-in-Fact. The Grantor hereby irrevocably appoints the Lender as the Grantor's attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Lender's discretion after the occurrence and during the continuance of an Event of Default, to take any action and to execute any instrument that the Lender may deem necessary or advisable to accomplish the purposes of this Agreement, including:

        (a)   to ask for, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Patent Collateral,

        (b)   to receive, indorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above, and

        (c)   to file any claims or take any action or institute any proceedings that the Lender may deem necessary or desirable for the collection of any payments relating to any of the Patent Collateral or otherwise to enforce the rights of the Lender with respect to any of the Patent Collateral.

To the extent permitted by law, the Grantor hereby ratifies all that the Lender shall lawfully do or cause to be done as attorney-in-fact for the Grantor. This power of attorney is a power coupled with an interest and is irrevocable.

        SECTION 8. The Lender May Perform. If the Grantor fails to perform any agreement contained herein, the Lender may itself perform, or cause performance of, such agreement after reasonable notice to the Grantor to the extent practicable, and the expenses of the Lender incurred in connection therewith shall be payable by the Grantor under Section 11.

        SECTION 9. The Lender's Duties. The powers conferred on the Lender hereunder are solely to protect its interest in the Patent Collateral and shall not impose any duty upon the Lender to exercise any such powers. Except for the safe custody of any Patent Collateral in its possession and the accounting for any moneys actually received by it hereunder, the Lender shall have no duty as to any Patent Collateral or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Patent Collateral. The Lender shall be deemed to have exercised reasonable care in the custody and preservation of any Patent Collateral in its possession if such Patent Collateral is accorded treatment substantially equal to that which the Lender accords its own property.

        SECTION 10. Remedies. If any Event of Default shall have occurred and be continuing and if the Lender has taken or is taking remedial actions in respect of the Collateral that is Inventory or Accounts:

        (a)   The Lender may exercise in respect of the Patent Collateral, in addition to other rights and remedies provided for herein or otherwise available to it and to the fullest extent permitted by law, all the rights and remedies of a secured party upon default under the Code (whether or not the Code applies to the affected Patent Collateral) and also may (i) require the Grantor to, and the Grantor hereby agrees that it will at its sole expense and upon request of the Lender forthwith, assemble all or part of the documents and things embodying the Patent Collateral as directed by the Lender and make them available to the Lender at a place to be designated by the Lender that is reasonably convenient to both parties, (ii) occupy any premises owned or leased by the Grantor where documents and things embodying the Patent Collateral or any part thereof are assembled for a reasonable period in order to effectuate the Lender's rights and remedies hereunder or under law, without obligation to the Grantor in respect of such occupation, and (iii) without notice except as specified below, sell the Patent Collateral or any part thereof in one or more parcels at public or private sale, at any of the Lender's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Lender may deem commercially reasonable. In the event of any sale, assignment, or other disposition of any of the Patent Collateral, the Grantor shall supply to the Lender or its designee the Grantor's know-how and expertise, and documents and things embodying the same, relating to the manufacture, distribution, advertising and sale of products or the provision of services relating to any Patent Collateral subject to such disposition, and the Grantor's customer lists and other records and documents relating to such Patent Collateral and to the manufacture, distribution, advertising and sale of such products and services. The Grantor agrees that, to the extent notice of sale shall be required by applicable law, at least ten (10) days' notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Lender shall not be obligated to make any sale of Patent Collateral regardless of notice of sale having been given. The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

        (b)   All cash proceeds received by the Lender in respect of any sale of, collection from, or other realization upon all or any part of the Patent Collateral may, in the discretion of the Lender, be held by the Lender as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Lender pursuant to Section 11) in whole or in part by the Lender for its benefit and the ratable benefit of the other Secured Parties against, all or any part of the Secured Obligations in accordance with Section 2.4 of the Loan Agreement. Any surplus of such cash or cash proceeds held by the Lender and remaining after payment in full of all the Secured Obligations shall be paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus.

        (c)   The Lender may exercise any and all rights and remedies of the Grantor under or otherwise in respect of the Patent Collateral.

        (d)   All payments received by the Grantor under or in connection with any of the Patent Collateral shall be received in trust for the benefit of the Lender, shall be segregated from other funds of the Grantor and shall be forthwith paid over to the Lender in the same form as so received (with any necessary endorsement).

        SECTION 11. Indemnity and Expenses. (a) The Grantor agrees to indemnify the Lender-Related Persons (each, an "Indemnified Party") from and against any and all claims, losses and liabilities arising out of or resulting from this Agreement (including enforcement of this Agreement), except claims, losses or liabilities resulting from an Indemnified Party's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction.

        (b)   The Grantor will upon demand pay to the Lender the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that any Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Patent Collateral, (iii) the exercise or enforcement of any of the rights of the Secured Parties hereunder or (iv) the failure by the Grantor to perform or observe any of the provisions hereof.

        SECTION 12. Amendments, Waivers, Etc. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender and, in the case of an amendment, by the Lender and the Grantor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Lender to exercise, and no delay in exercising any right hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right.

        SECTION 13. Addresses for Notices. Any communications between the parties hereto or notices provided herein to be given shall be sent in accordance with the provisions of, and to the addresses set forth in, Section 12 of the Loan Agreement.

        SECTION 14. Continuing Security Interest; Assignments Under the Loan Agreement. This Agreement shall create a continuing security interest in the Patent Collateral and shall (a) remain in full force and effect until the later of the payment in full in cash of all of the Secured Obligations and the effective date of termination or expiration of the Loan Agreement, (b) be binding upon the Grantor, its successors and assigns and (c) inure, together with the rights and remedies of the Lender hereunder, to the benefit of the Lender, its Affiliates and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), each Secured Party may assign or otherwise transfer all or any portion of its rights and obligations under this Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to a Secured Party herein or otherwise, in each case as provided in Section 14 of the Loan Agreement.

        SECTION 15. Release and Termination. (a) Upon any sale, lease, transfer or other disposition of any item of Patent Collateral in accordance with the terms of the Loan Documents (other than sales of Inventory and grants of non-exclusive licenses, in each case in the ordinary course of business), the Lender will, at the Grantor's sole expense, execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence the release of such item of Patent Collateral from the security interest granted hereby; provided, however, that (i) at the time of such request and such release and after giving effect thereto no Default shall have occurred and be continuing, (ii) the Grantor shall have delivered to the Lender, at least ten (10) Business Days prior to the date of the proposed release, a written request for release describing the item of the Patent Collateral and the terms of the sale, lease, transfer or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a form of release for execution by the Lender and a certification by the Grantor to the effect that the transaction is in compliance with the Loan Documents and as to such other matters as the Lender may request, and (iii) the proceeds of any such sale, lease, transfer or other disposition required to be applied in accordance with Section 2.4 of the Loan Agreement shall be paid to, or in accordance with the instructions of, the Lender at the closing.

        (b)   Upon the later of the payment in full in cash of all of the Secured Obligations and the effective date of termination or expiration of the Loan Agreement, the security interest granted hereby shall terminate and all rights to the Patent Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof shall revert to the Grantor. Upon any such termination, the Lender will, at the Grantor's sole expense, authorize, execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination.

        SECTION 16. Governing Law; Terms. THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Unless otherwise defined herein or in the Loan Agreement, terms used in Article 9 of the Code are used herein as therein defined.

        SECTION 17. Consent to Jurisdiction. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PATENT COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. GRANTOR, LENDER AND (BY THEIR ACCEPTANCE HEREOF) THE OTHER SECURED PARTIES WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 17.

        SECTION 18. Waiver of Jury Trial. GRANTOR, LENDER AND (BY THEIR ACCEPTANCE HEREOF) THE OTHER SECURED PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. GRANTOR, LENDER AND THE OTHER SECURED PARTIES REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

        SECTION 19. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

        SECTION 20. Supplement to Loan Agreement. The terms and provisions of this Agreement are intended as a supplement to the terms and provisions of the Loan Agreement. The Grantor acknowledges that the rights and remedies of the Secured Parties are more fully set forth in the Loan Agreement and the other Loan Documents and all such rights and remedies are cumulative.

        SECTION 21. Section Headings. The section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

        SECTION 22. Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the subject matter contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof.

[Signature Pages to follow]

        IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly executed and delivered by its officers thereunto duly authorized as of the date first above written.


 

 

GRANTOR:

 

 

OVERSTOCK.COM, INC.,
a Delaware corporation, as Grantor

 

 

By:

 

/s/  
DAVID K. CHIDESTER      
    Name:   David K. Chidester
    Title:   Vice President, Finance

LENDER:

 

 

Agreed and consented to as of the date first above written:

 

 

WELLS FARGO FOOTHILL, INC.,
a California corporation, as Lender

 

 

By:

 

/s/  
CHARLES W. KIM      

 

 
Name:   Charles W. Kim    
Title:   Vice President    



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PATENT SECURITY AGREEMENT by and between OVERSTOCK.COM, INC., as Grantor and WELLS FARGO FOOTHILL, INC., as Lender Dated as of May 6, 2004

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Exhibit 99.4


SECURITIES PLEDGE AGREEMENT

        THIS SECURITIES PLEDGE AGREEMENT (this "Agreement"), dated as of May 6, 2004, is entered into by and between OVERSTOCK.COM, INC., a Delaware corporation (the "Pledgor"), and WELLS FARGO FOOTHILL, INC., a California corporation, as lender (the "Lender") under the Loan Agreement (as hereinafter defined).

PRELIMINARY STATEMENTS

        (1)   The Pledgor has entered into a Loan and Security Agreement, dated as of May 6, 2004 (as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"), with the Lender.

        (2)   It is a condition precedent to the making of the initial Advance by the Lender under the Loan Agreement (or any other extension of credit provided for thereunder) that the Pledgor shall have granted the security interests contemplated by this Agreement.

        NOW, THEREFORE, in consideration of the premises and in order to induce the Lender to make the initial Advance (or otherwise extend credit) under the Loan Agreement, and subject to the terms of the Loan Agreement, the Pledgor hereby agrees with the Lender for its benefit and the benefit of its Affiliates (the Lender and its Affiliates collectively referred to herein as the "Secured Parties") as follows:

        1.     Defined Terms. Capitalized terms that are not otherwise defined in this Agreement shall have the respective meanings ascribed to them in the Loan Agreement, and the rules of construction set forth in Section 1.4 of the Loan Agreement shall apply hereto. The following terms shall have the following meanings:

        "Collateral" means the Pledged Securities and all Proceeds thereof.

        "Initial Pledged Notes" mean the notes, if any, specified on Schedule 1 attached hereto.

        "Initial Pledged Stock" means all of the shares of capital Stock or other securities or equity interests owned directly by the Pledgor and listed on Schedule 2 attached hereto.

        "Legal Requirements" means all applicable restrictive covenants, applicable zoning and subdivision ordinances and building codes, all applicable health and environmental regulations, and all other applicable laws, ordinances, rules, regulations, judicial decisions, administrative orders, and other requirements of any Governmental Authority having jurisdiction over the Pledgor in effect either at the time of execution of this Agreement or at any time during the term hereof.

        "Pledged Notes" means the Initial Pledged Notes and all other promissory notes, instruments or chattel paper pledged pursuant to Section 5(d).

        "Pledged Securities" means, collectively, the Pledged Notes and the Pledged Stock.

        "Pledged Stock" means the Initial Pledged Stock and all other shares of capital Stock or other securities or equity interests pledged pursuant to Section 5(c)(ii), subject to the limitations set forth in Section 2(b) with respect to Controlled Foreign Corporations.

        "Proceeds" means all "proceeds" as such term is defined in Section 9102(a)(64) of the Code on the date hereof and, in any event, shall include all dividends or other income from the Pledged Securities and any and all collections on the foregoing or distributions with respect to the foregoing.

        2.     Pledge; Grant of Security Interest. (a) The Pledgor hereby pledges and grants to the Lender for its benefit and the ratable benefit of the other Secured Parties a continuing security interest in all of the Pledgor's right, title and interest in the Collateral, as collateral security for (i) the prompt payment and performance of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and (ii) prompt payment and performance by the Pledgor of each of its obligations, covenants and duties now or hereafter existing under this Agreement and the other Loan Documents to which it is a party (collectively, the "Secured Obligations"). Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts that constitute part of the Secured Obligations and would be owed by the Pledgor to the Secured Parties under the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Secured Party or the Pledgor.

        (b)   Notwithstanding anything herein to the contrary, in no event shall the Collateral include, and the Pledgor shall not be deemed to have granted a security interest in, any of the Pledgor's right, title or interest in any of the outstanding capital Stock of or other ownership interests in a Controlled Foreign Corporation (as defined below) in excess of 65% of the voting power of all classes of capital stock or other ownership interests in such Controlled Foreign Corporation entitled to vote; provided that (i) immediately upon the amendment of the IRC to allow the pledge of a greater percentage of the voting power of capital Stock of or other ownership interests in a Controlled Foreign Corporation without adverse tax consequences, the Collateral shall include, and the Pledgor shall be deemed to have granted a security interest in, such greater percentage of the capital Stock of or other ownership interests in each Controlled Foreign Corporation; and (ii) if no adverse tax consequences to the Pledgor shall arise or exist in connection with the pledge of the capital Stock of or other ownership interests in any Controlled Foreign Corporation, the Collateral shall include, and the Pledgor shall be deemed to have granted a security interest in, such capital Stock or other ownership interest in such Controlled Foreign Corporation. As used herein, "Controlled Foreign Corporation" shall mean a "controlled foreign corporation" as defined in the IRC.

        3.     Delivery of Certificates and Pledged Notes; Stock Powers; Indorsements. On the Closing Date, the Pledgor shall deliver to the Lender (a) the certificates representing the shares of the Initial Pledged Stock, together with an undated stock power covering each such certificate, duly executed in blank, and (b) the Initial Pledged Notes, together with an undated instrument of transfer or assignment covering each such Initial Pledged Note, duly executed in blank.

        4.     Representations and Warranties. The Pledgor represents and warrants to the Secured Parties as to the Pledgor and its Collateral that:

        (a)   the Pledgor is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and qualified to do business in each jurisdiction in which the failure to be so qualified could reasonably be expected to have a Material Adverse Change; has all necessary rights, franchises and privileges and corporate power and authority to execute, deliver and perform this Agreement and to conduct its business as currently conducted; and has taken all necessary action to execute, deliver and perform this Agreement;

        (b)   this Agreement has been duly executed and delivered by the Pledgor and when executed and delivered constitutes the legally valid and binding obligation of the Pledgor, enforceable against the Pledgor in accordance with its terms, except in each case as enforceability may be affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and by equitable principles;

        (c)   no security agreement, effective financing statement or other instrument similar in effect covering all or any part of the Collateral, that has not been terminated or released, is on file in any recording office in any jurisdiction, except such as may have been filed in favor of the Lender relating to this Agreement or any other Loan Document, and the Pledgor has not consented to the filing of financing or continuation statements covering all or part of the Collateral under the Code or any other applicable procedure, regulation or law of any foreign jurisdiction; and no control agreements exist with respect to any Collateral other than control agreements in favor of the Lender;

        (d)   the Pledgor's shares of Pledged Stock constitute all of the issued and outstanding shares of all classes of capital Stock of Subsidiaries of the Pledgor owned by it, subject to the limitations set forth in Section 2(b) with respect to any Controlled Foreign Corporations;

        (e)   all of its shares of Pledged Stock have been (or upon issuance will be) duly authorized and validly issued and are and will be fully paid and nonassessable;

        (f)    there are no shareholders, partners or members agreements, voting trusts, proxy agreements or other agreements or understandings which affect or relate to the voting or giving of written consents with respect to any of the Pledged Stock;

        (g)   there are no restrictions on the transferability of the Collateral to the Lender or with respect to the foreclosure, transfer or disposition thereof by the Lender;

        (h)   the Pledgor is the record and beneficial owner of, and has good title to, its Pledged Securities, free of any and all Liens or options in favor of, or claims of, any other Person, except the Lien created by this Agreement and the other Loan Documents;

        (i)    no consent of any other Person and no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or other third party, as applicable, is required either (i) for the grant by the Pledgor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by the Pledgor, or (ii) for the perfection or maintenance of the security interest created hereby (including the first priority nature of such security interest), except for the filing of financing and continuation statements under the Code;

        (j)    upon delivery of (i) the certificates representing any shares of Pledged Stock of the Pledgor, together with an undated stock power covering each such certificate, duly executed in blank to the Lender, and (ii) any Pledged Notes of the Pledgor, together with an undated instrument of transfer or assignment covering each such Pledged Note, duly executed in blank to the Lender, the Lien granted pursuant to this Agreement will constitute a valid, perfected, senior, first priority Lien on such Collateral, enforceable as such against all creditors of the Pledgor and any Persons purporting to purchase any Collateral from the Pledgor, except in each case as enforceability may be affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally or equitable principles;

        (k)   there is no default, breach, violation or event of acceleration existing under the Pledged Notes and no event has occurred or circumstance exists which, with the passage of time or the giving of notice, or both, would constitute a default, breach, violation or event of acceleration under the Pledged Notes, and the Pledgor has not waived any default, breach, violation or event of acceleration under the Pledged Notes; and

        (l)    the proceeds of the loans evidenced by the Pledged Notes have been fully disbursed and the Pledgor has no obligation to make any future advances or other disbursements under or in respect of the Pledged Notes.

        5.     Covenants. The Pledgor covenants and agrees with the Lender that, from and after the date of this Agreement until all of the Secured Obligations are indefeasibly paid in full in cash and the Loan Agreement is terminated:

        (a)   If the Pledgor shall, as a result of its ownership of the Collateral, become entitled to receive or shall receive any Stock certificate (including any certificate representing a Stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), promissory note or other instrument, option or right, whether in addition to, in substitution of, as a conversion of, or in exchange for any of the Collateral, or otherwise in respect thereof, the Pledgor shall accept the same as the agent of the Lender, hold the same in trust for the Lender, on behalf of the Secured Parties, and deliver the same forthwith to the Lender, in the exact form received, duly endorsed by the Pledgor, if required, together with an undated stock power or endorsement, as appropriate, covering such certificate, note or instrument duly executed in blank by the Pledgor and with, if the Lender so requests, signature guarantees, to be held by the Lender, subject to the terms hereof, as additional collateral security for the Secured Obligations, subject to the limitations set forth in Section 2(b) with respect to any Controlled Foreign Corporations. Any sums paid upon or in respect of the Collateral upon the liquidation, sale or dissolution of a Subsidiary of the Pledgor shall be paid over by the Pledgor to the Lender, on behalf of the Secured Parties, to be held as additional collateral security for the Secured Obligations, and, in case any distribution of capital shall be made on or in respect of the Collateral or any property shall be distributed upon or with respect to the Collateral pursuant to the recapitalization or reclassification of the capital of any such Subsidiary or pursuant to the reorganization thereof, the property so distributed shall be delivered to the Lender, on behalf of the Secured Parties, to be held by it hereunder as additional collateral security for the Secured Obligations. If any sums of money or property so paid or distributed in respect of the Collateral shall be received by the Pledgor, the Pledgor shall, until such money or property is paid or delivered to the Lender, hold such money or property in trust, segregated from other funds of the Pledgor, as additional collateral security for the Secured Obligations.

        (b)   Except as expressly permitted by the Loan Agreement, the Pledgor will not (i) vote to enable, or take any other action to permit, the Pledgor's Subsidiaries to issue any Stock or other equity securities or equity interests of any nature or to issue any other securities or equity interests convertible into or granting the right to purchase or exchange for any Stock or other equity securities or equity interests of any nature of the Pledgor's Subsidiaries, unless such additional securities or equity interests are pledged to the Lender, on behalf of the Secured Parties, pursuant to the terms of this Agreement, (ii) enter into any shareholders, partners or members agreement, voting trust, proxy agreement or other agreement or understanding which affects or relates to the voting or giving of written consents with respect to any of the Pledged Securities, (iii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral, or (iv) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Collateral, or any interest therein, except for the Lien provided for by this Agreement and the other Loan Documents. The Pledgor will defend the right, title and interest of the Secured Parties in and to the Collateral against the claims and demands of all Persons whomsoever.

        (c)   The Pledgor shall (i) not permit its Subsidiaries to issue any Stock or other securities or equity interests in addition to or in substitution for the Pledged Stock issued by its Subsidiaries, except to the Pledgor, and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of Stock or other securities or equity interests of the Pledgor's Subsidiaries to the Lender, on behalf of the Secured Parties, and deliver to Lender immediately thereafter the certificates representing such shares, together with an undated stock power covering each such certificate duly executed in blank, subject to the limitations set forth in Section 2(b) with respect to any Controlled Foreign Corporations.

        (d)   At any time and from time to time, upon the written request of the Lender, and at the sole expense of the Pledgor, promptly and duly execute and deliver such further instruments and documents and take such further actions as any Secured Party may reasonably request for the purposes of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted. Without limiting the generality of the foregoing, upon request of the Lender, the Pledgor shall cause certificates to be issued in respect of any uncertificated Pledged Stock. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note, other instrument or chattel paper, such note, instrument or chattel paper shall be immediately delivered to the Lender, on behalf of the Secured Parties, duly endorsed in a manner satisfactory to the Lender, to be held as Collateral pursuant to this Agreement.

        (e)   The Pledgor agrees to pay, and to save the Secured Parties harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other similar taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement.

        (f)    The Pledgor will not vote to enable or take any other action to amend or terminate, or waive compliance with any of the terms of, any partnership agreement, operating agreement or Governing Documents in any way that materially changes the rights of the Pledgor with respect to any Pledged Securities in a manner adverse to the Secured Parties or that adversely affects the validity, perfection or priority of the Lender's security interest therein.

        (g)   The Pledgor will not waive or release any obligation of any party to the Pledged Notes without the prior written consent of the Lender.

        (h)   The Pledgor will not take or omit to take any action or suffer or permit any action to be omitted or taken, the taking or omission of which could reasonably be expected to result in any right of offset against sums payable under the Pledged Notes.

        (i)    The Pledgor shall give the Lender copies of all material notices (including notices of default) given or received with respect to the Pledged Notes promptly after giving or receiving such notices.

        (j)    Without Lender's prior written consent, the Pledgor shall not, and shall not agree to, assign or surrender its rights and interests under the Pledged Notes nor terminate, cancel, modify, change, supplement or amend the Pledged Notes; and the Pledgor hereby expressly releases, relinquishes and surrenders to Lender all its right, power and authority to terminate, cancel, modify, change, supplement or amend the Pledged Notes.

        6.     Cash Dividends; Voting Rights; Interest Payments. To the extent permitted under the Loan Agreement, unless an Event of Default shall have occurred and be continuing and the Lender shall (unless such Event of Default is an Event of Default specified in Sections 8.4 or 8.5 of the Loan Agreement, in which case no such notice need be given) have given notice to the Pledgor of the intent by the Lender to exercise its rights pursuant to Section 7, the Pledgor shall be permitted to receive all cash dividends or distributions in respect of the Pledged Stock and to exercise all voting and corporate rights or membership rights with respect to the Pledged Stock; provided, however, that no vote shall be cast or corporate rights or membership rights exercised or other action taken which could reasonably be expected to impair the Collateral in any manner or which would be inconsistent with or result in any violation of any provision of the Loan Agreement or any of the other Loan Documents. The Lender shall execute and deliver (or cause to be executed and delivered) to the Pledgor, at the sole expense of the Pledgor, all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling them to exercise the voting and other consensual rights that they are entitled to exercise pursuant to this paragraph and to receive the dividends, distributions or interest payments that they are authorized to receive and retain pursuant to this Section.

        7.     Rights of the Secured Parties. (a) If an Event of Default shall occur and be continuing and the Lender shall (unless such Event of Default is an Event of Default specified in Sections 8.4 or 8.5 of the Loan Agreement, in which case no such notice need be given) have given notice of its intent to exercise its rights hereunder to the Pledgor, then: (i) all rights of the Pledgor (A) to exercise or refrain from exercising the voting and other consensual rights that they would otherwise be entitled to exercise pursuant to Section 6 shall, upon written notice to the Pledgor by the Lender, cease and (B) to receive the dividends, distributions and interest payments that they would otherwise be authorized to receive and retain pursuant to Section 6 shall automatically cease; (ii) all dividends, distributions and interest payments that are received by the Pledgor contrary to the provisions of subsection (i) shall be received in trust for the Lender, on behalf of the Secured Parties, shall be segregated from other property and funds of the Pledgor and shall be forthwith paid over to the Lender, on behalf of the Secured Parties, in the same form as so received (with any necessary endorsement); (iii) the Lender shall have the right to receive any and all cash dividends, interest or other income paid in respect of the Pledged Securities and make application thereof to the Secured Obligations as provided in Section 2.4(b) of the Loan Agreement; and (iv) all shares of the Pledged Stock shall be registered in the name of the Lender or its nominee, and the Lender or its nominee may thereafter exercise: (A) all voting, corporate and other rights pertaining to such shares of the Pledged Stock at any meeting of shareholders of the Pledgor's Subsidiaries or otherwise; and (B) any and all rights of conversion, exchange, subscription and any other rights, privileges or options pertaining to such shares of the Pledged Stock as if the Lender was the absolute owner thereof (including the right to exchange at its discretion any and all of the Pledged Stock upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of the Pledgor's Subsidiaries, or upon the exercise by the Pledgor or the Lender, of any right, privilege or option pertaining to such shares of the Pledged Stock, and in connection therewith, the right to deposit and deliver any and all of the Pledged Stock with any committee, depository, transfer agent, registrar or other designated agency upon such terms and conditions as it may reasonably determine), all without liability except to account for property actually received by it, but the Lender shall have no duty to the Pledgor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing.

        (b)   The rights of the Lender hereunder shall not be conditioned or contingent upon the pursuit by the Lender of any right or remedy against the Pledgor or against any other Person which may be or become liable in respect of all or any part of the Secured Obligations or against any collateral security therefor, guarantee therefor or right of offset with respect thereto. No Lender-Related Person shall be liable for any failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so (except as finally determined by a court of competent jurisdiction to have arisen solely from the gross negligence or willful misconduct of any Lender-Related Person), nor shall the Lender be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Pledgor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof.

        (c)   The Pledgor hereby irrevocably appoints the Lender the Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, upon the occurrence and during the continuation of an Event of Default to take any action and to execute any instrument that the Lender may deem necessary or advisable to accomplish the purposes of this Agreement, including:

        8.     Remedies. If any Event of Default shall have occurred and be continuing, the Lender, on behalf of the Secured Parties, may exercise, in addition to all other rights and remedies granted in this Agreement and in any other Loan Documents, all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, the Lender, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Pledgor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived, to the fullest extent permitted by applicable law), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, in the over-the-counter market at any exchange or broker's board or office of the Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Lender shall have the right upon any such public sale or sales, and, to the extent permitted by applicable law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in such Pledged Stock by the Pledgor, which right or equity is hereby waived or released. The Lender shall apply any Proceeds from time to time held by it and the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all costs and expenses of every kind incurred in respect thereof or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Lender hereunder, including reasonable attorneys' fees and disbursements of counsel to the Lender, in accordance with Section 2.4(b) of the Loan Agreement and only after such application and after the payment by the Lender of any other amount required by any provision of applicable law, including Section 9610(a) of the Code, need the Lender account for the surplus, if any, to the Pledgor. To the extent permitted by applicable law, the Pledgor waives all claims, damages and demands it may acquire against the Lender arising out of the lawful exercise by it of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten (10) days before such sale or other disposition.

        9.     Registration Rights; Private Sales. (a) If the Lender shall determine to exercise its right to sell any or all of the Pledged Stock pursuant to Section 8, and if in the Lender's Permitted Discretion, it is reasonably necessary or advisable to have the Pledged Stock (or that portion thereof to be sold) registered under the provisions of the Securities Act of 1933, as amended (the "Securities Act"), the Pledgor will: (i) use its reasonable best efforts to execute and deliver, and cause the directors and officers of the Pledgor to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the Lender's Permitted Discretion, reasonably necessary or advisable to register the Pledged Stock or that portion thereof to be sold, under the provisions of the Securities Act; (ii) use its reasonable best efforts to cause the registration statement relating thereto to become effective and to remain effective for a period of at least one year from the date of the first public offering of the Pledged Stock or that portion thereof to be sold; and (iii) make all amendments thereto and/or to the related prospectus that, in the Lender's Permitted Discretion, are reasonably necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the SEC applicable thereto. The Pledgor shall comply with the provisions of the securities or "Blue Sky" laws of any and all jurisdictions that the Lender shall designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) that will satisfy the provisions of Section 11(a) of the Securities Act.

        (b)   The Pledgor recognizes that the Lender may be unable to effect a public sale of any or all the Pledged Stock by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers that will be obliged to agree, among other things, to acquire such securities or equity interests for its own account for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Lender shall not be under any obligation to delay a sale of any of the Pledged Stock for the period of time necessary to permit the Pledgor to register such securities or equity interests for public sale under the Securities Act, or under applicable state securities laws, even if the Pledgor would agree to do so.

        (c)   The Pledgor further agrees to use its best efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Pledged Stock pursuant to this Section 9 valid and binding and in compliance with any and all other applicable Legal Requirements. The Pledgor further agrees that a breach of any of the covenants contained in this Section 9 will cause irreparable injury to the Secured Parties, that the Secured Parties have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 9 shall be specifically enforceable against the Pledgor, and the Pledgor hereby waives and agrees, to the fullest extent permitted by applicable law, not to assert any defenses against an action for specific performance of such covenants.

        (d)   The Lender, on behalf of the Secured Parties, is authorized, in connection with the sale of any Pledged Stock pursuant to Section 8, to deliver or otherwise disclose to any prospective purchaser of the Pledged Stock: (i) any registration statement or prospectus, and all supplements and amendments thereto, prepared pursuant to this Section 9, (ii) any information and projections provided to it pursuant to this Section 9 and (iii) any other information in its possession relating to the Pledged Stock.

        10.   Regulatory Matters. (a) The Pledgor shall take all action that the Lender may reasonably request in the exercise of its rights and remedies hereunder, which includes the right to require the Pledgor to transfer or assign the Pledged Stock to any party or parties. In furtherance of this right, the Pledgor shall: (i) cooperate with the Lender in obtaining all approvals and consents from each Governmental Authority that any of the Secured Parties may deem necessary or advisable to accomplish any such transfer or assignment of any part of the Pledged Stock and (ii) prepare, execute and file with any Governmental Authority any application, request for consent, certificate or instrument that the Lender may deem necessary or advisable to accomplish any such transfer or assignment of any part of the Pledged Stock. If the Pledgor fails to execute such applications, requests for consent, certificates or instruments, the clerk of any court that has jurisdiction over the Loan Documents may execute and file the same on behalf of the Pledgor.

        (b)   To enforce the provisions of this Section 10, the Lender, on behalf of the Secured Parties, is authorized, to the extent permitted by applicable law, to request the consent or approval of any Governmental Authority to a voluntary or an involuntary transfer of control of the Pledgor. In connection with the exercise of its remedies under this Agreement, the Lender, on behalf of the Secured Parties, may obtain the appointment of a trustee or receiver to assume, upon receipt of all necessary judicial or other Governmental Authority consents or approvals, control of the Pledgor's Subsidiaries. Such trustee or receiver shall have all rights and powers provided to it by applicable law or by court order or provided to the Lender under this Agreement.

        (c)   The Pledgor acknowledges that the approval of each appropriate Governmental Authority to the transfer of control of the Pledgor may be required, that the ownership thereof is integral to the Lender's realization of the value of such Pledged Stock, on behalf of the Secured Parties, that there is no adequate remedy at law for failure by the Pledgor to comply with the provisions of this Section 10 and that such failure could not be adequately compensable in damages and, therefore, the Pledgor agrees that the provisions of this Section 10 may be specifically enforced.

        11.   Limitation on Duties Regarding Collateral. The Lender's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9207 of the Code or otherwise, shall be to deal with it in the same manner as the Lender deals with similar securities, equity interests and property for its own account. No Lender-Related Person shall be: (a) liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so (except as finally determined by a court of competent jurisdiction to have arisen solely from the gross negligence or willful misconduct of any Lender-Related Person) or (b) under any obligation to sell or otherwise dispose of any Collateral upon the request of the Pledgor.

        12.   Powers Coupled with an Interest. All authorizations and agencies herein contained with respect to the Collateral are irrevocable and powers coupled with an interest.

        13.   Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

        14.   Section Headings. The section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

        15.   Indemnity and Expenses.

        (a)   The Pledgor agrees to indemnify the Lender-Related Persons (each, an "Indemnified Party") from and against any and all claims, losses and liabilities arising out of or resulting from this Agreement (including enforcement of this Agreement), except claims, losses or liabilities resulting from an Indemnified Party's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction.

        (b)   The Pledgor will upon demand pay to the Lender the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that any Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Secured Parties hereunder or (iv) the failure by the Pledgor to perform or observe any of the provisions hereof.

        16.   No Waiver; Cumulative Remedies. No Secured Party shall by any act (except pursuant to Section 17) be deemed to have waived any right or remedy hereunder. No failure to exercise, nor any delay in exercising, on the part of any Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by any Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such Secured Party would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

        17.   Waivers and Amendments. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender and, in the case of an amendment, by the Lender and the Pledgor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

        18.   Continuing Security Interest; Assignments Under the Loan Agreement. This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the later of the payment in full in cash of all of the Secured Obligations and the effective date of termination or expiration of the Loan Agreement, (b) be binding upon the Pledgor, its successors and assigns and (c) inure, together with the rights and remedies of the Lender hereunder, to the benefit of the Lender, its Affiliates and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), each Secured Party may assign or otherwise transfer all or any portion of its rights and obligations under this Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Secured Party herein or otherwise, in each case as provided in Section 14of the Loan Agreement.

        19.   Notices. Any communications between the parties hereto or notices provided herein to be given shall be sent in accordance with the provisions of, and to the addresses set forth in, Section 12 of the Loan Agreement.

        20.   GOVERNING LAW. THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.

        21.   SUBMISSION TO JURISDICTION; WAIVERS. (a) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE THE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE PLEDGOR, THE LENDER AND (BY THEIR ACCEPTANCE HEREOF) THE OTHER SECURED PARTIES WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 21.

        (b)   THE PLEDGOR, THE LENDER AND (BY THEIR ACCEPTANCE HEREOF) THE OTHER SECURED PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. THE PLEDGOR, THE LENDER AND THE OTHER SECURED PARTIES REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

        22.   Release or Termination.

        (a)   Upon the later of the payment in full in cash of all of the Secured Obligations and the effective date of termination or expiration of the Loan Agreement, the security interest granted hereby shall terminate and all rights to the Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof shall revert to the Pledgor. Upon any such termination, the Lender will, at the Pledgor's sole expense, promptly redeliver to the Pledgor any of the Collateral in the Lender's possession and authorize, execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination.

        (b)   To the extent that any Pledged Securities are sold or disposed of and such sale or disposition is expressly permitted by the Loan Agreement, then, upon the application of the proceeds of such sale or disposition in accordance with Section 2.4 of the Loan Agreement, the Lender will, at the Pledgor's sole expense, execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence the release of such Pledged Securities from the pledge and security interest granted hereby, subject to Section 16.12 of the Loan Agreement.

        23.   Supplement to Loan Agreement. The terms and provisions of this Agreement are intended as a supplement to the terms and provisions of the Loan Agreement. The Pledgor acknowledges that the rights and remedies of the Secured Parties are more fully set forth in the Loan Agreement and the other Loan Documents and all such rights and remedies are cumulative.

        24.   Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the subject matter contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof.

[SIGNATURE PAGES TO FOLLOW]

        IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be duly executed and delivered as of the date first above written.


 

 

PLEDGOR:

 

 

OVERSTOCK.COM, INC.,
a Delaware corporation, as Pledgor

 

 

By:

 

/s/  
DAVID K. CHIDESTER      
    Name:   David K. Chidester
    Title:   Vice President, Finance

LENDER:

 

 

Agreed and consented to as of the date first above written:

 

 

WELLS FARGO FOOTHILL, INC.,
a California corporation, as Lender

 

 

By:

 

/s/  
CHARLES W. KIM      

 

 
Name:   Charles W. Kim    
Title:   Vice President    



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Exhibit 99.5


TRADEMARK SECURITY AGREEMENT

by and between

OVERSTOCK.COM, INC.,

as Grantor

and

WELLS FARGO FOOTHILL, INC.,

as Lender

Dated as of May 6, 2004

Table of Contents

Section

   
  Page
PARTIES   1
PRELIMINARY STATEMENTS   1
  1.   Grant of Security   1
  2.   Security for Obligations   2
  3.   The Grantor Remains Liable   2
  4.   Representations and Warranties   2
  5.   Further Assurances   4
  6.   Transfers and Other Liens   5
  7.   The Lender Appointed Attorney-in-Fact   5
  8.   The Lender May Perform   6
  9.   The Lender's Duties   6
  10.   Remedies   6
  11.   Indemnity and Expenses   7
  12.   Amendments, Waivers, Etc   7
  13.   Addresses for Notices   7
  14.   Continuing Security Interest; Assignments Under the Loan Agreement   8
  15.   Release and Termination   8
  16.   Governing Law; Terms   8
  17.   Consent to Jurisdiction   8
  18.   Waiver of Jury Trial   9
  19.   Severability   9
  20.   Supplement to Loan Agreement   9
  21.   Section Headings   9
  22.   Integration   9

Schedule I—Trademarks and Applications

Schedule II—Licenses

        THIS TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated as of May 6, 2004, is entered into by and between OVERSTOCK.COM, INC., a Delaware corporation (the "Grantor"), and WELLS FARGO FOOTHILL,  INC., a California corporation, as lender (the "Lender") under the Loan Agreement (as hereinafter defined).

PRELIMINARY STATEMENTS

        (1)   The Grantor has entered into a Loan and Security Agreement, dated as of May 6, 2004 (as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"), with the Lender. (Capitalized terms used herein but not defined shall have the meanings given them in the Loan Agreement, and the rules of construction set forth in Section 1.4 of the Loan Agreement shall apply hereto.)

        (2)   It is a condition precedent to the making of the initial Advance by the Lender under the Loan Agreement (or any other extension of credit provided for thereunder) that the Grantor shall have granted the security interests contemplated by this Agreement.

        NOW, THEREFORE, in consideration of the premises and in order to induce the Lender to make the initial Advance (or otherwise extend credit) under the Loan Agreement, and subject to the terms of the Loan Agreement, the Grantor hereby agrees with the Lender for its benefit and the benefit of its Affiliates (the Lender and its Affiliates collectively referred to herein as the "Secured Parties") as follows:

        SECTION 1. Grant of Security. The Grantor hereby grants to the Lender for its benefit and the ratable benefit of the other Secured Parties a continuing security interest in the Grantor's right, title and interest in and to all currently existing and hereafter acquired or arising Trademark Collateral (as defined below) in order to secure Secured Obligations (as defined below). The Lender's Liens in and to the Trademark Collateral shall attach to all Trademark Collateral without further act on the part of Lender or Grantor. For the purposes of this Agreement, "Trademark Collateral" shall mean all of Grantor's right, title and interest in and to:

        (a)   All trademarks, service marks, trade names, trade dress or other indicia of trade origin, trademark and service mark registrations, and applications for trademark or service mark registrations (except for "intent to use" applications for trademark or service mark registrations filed pursuant to Section 1(b) of the Lanham Act, unless and until an Amendment to Allege Use or a Statement of Use under Sections 1(c) and 1(d) of said Act has been filed), and any renewals thereof, including (i) the right to sue or otherwise recover for any and all past, present and future infringements and misappropriations thereof, (ii) all income, royalties, damages and other payments now and hereafter due and/or payable with respect thereto (including payments under all licenses entered into in connection therewith, and damages and payments for past or future infringements thereof), and (iii) all rights corresponding thereto throughout the world and all other rights of any kind whatsoever of the Grantor accruing thereunder or pertaining thereto together in each case with the goodwill of the business connected with the use of, and symbolized by, each such trademark, service mark, trade name, trade dress or other indicia of trade origin (collectively, the "Trademarks"). For the purposes of this Agreement, the Trademarks shall include each trademark and application identified in Schedule I attached hereto and made a part hereof (which the Grantor may amend from time to time, provided that notice and copies thereof are promptly provided to the Lender).

        (b)   All license agreements with any other Person in connection with any of the Trademarks or such other Person's names or marks, whether the Grantor is a licensor or licensee under any such license agreement, subject, in each case, to the terms of such license agreements, including terms requiring consent to a grant of a security interest, and any right to prepare for sale, sell and advertise for sale, all Inventory (as defined in the Loan Agreement) now or hereafter owned by the Grantor and now or hereafter covered by such licenses (collectively, the "Licenses"). For the purposes of this Agreement, the Licenses shall include the license agreements listed on Schedule II attached hereto and made a part hereof.

        SECTION 2. Security for Obligations. The grant of a security interest in the Trademark Collateral by the Grantor pursuant to this Agreement secures the (a) prompt payment and performance of any and all of the Obligations in accordance with the terms and conditions of the Loan Documents and (b) prompt payment and performance by the Grantor of each of its obligations, covenants and duties now or hereafter existing under this Agreement and the other Loan Documents to which it is a party (collectively, the "Secured Obligations"). Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts that constitute part of the Secured Obligations and would be owed by the Grantor to the Secured Parties under the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Secured Party or the Grantor.

        SECTION 3. The Grantor Remains Liable. Anything herein to the contrary notwithstanding, (a) the Grantor shall remain liable under the contracts and agreements included in the Trademark Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Lender of any of the rights hereunder shall not release the Grantor from any of its duties or obligations under the contracts and agreements included in the Trademark Collateral, and (c) no Secured Party shall have any obligation or liability under the contracts and agreements included in the Trademark Collateral by reason of this Agreement, nor shall any Secured Party be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

        SECTION 4. Representations and Warranties. The Grantor represents and warrants to the Secured Parties as to the Grantor and its Trademark Collateral as follows:

        (a)   The Grantor is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and qualified to do business in each jurisdiction in which the failure to be so qualified could reasonably be expected to have a Material Adverse Change; has all necessary rights, franchises and privileges and corporate power and authority to execute, deliver and perform this Agreement and to conduct its business as currently conducted; and has taken all necessary action to execute, deliver and perform this Agreement.

        (b)   This Agreement has been duly executed and delivered by the Grantor and when executed and delivered constitutes the legally valid and binding obligation of the Grantor, enforceable against the Grantor in accordance with its terms, except in each case as enforceability may be affected by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally and by equitable principles.

        (c)   The Grantor owns, or holds licenses in, the Trademarks that are reasonably necessary to the conduct of its business as currently conducted. Attached hereto as Schedule I (which Grantor may amend from time to time provided that notice and copies thereof are promptly provided to Lender) is a true, correct, and complete listing of all Trademarks and applications for Trademarks as to which the Grantor is the owner or licensor of an exclusive license. Attached hereto as Schedule II (which Grantor may amend from time to time provided that notice and copies thereof are promptly provided to Lender) is a true, correct, and complete listing of all Trademarks and applications for Trademarks as to which the Grantor is an exclusive licensee. None of the Licenses to use Trademarks disclosed on Schedule I or Schedule II requires consent for the Grantor to grant the security interest granted hereunder in the Grantor's right, title and interest in and to the Trademark Collateral.

        (d)   Except as may be expressly permitted under the Loan Agreement, no security agreement, effective financing statement or other instrument similar in effect covering all or any part of the Trademark Collateral, that has not been terminated or released, is on file in any recording office in any jurisdiction in which Grantor owns any Trademark Collateral (including the U.S. Patent and Trademark Office), except such as may have been filed in favor of the Lender relating to this Agreement or any other Loan Document, and the Grantor has not consented to the filing of financing or continuation statements covering all or part of the Trademark Collateral under the Code or any other applicable procedure, regulation or law of any foreign jurisdiction in which Trademarks are used, or the filing of any other document or notice similar in effect (which has not been released or terminated) with the U.S. Patent and Trademark Office or any of its counterpart agencies in foreign jurisdictions in which the Grantor owns any Trademark Collateral.

        (e)   The Grantor has made all necessary payments, filings and recordations to protect and maintain its interest in the Trademark registrations and applications for registration set forth in Schedule I, including (i) making all necessary registration, maintenance and renewal fee payments; and (ii) filing all necessary documents, including all applications for registration of Trademarks.

        (f)    Each Trademark registration and application for registration of the Grantor set forth in Schedule I is subsisting and has not been adjudged invalid, unregistrable or unenforceable, in whole or in part, and, to the best of the Grantor's knowledge, is valid, registrable and enforceable. Each License of the Grantor identified in Schedule II is validly subsisting and has not been adjudged invalid or unenforceable, in whole or in part, and, to the best of the Grantor's knowledge, is valid and enforceable. The Grantor has notified the Lender in writing of all uses of any item of Trademark Collateral of which the Grantor is aware which could reasonably be expected to lead to such item becoming invalid or unenforceable, other than any such uses that would not cause or result in a Material Adverse Change.

        (g)   Except as may be expressly permitted under the Loan Agreement, the Grantor has not made a previous assignment, sale, transfer or agreement constituting a present or future assignment, sale, transfer or encumbrance of any of the Trademark Collateral that has not been terminated or released. The Grantor has not granted any license (other than those listed on Schedule II hereto), release, covenant not to sue, or non-assertion assurance to any Person with respect to any part of the Trademark Collateral so as to cause or result in a Material Adverse Change.

        (h)   No consent of any other Person and no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or other third party, as applicable, is required either (i) for the grant by the Grantor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by the Grantor, (ii) for the perfection or maintenance of the security interest created hereby (including the first priority nature of such security interest), except for the filing of financing and continuation statements under the Code and any other applicable procedure, regulation or law of any foreign jurisdictions in which the Grantor uses Trademark Collateral, and the filing with the U.S. Patent and Trademark Office and any counterpart agencies in foreign jurisdictions in which the Grantor uses Trademark Collateral of any other document or notice of similar effect, which financing statements, filings and other documents have been duly filed, will be filed by the Lender, or which the Lender and Grantor has agreed need not be filed, or (iii) for the exercise by the Lender of its rights provided for in this Agreement or the remedies in respect of the Trademark Collateral pursuant to this Agreement, except that filings with the U.S. Patent and Trademark Office and any counterpart agencies in foreign jurisdictions in which the Grantor uses Trademark Collateral may be necessary in order to record the transfer of such Trademark Collateral upon foreclosure.

        (i)    Except for the licenses listed on Schedule II hereto and any non-exclusive licenses to which the Grantor is a party, the Grantor has no knowledge of the existence of any third-party rights or any claims with respect thereto that is likely to be made and adversely determined under any item of Trademark Collateral contained on Schedule I.

        (j)    No claim has been made and is continuing or threatened that the use by the Grantor of any item of Trademark Collateral is invalid or unenforceable or that the use by the Grantor of any Trademark Collateral does or may violate the rights of any Person, other than any such claim which would not cause or result in a Material Adverse Change. To the best of the Grantor's knowledge, there is currently no infringement or unauthorized use of any item of Trademark Collateral contained on Schedule I.

        (k)   The Grantor uses consistent standards of quality in all material respects in the manufacture, distribution and sale of all products sold and provision of all services provided under or in connection with any item of Trademark Collateral contained on Schedule I and has taken all commercially reasonable steps necessary to ensure that all licensed users of any item of Trademark Collateral contained on Schedule I use such consistent standards of quality.

        (l)    The Grantor has no knowledge of the existence of any Trademark or license agreement held or claimed by any other Person that would preclude the Grantor from distributing, marketing, selling or providing any product or service currently distributed, marketed, sold or provided by it, as the case may be, under or in connection with any of the Trademark Collateral (except, in each case, to the extent that the Grantor has granted an exclusive license to another Person, as set forth in Schedule II), or that would interfere with the ability of the Grantor to carry on its business as currently carried on, and the Grantor has no knowledge of any pending or threatened claim that would, if adversely decided, preclude or interfere with the business of the Grantor as currently carried on under any of the Trademark Collateral, other than in the case of any of the foregoing any such trademark, license agreement or claim that would not cause or result in a Material Adverse Change.

        SECTION 5. Further Assurances. (a) The Grantor shall from time to time, at its sole expense, promptly authorize, execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Lender may reasonably request, in order to perfect and protect any security interest granted hereby or to enable the Lender to exercise and enforce its rights and remedies hereunder with respect to any part of the Trademark Collateral. Without limiting the generality of the foregoing, the Grantor will authorize, execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as Lender, in its Permitted Discretion, deems necessary or desirable in order to perfect and preserve the security interest granted hereby.

        (b)   The Grantor hereby authorizes the Lender to file one or more financing or continuation statements, and amendments thereto (including by recording this Agreement with the U.S. Patent and Trademark Office and its counterpart agencies in all foreign jurisdictions in which Trademarks are used) relating to all or any part of the Trademark Collateral without the signature of the Grantor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Trademark Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

        (c)   The Grantor will furnish to the Lender from time to time statements and schedules further identifying and describing the Trademark Collateral and such other reports in connection with the Trademark Collateral as the Lender may reasonably request, all in reasonable detail.

        (d)   The Grantor agrees that, should it obtain an ownership or any other interest in any Trademark or License, which is not a part of the Trademark Collateral as of the Closing Date, (i) the provisions of Section 1 shall automatically apply thereto, (ii) any such Trademark, together with the goodwill of the business connected with the use of same and symbolized by same, or License, shall automatically become Trademark Collateral, and (iii) with respect to any ownership interest in any Trademark or any exclusive license to a Trademark that Grantor is advised is the subject of an application or registration that the Grantor obtains, it shall give prompt written notice thereof to the Lender in accordance with Section 13. The Grantor authorizes the Lender to modify this Agreement by amending Schedules I and II (and will cooperate reasonably with the Lender in effecting any such amendment) to include any trademark or service mark registration or application for such Trademark or License, as applicable, which becomes part of the Trademark Collateral under this Section.

        (e)   With respect to each Trademark and License to which it is now or later becomes owner of or party to that is reasonably necessary to the conduct of its business as currently conducted, the Grantor agrees, subject to the last sentence of this subsection, to take all necessary steps, including making all necessary payments and filings in connection with registration, maintenance and renewal of Trademarks, in the U.S. Patent and Trademark Office and any other appropriate Governmental Authority, to (i) maintain each such Trademark and License, and (ii) pursue each such application for trademark or service mark registration, now or hereafter included in the Trademark Collateral, including the filing of responses to office actions issued by the U.S. Patent and Trademark Office, the filing of applications for renewal, the filing of affidavits under Sections 8 and 15 of the United States Trademark Act, and the participation in opposition, cancellation and infringement and misappropriation proceedings in the United States and any foreign jurisdictions in which the Grantor owns such Trademarks. Any expenses incurred in connection with such activities, as between any Secured Party and the Grantor, shall be borne solely by Grantor. The Grantor shall not discontinue use of or otherwise abandon any Trademark without the written consent of Lender, unless (i) Grantor shall have previously determined that such use or the pursuit or maintenance of such application or registration is no longer desirable in the conduct of the Grantor's business and that the loss thereof will not cause or result in a Material Adverse Change, in which case, the Grantor will give notice of any such abandonment to the Lender pursuant to the terms of Section 13, or (ii) such abandonment or failure to pursue such filing is expressly permitted under the Loan Agreement.

        (f)    The Grantor agrees to notify the Lender promptly and in writing if it learns (i) that any item of the Trademark Collateral contained on Schedule I has been finally determined to have been abandoned or dedicated, except as a result of the Grantor's exercise of its rights under the last sentence of Section 4(e), or (ii) of any adverse determination or the institution of any proceeding (including the institution of any proceeding in the U.S. Patent and Trademark Office or any other appropriate Governmental Authorities in foreign jurisdictions) regarding any item of the Trademark Collateral that would cause or result in a Material Adverse Change.

        (g)   In the event that the Grantor becomes aware that any item of the Trademark Collateral is infringed or misappropriated by a third party, the Grantor shall promptly notify the Lender and shall take such actions as the Grantor or the Lender reasonably deems appropriate under the circumstances to protect such Trademark Collateral, including suing for infringement or misappropriation and for an injunction against such infringement or misappropriation, unless any such infringement or misappropriation would not cause or result in a Material Adverse Change. Any expense incurred in connection with such activities, as between any Secured Party and the Grantor, shall be borne solely by the Grantor.

        (h)   The Grantor shall to the extent it deems reasonable in its best business judgment use proper statutory notice or other proper notice designation in connection with its use of each its trademarks and service marks in accordance with the applicable procedure, regulation or law of each applicable jurisdiction.

        (i)    The Grantor shall continue to take all steps which it deems reasonably necessary to protect the Trademark Collateral.

        SECTION 6. Transfers and Other Liens. The Grantor shall not, (a) except for Permitted Dispositions, sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any item of the Trademark Collateral, or (b) create or suffer to exist any Lien upon or with respect to any of the Trademark Collateral except for the security interest created by this Agreement or Permitted Liens.

        SECTION 7. The Lender Appointed Attorney-in-Fact. The Grantor hereby irrevocably appoints the Lender as the Grantor's attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Lender's discretion after the occurrence and during the continuance of an Event of Default, to take any action and to execute any instrument that the Lender may deem necessary or advisable to accomplish the purposes of this Agreement, including:

        (a)   to ask for, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Trademark Collateral,

        (b)   to receive, indorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above, and

        (c)   to file any claims or take any action or institute any proceedings that the Lender may deem necessary or desirable for the collection of any payments relating to any of the Trademark Collateral or otherwise to enforce the rights of the Lender with respect to any of the Trademark Collateral.

        To the extent permitted by law, the Grantor hereby ratifies all that the Lender shall lawfully do or cause to be done as attorney-in-fact for the Grantor. This power of attorney is a power coupled with an interest and is irrevocable.

        SECTION 8. The Lender May Perform. If the Grantor fails to perform any agreement contained herein, the Lender may itself perform, or cause performance of, such agreement after reasonable notice to the Grantor to the extent practicable, and the expenses of the Lender incurred in connection therewith shall be payable by the Grantor under Section 11.

        SECTION 9. The Lender's Duties. The powers conferred on the Lender hereunder are solely to protect its interest in the Trademark Collateral and shall not impose any duty upon the Lender to exercise any such powers. Except for the safe custody of any Trademark Collateral in its possession and the accounting for any moneys actually received by it hereunder, the Lender shall have no duty as to any Trademark Collateral or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Trademark Collateral. The Lender shall be deemed to have exercised reasonable care in the custody and preservation of any Trademark Collateral in its possession if such Trademark Collateral is accorded treatment substantially equal to that which the Lender accords its own property.

        SECTION 10. Remedies. If any Event of Default shall have occurred and be continuing and if the Lender has taken or is taking remedial actions in respect of the Collateral that is Inventory or Accounts:

        (a)   The Lender may exercise in respect of the Trademark Collateral, in addition to other rights and remedies provided for herein or otherwise available to it and to the fullest extent permitted by law, all the rights and remedies of a secured party upon default under the Code (whether or not the Code applies to the affected Trademark Collateral) and also may (i) require the Grantor to, and the Grantor hereby agrees that it will at its sole expense and upon request of the Lender forthwith, assemble all or part of the documents and things embodying the Trademark Collateral as directed by the Lender and make them available to the Lender at a place to be designated by the Lender that is reasonably convenient to both parties, (ii) occupy any premises owned or leased by the Grantor where documents and things embodying the Trademark Collateral or any part thereof are assembled for a reasonable period in order to effectuate the Lender's rights and remedies hereunder or under law, without obligation to the Grantor in respect of such occupation, and (iii) without notice except as specified below, sell the Trademark Collateral or any part thereof in one or more parcels at public or private sale, at any of the Lender's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Lender may deem commercially reasonable. In the event of any sale, assignment, or other disposition of any of the Trademark Collateral, the goodwill of the business connected with and symbolized by any Trademark Collateral subject to such disposition shall be included, and the Grantor shall supply to the Lender or its designee the Grantor's know-how and expertise, and documents and things embodying the same, relating to the manufacture, distribution, advertising and sale of products or the provision of services relating to any Trademark Collateral subject to such disposition, and the Grantor's customer lists and other records and documents relating to such Trademark Collateral and to the manufacture, distribution, advertising and sale of such products and services. The Grantor agrees that, to the extent notice of sale shall be required by applicable law, at least ten (10) days' notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Lender shall not be obligated to make any sale of Trademark Collateral regardless of notice of sale having been given. The Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

        (b)   All cash proceeds received by the Lender in respect of any sale of, collection from, or other realization upon all or any part of the Trademark Collateral may, in the discretion of the Lender, be held by the Lender as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Lender pursuant to Section 11) in whole or in part by the Lender for its benefit and the ratable benefit of the other Secured Parties against, all or any part of the Secured Obligations in accordance with Section 2.4 of the Loan Agreement. Any surplus of such cash or cash proceeds held by the Lender and remaining after payment in full of all the Secured Obligations shall be paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus.

        (c)   The Lender may exercise any and all rights and remedies of the Grantor under or otherwise in respect of the Trademark Collateral.

        (d)   All payments received by the Grantor under or in connection with any of the Trademark Collateral shall be received in trust for the benefit of the Lender, shall be segregated from other funds of the Grantor and shall be forthwith paid over to the Lender in the same form as so received (with any necessary endorsement).

        SECTION 11. Indemnity and Expenses. (a) The Grantor agrees to indemnify the Lender-Related Persons (each, an "Indemnified Party") from and against any and all claims, losses and liabilities arising out of or resulting from this Agreement (including enforcement of this Agreement), except claims, losses or liabilities resulting from an Indemnified Party's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction.

        (b)   The Grantor will upon demand pay to the Lender the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that any Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Trademark Collateral, (iii) the exercise or enforcement of any of the rights of the Secured Parties hereunder or (iv) the failure by the Grantor to perform or observe any of the provisions hereof.

        SECTION 12. Amendments, Waivers, Etc. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender and, in the case of an amendment, by the Lender and the Grantor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Lender to exercise, and no delay in exercising any right hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right.

        SECTION 13. Addresses for Notices. Any communications between the parties hereto or notices provided herein to be given shall be sent in accordance with the provisions of, and to the addresses set forth in, Section 12 of the Loan Agreement.

        SECTION 14. Continuing Security Interest; Assignments Under the Loan Agreement. This Agreement shall create a continuing security interest in the Trademark Collateral and shall (a) remain in full force and effect until the later of the payment in full in cash of all of the Secured Obligations and the effective date of termination or expiration of the Loan Agreement, (b) be binding upon the Grantor, its successors and assigns and (c) inure, together with the rights and remedies of the Lender hereunder, to the benefit of the Lender, its Affiliates and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), each Secured Party may assign or otherwise transfer all or any portion of its rights and obligations under this Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to a Secured Party herein or otherwise, in each case as provided in Section 14 of the Loan Agreement.

        SECTION 15. Release and Termination. (a) Upon any sale, lease, transfer or other disposition of any item of Trademark Collateral in accordance with the terms of the Loan Documents (other than sales of Inventory and grants of non-exclusive licenses, in each case in the ordinary course of business), the Lender will, at the Grantor's sole expense, execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence the release of such item of Trademark Collateral from the security interest granted hereby; provided, however, that (i) at the time of such request and such release and after giving effect thereto no Default shall have occurred and be continuing, (ii) the Grantor shall have delivered to the Lender, at least ten (10) Business Days prior to the date of the proposed release, a written request for release describing the item of the Trademark Collateral and the terms of the sale, lease, transfer or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a form of release for execution by the Lender and a certification by the Grantor to the effect that the transaction is in compliance with the Loan Documents and as to such other matters as the Lender may request, and (iii) the proceeds of any such sale, lease, transfer or other disposition required to be applied in accordance with Section 2.4 of the Loan Agreement shall be paid to, or in accordance with the instructions of, the Lender at the closing.

        (b)   Upon the later of the payment in full in cash of all of the Secured Obligations and the effective date of termination or expiration of the Loan Agreement, the security interest granted hereby shall terminate and all rights to the Trademark Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof shall revert to the Grantor. Upon any such termination, the Lender will, at the Grantor's sole expense, authorize, execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination.

        SECTION 16. Governing Law; Terms. THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Unless otherwise defined herein or in the Loan Agreement, terms used in Article 9 of the Code are used herein as therein defined.

        SECTION 17. Consent to Jurisdiction. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY TRADEMARK COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. GRANTOR, LENDER AND (BY THEIR ACCEPTANCE HEREOF) THE OTHER SECURED PARTIES WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 17.

        SECTION 18. Waiver of Jury Trial. GRANTOR, LENDER AND (BY THEIR ACCEPTANCE HEREOF) THE OTHER SECURED PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. GRANTOR, LENDER AND THE OTHER SECURED PARTIES REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

        SECTION 19. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

        SECTION 20. Supplement to Loan Agreement. The terms and provisions of this Agreement are intended as a supplement to the terms and provisions of the Loan Agreement. The Grantor acknowledges that the rights and remedies of the Secured Parties are more fully set forth in the Loan Agreement and the other Loan Documents and all such rights and remedies are cumulative.

        SECTION 21. Section Headings. The section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof.

        SECTION 22. Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the subject matter contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof.

[SIGNATURE PAGES TO FOLLOW]

        IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly executed and delivered by its officers thereunto duly authorized as of the date first above written.


 

 

GRANTOR:

 

 

OVERSTOCK.COM, INC.,
a Delaware corporation, as Grantor

 

 

By:

 

/s/  
DAVID K. CHIDESTER      
    Name:   David K. Chidester
    Title:   Vice President, Finance

LENDER:

 

 

Agreed and consented to as of the date first above written:

 

 

WELLS FARGO FOOTHILL, INC.,
a California corporation, as Lender

 

 

By:

 

/s/  
CHARLES W. KIM      

 

 
Name:   Charles W. Kim    
Title:   Vice President    



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TRADEMARK SECURITY AGREEMENT by and between OVERSTOCK.COM, INC., as Grantor and WELLS FARGO FOOTHILL, INC., as Lender Dated as of May 6, 2004

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Exhibit 99.6


OVERSTOCK.COM, INC.
2002 STOCK OPTION PLAN

(As amended by the Board of Directors through March 17, 2004)

        1.     Purposes of the Plan. The purposes of this 2002 Stock Option Plan are:

        Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan.

        2.     Definitions. As used herein, the following definitions shall apply:

        (a)   "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan.

        (b)   "Applicable Laws" means the requirements relating to the administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan.

        (c)   "Board" means the Board of Directors of the Company.

        (d)   "Cause" means (i) an act of personal dishonesty taken by the Optionee in connection with his or her responsibilities as a Service Provider and intended to result in personal enrichment of the Optionee, (ii) Optionee being convicted of a felony, (iii) a willful act by the Optionee which constitutes gross misconduct and which is injurious to the Company, or (iv) following delivery to the Optionee of a written demand for performance from the Company which describes the basis for the Company's reasonable belief that the Optionee has not substantially performed his duties, continued violations by the Optionee of his or her obligations to the Company which are demonstrably willful and deliberate on the Employee's part.

        (e)   "Change in Control" means the occurrence of any of the following events:

        (f)    "Code" means the Internal Revenue Code of 1986, as amended.

        (g)   "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan.

        (h)   "Common Stock" means the common stock of the Company.

        (i)    "Company" means Overstock.com, Inc.

        (j)    "Consultant" means any natural person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity.

        (k)   "Director" means a member of the Board.

        (l)    "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code.

        (m)  "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three (3) months following the 91stday of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company.

        (n)   "Exchange Act" means the Securities Exchange Act of 1934, as amended.

        (o)   "Fair Market Value" means, as of any date, the value of Common Stock determined as follows:

        (p)   "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

        (q)   "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option.

        (r)   "Notice of Grant" means a written or electronic notice evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement.

        (s)   "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

        (t)    "Option" means a stock option granted pursuant to the Plan.

        (u)   "Option Agreement" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.

        (v)   "Option Exchange Program" means a program whereby outstanding Options are surrendered in exchange for Options with a lower exercise price.

        (w)  "Optioned Stock" means the Common Stock subject to an Option or Stock Purchase Right.

        (x)   "Optionee" means the holder of an outstanding Option or Stock Purchase Right granted under the Plan.

        (y)   "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code.

        (z)   "Plan" means this 2002 Stock Option Plan.

        (aa) "Restricted Stock" means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

        (bb) "Restricted Stock Purchase Agreement" means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant.

        (cc) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

        (dd) "Section 16(b)" means Section 16(b) of the Exchange Act.

        (ee) "Service Provider" means an Employee, Director or Consultant.

        (ff)  "Share" means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan.

        (gg) "Stock Purchase Right" means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

        (hh) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code.

        (ii)   "Voluntary Termination for Good Reason" means the Optionee voluntarily resigns within ninety (90) days after the occurrence of any of the following (i) without the Optionee's express written consent, a material reduction of the Optionee's duties, title, authority or responsibilities, relative to the Optionee's duties, title, authority or responsibilities as in effect immediately prior to such reduction, or the assignment to Optionee of such reduced duties, title, authority or responsibilities; provided, however, that a reduction in duties, title, authority or responsibilities solely by virtue of the Company being acquired and made part of a larger entity (as, for example, when the Chief Executive Officer of the Company remains as such following a Change of Control and is not made the Chief Executive Officer of the acquiring corporation) shall not by itself constitute grounds for a "Voluntary Termination for Good Reason;" (ii) a reduction by the Company in the base salary or annual incentive bonus of the Optionee as in effect immediately prior to such reduction; (iii) the relocation of the Optionee to a facility or a location outside of a 35 mile radius from the present facility or location, without the Optionee's express written consent; or (iv) any act or set of facts or circumstances which would, under applicable case law or statute constitute a constructive termination of the Optionee.

        3.     Stock Subject to the Plan. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 1,638,680 Shares plus (a) any Shares which have been reserved but not issued under the Company's 1999 Stock Option Plan (the "1999 Plan") and (b) any Shares returned to the 1999 Plan as a result of termination of options or repurchase of Shares issued under the 1999 Plan. The Shares may be authorized, but unissued, or reacquired Common Stock.

        If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan.

        4.     Administration of the Plan.

        (a)   Procedure.

        (b)   Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion:

        (c)   Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights.

        5.     Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.

        6.     Limitations.

        (a)   Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

        (b)   Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause.

        (c)   The following limitations shall apply to grants of Options:

        7.     Term of Plan. Subject to Section 19 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 15 of the Plan.

        8.     Term of Option. The term of each Option shall be stated in the Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement.

        9.     Option Exercise Price and Consideration.

        (a)   Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following:

        (b)   Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may be exercised.

        (c)   Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of:

        10.   Exercise of Option.

        (a)   Procedure for Exercise; Rights as a Stockholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be suspended during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share.

        An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan.

        Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

        (b)   Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

        (c)   Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

        (d)   Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised following the Optionee's death within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Option Agreement), by the Optionee's designated beneficiary, provided such beneficiary has been designated prior to Optionee's death in a form acceptable to the Administrator. If no such beneficiary has been designated by the Optionee, then such Option may be exercised by the personal representative of the Optionee's estate or by the person(s) to whom the Option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following Optionee's death. If, at the time of death, Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

        11.   Stock Purchase Rights.

        (a)   Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator.

        (b)   Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator.

        (c)   Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion.

        (d)   Rights as a Stockholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan.

        12.   Transferability of Options and Stock Purchase Rights. Unless determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate.

        13.   Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, Merger or Change in Control.

        (a)   Changes in Capitalization. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares such that an adjustment is determined by the Administrator (in its sole discretion) to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Administrator shall, in such manner as it may deem equitable, adjust the number and class of Shares which may be delivered under the Plan, the number, class, and price of Shares covered by each outstanding Option and Stock Purchase Right, and the numerical Share limits of Sections 3 and 6.

        (b)   Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action.

        (c)   Merger or Change in Control. In the event of a merger of the Company with or into another corporation, or a Change in Control, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation.

        In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period.

        For the purposes of this subsection (c), the Option or Stock Purchase Right shall be considered assumed if, following the merger or Change in Control, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control.

        (d)   Involuntary Termination other than for Cause, Death or Disability or a Voluntary Termination for Good Reason, Following a Change of Control. If, within eighteen (18) months following a Change of Control, Optionee's employment is terminated involuntarily by the Company or successor corporation other than for Cause, death or Disability or by the Optionee by a Voluntary Termination for Good Reason, then Optionee shall fully vest in and have the right to exercise his or her Option as to all of the Shares subject to each such Option including Shares as to which such Option would not otherwise be vested or exercisable.

        14.   Date of Grant. The date of grant of an Option or Stock Purchase Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant.

        15.   Amendment and Termination of the Plan.

        (a)   Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.

        (b)   Stockholder Approval. The Company shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.

        (c)   Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.

        16.   Conditions Upon Issuance of Shares.

        (a)   Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.

        (b)   Investment Representations. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

        17.   Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

        18.   Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

        19.   Stockholder Approval. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the manner and to the degree required under Applicable Laws.



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OVERSTOCK.COM, INC. 2002 STOCK OPTION PLAN