Exhibit 10.4

FIFTH AMENDMENT TO CREDIT AND GUARANTY AGREEMENT

FIFTH AMENDMENT TO CREDIT AND GUARANTY AGREEMENT, dated as of March 11, 2008
(this “Amendment”), to the Credit and Guaranty Agreement, dated as of April 30,
2007 (as amended, restated, supplemented or modified from time to time, the
“Credit Agreement”), by and among Handleman Company, a Michigan corporation
(“Holdings”), Handleman Services Company, a Michigan corporation (“Handleman
Services”), certain subsidiaries of Holdings identified on the signature page
hereto as “Borrowers” (such Subsidiaries, together with Handleman Services, are
referred to individually as a “Borrower” and collectively, jointly and
severally, as “Borrowers”), certain subsidiaries of Holdings identified on the
signature page hereto as “Guarantors” (such subsidiaries, together with
Holdings, are referred to individually as a “Guarantor” and collectively,
jointly and severally, as “Guarantors”), the lenders party hereto from time to
time (“Lenders”), and Silver Point Finance, LLC (“Silver Point”), as
administrative agent for Lenders (in such capacity, together with its successors
and assigns in such capacity, the “Administrative Agent”) and as collateral
agent for Lenders (in such capacity, together with its successors and assigns in
such capacity, the “Collateral Agent” and together with Administrative Agent,
each an “Agent” and collectively the “Agents”).

WHEREAS, Borrowers and Guarantors have requested that Agents and Lenders agree
to waive certain Events of Default that have occurred and are continuing and
amend certain terms and conditions of the Credit Agreement, in each case, as
more fully set forth herein; and

WHEREAS, Agents and Lenders have agreed to waive such Events of Default and to
make such amendments to the Credit Agreement, in each case, subject to the terms
and conditions set forth herein.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:

1. Definitions. All terms used herein which are defined in the Credit Agreement
and not otherwise defined herein are used herein as defined therein.

2. Amendments to Credit Agreement.

(a) Section 1.1 of the Credit Agreement is hereby amended by adding the
following definitions thereto, in appropriate alphabetical order:

“‘Cash Collateral Account’: as defined in Section 5.15(b).”

“‘Cash Flow Forecast’ means the thirteen-week cash flow forecast of Credit
Parties delivered to Agents on or prior to the Fifth Amendment Effective Date,
setting forth the cash receipts and disbursements of Credit Parties and the
Loans projected to be outstanding on a weekly basis during such period, in form
and substance satisfactory to Agents, and consistent with the Financial Plan and
the Projections (other than the Financial Plan and Projections previously
provided for fiscal year 2008 distributed in April 2007), which Cash Flow
Forecast shall be updated, extended and delivered to Agents in accordance with
Section 5.1(x), which updates shall be consistent with the Cash Flow Forecast
provided to Agents on the Fifth Amendment Effective Date, the Financial Plan and
the Projections.”

 

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“‘Exclusive Distribution Costs’ means upfront fees paid to customers in exchange
for exclusivity rights.”

“‘Fifth Amendment’ means the Fifth Amendment to Credit and Guaranty Agreement,
dated as of March 11, 2008, by and among Credit Parties, Lenders and Agents.”

“‘Fifth Amendment Effective Date’ has the meaning ascribed to the term
‘Amendment Effective Date’ in the Fifth Amendment.”

“‘Fifth Amendment Fee Letter’ means the letter agreement dated the Fifth
Amendment Effective Date between Borrowers and Administrative Agent, and
acknowledged by each of the other Credit Parties.”

“‘Minimum Asset Coverage’: as defined in Section 6.7(e).”

(b) Section 1.1 of the Credit Agreement is hereby amended by amending and
restating the following definitions to read in their entirety as follows:

“‘Make Whole Amount’: as defined in Section 2.12(c)(i).”

“‘Minimum Availability Amount’ means $40,000,000.”

“‘Revolver/Term Loan A Reserve’ means, at any time, a reserve against the
Working Capital Borrowing Base in an amount equal to the sum of (i) the
aggregate outstanding principal amount of the Revolving Loans at such time plus
(ii) the aggregate outstanding principal amount of the Tranche A Term Loan
outstanding at such time.”

“‘Treasury Rate’ means, with respect to any prepayment pursuant to Section 2.12,
the yield to maturity at a time of computation of United States Treasury
securities with a constant maturity (as determined by the Administrative Agent
in good faith based on publicly available market data) most nearly equal to the
period from the applicable Prepayment Date to the applicable Make Whole Expiry
Date, provided, however, that if the period from the applicable Prepayment Date
to the applicable Make Whole Expiry Date is not equal to the constant maturity
of a United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given.”

(c) Section 1.1 of the Credit Agreement is hereby amended by adding the
following sentence to the end of the definition of the term “Adjusted LIBOR
Rate” contained therein to read in its entirety as follows:

“Notwithstanding the foregoing, the Adjusted LIBOR Rate shall in no event be
less than 4.50% per annum.”

 

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(d) Section 1.1 of the Credit Agreement is hereby amended by adding the
following sentence to the end of the definition of the term “Base Rate”
contained therein to read in its entirety as follows:

“Notwithstanding the foregoing, the Base Rate shall in no event be less than
7.50% per annum.”

(e) Section 1.1 of the Credit Agreement is hereby amended by amending and
restating clause (v)(a) of the definition of the term “Cash Equivalents”
contained therein, to read in its entirety as follows:

“(a) has one hundred percent (100%) of its assets invested continuously in the
types of investments referred to in clauses (i) and (ii) above,”

(f) Section 1.1 of the Credit Agreement is hereby amended by adding the phrase
“Fifth Amendment Fee Letter,” after the phrase “Fee Letter,” contained in the
definition of the term “Credit Documents” contained therein.

(g) Section 1.1 of the Credit Agreement is hereby amended by deleting the
definition of the term “Incremental Availability Reserve” contained therein, and
each reference to the term “Incremental Availability Reserve” contained in the
Credit Agreement is hereby deleted.

(h) Section 2.7(a) of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:

“2.7 Interest on Loans.

(a) Except as otherwise set forth herein, each Class of Loan shall bear interest
on the unpaid principal amount thereof from the date made through repayment
(whether by acceleration or otherwise) thereof as follows:

(i) in the case of Tranche A Term Loans and Revolving Loans:

(A) if a Base Rate Loan, at the Base Rate plus five percent (5.0%) per annum; or

(B) if a LIBOR Rate Loan, at the Adjusted LIBOR Rate plus six percent (6.0%) per
annum;

(ii) in the case of Tranche B Term Loans:

(A) if a Base Rate Loan, at the Base Rate plus eight percent (8.0%) per annum;
or

(B) if a LIBOR Rate Loan, at the Adjusted LIBOR Rate plus nine percent
(9.0%) per annum.”

(i) Section 2.12(c) of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:

“(c) Call Protection. (i) If, on or prior to April 30, 2009 (the “Make-Whole
Expiry Date”), either (x) all or any part of the principal balance of any Term

 

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Loan is repaid or prepaid and/or (y) any Commitment is reduced or terminated, in
each case, for any reason (including without limitation pursuant to (A) any
mandatory prepayment provision (other than a mandatory prepayment pursuant to
Section 2.13(e)), (B) any voluntary prepayment, (C) in connection with a
foreclosure and sale of the Collateral, (D) in connection with a sale of the
Collateral in an Insolvency Proceeding, (E) in connection with the acceleration
of the Obligations after the occurrence and during the continuation of an Event
of Default, (F) in connection with the 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 or (G) under any other circumstance), then Company shall pay to
Administrative Agent, for the benefit of all Lenders entitled to a portion of
such repayment, prepayment, reduction or termination, an amount equal to the sum
of the present value at such time of (i) all interest payments or accrued
interest (including default interest, if applicable) that would have accrued on
the principal amount of the Loans and/or Commitments repaid, prepaid, reduced or
terminated or deemed repaid, prepaid, reduced or terminated from the date of
such repayment, prepayment, reduction or termination (such date, the “Prepayment
Date”) through to the Make-Whole Expiry Date plus (ii) the Prepayment Premium
applicable immediately after the Make-Whole Expiry Date plus (iii) in the case
of a repayment or prepayment, the principal amount of Loans so repaid or
prepaid, or deemed repaid or prepaid, in each case, computed using a discount
rate equal to the Treasury Rate plus 50 basis points, minus (iv) in the case of
a repayment or prepayment, the principal amount of the Loan so repaid or prepaid
(such difference, the “Make-Whole Amount”). For purposes of this calculation:
(A) such interest payment or accrued interest shall be projected by using the
interest rate then in effect for the period from the Prepayment Date through the
Make-Whole Expiry Date (including, to the extent applicable, the provisions of
Section 2.9 of the Credit Agreement); and (B) in the case of a reduction or
termination of Revolving Commitments for which no corresponding Revolving Loans
are outstanding on the Prepayment Date, such interest payment or accrued
interest shall be projected assuming that the outstanding principal amount of
Revolving Loans is equal to the principal amount of the Revolving Commitments so
permanently reduced or terminated and the interest rate that would have been
applicable if such Revolving Loans were made on the Prepayment Date.
Notwithstanding anything to the contrary contained in any Credit Document, on
and after the Fifth Amendment Effective Date, any Make-Whole Amount that is
incurred shall not be required to be paid in cash on the date on which such
Make-Whole Amount is incurred, but shall be paid-in-kind on such date by
capitalizing such Make-Whole Amount and adding it to the outstanding principal
amount of the Tranche B Term Loan, whereupon such Make-Whole Amount shall
(i) constitute a portion of the outstanding Tranche B Term Loan for purposes of
the Credit Agreement and all other Credit Documents, (ii) be secured by the
Collateral, (iii) constitute a portion of the Obligations owing by the Credit
Parties to Agents and Lenders, and (iv) be payable on the Term Loan Maturity
Date; and

(ii) At any time after the Make-Whole Expiry Date, either (x) all or any part of
the principal balance of any Term Loan is repaid or prepaid and/or (y) any
Commitment is reduced or terminated, in each case, for any reason (including
without limitation pursuant to (A) any mandatory prepayment provision (other
than a mandatory prepayment pursuant to Section 2.13(e)), (B) any voluntary

 

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prepayment, (C) in connection with a foreclosure and sale of the Collateral,
(D) in connection with a sale of the Collateral in an Insolvency Proceeding,
(E) in connection with the acceleration of the Obligations after the occurrence
and during the continuation of an Event of Default, (F) in connection with the
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 or (G) under any other
circumstance), Company shall pay the applicable Prepayment Premium to
Administrative Agent, for the benefit of all Lenders entitled to a portion of
such repayment, prepayment, reduction or termination.”

(j) Section 2.13(i) of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:

“(i) Administrative Agent’s Account. At all times following the Fifth Amendment
Effective Date, but subject to Section 5.15(b), so long as no Default or Event
of Default has occurred and is continuing (in which case funds shall be applied
in accordance with Section 2.15(g), unless Requisite Lenders consent to another
application), Administrative Agent shall apply all funds transferred from the
Blocked Accounts and deposited in Administrative Agent’s Account by Working
Capital Agent, to the payment, in whole or in part, of the outstanding principal
amount of the Revolving Loans until all Revolving Loans are paid in full, and
then to the payment of the Tranche A Term Loan until the Tranche A Term Loan is
paid in full, and then to the payment of the Tranche B Term Loan, until the
Tranche B Term Loan is paid in full (in each case, together with accrued
interest and fees on the amount prepaid to the date of prepayment and the
applicable Make-Whole Amount or Prepayment Premium then due thereon).”

(k) Section 2.14(b)(iii) of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:

“(iii) If any Default or Event of Default has occurred and is continuing, all
payments shall be applied pursuant to Section 2.15(g), unless Requisite Lenders
consent to another application. Nothing contained herein shall modify the
provisions of Section 2.12(c) or Section 2.15(b) regarding the requirement that
all prepayments be accompanied by accrued interest and fees on the principal
amount being prepaid to the date of such prepayment and the applicable Make
Whole Amount or Prepayment Premium, or any requirement otherwise contained
herein to pay all other amounts as the same become due and payable.”

(l) The introductory paragraph of Section 2.15(g)(i) of the Credit Agreement is
hereby amended and restated to read in its entirety as follows:

“(i) After the occurrence and during the continuance of a Default or an Event of
Default, Administrative Agent shall apply all proceeds of the Term Priority
Collateral, subject to the provisions of this Agreement (unless Requisite
Lenders consent to another application):”

(m) The introductory paragraph of Section 2.15(g)(ii) of the Credit Agreement is
hereby amended and restated to read in its entirety as follows:

“(ii) After the occurrence and during the continuance of a Default or an Event
of Default, Administrative Agent shall apply all proceeds of Working Capital
Priority Collateral received by Administrative Agent in accordance with the
terms of the Intercreditor Agreement, subject to the provisions of this
Agreement (unless Requisite Lenders consent to another application):”

 

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(n) Section 2.15(g)(iii) of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:

“After the occurrence and during the continuance of a Default or an Event of
Default, to the extent the Collateral Agent cannot reasonably determine whether
funds to be applied towards payment of the Obligations constitute proceeds from
Term Priority Collateral or Working Capital Priority Collateral, 50% of such
funds shall be applied in accordance with the terms set forth in clause
(i) above and 50% of such funds shall be applied in accordance with the terms
set forth in clause (ii) above (unless Requisite Lenders consent to another
application).”

(o) Section 2.15(h) of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:

“(h) In each instance, so long as no Default or Event of Default has occurred
and is continuing, Section 2.15(g) shall not be deemed to apply to any payment
by or on behalf of such Credit Party that is specified by such Credit Party to
Administrative Agent to be for the payment or prepayment of any Obligations then
due and payable under any provision of this Agreement; provided that nothing
contained in this Section 2.15(h) shall limit the right of Requisite Lenders to
consent to an application of proceeds different from 2.15(g) if a Default or an
Event of Default has occurred and is continuing or otherwise.”

(p) Section 3.2(a) of the Credit Agreement is hereby amended by deleting the
word “and” at the end of clause (viii) thereof, by deleting the period at the
end of clause (ix) and adding a semicolon and the word “and” in its stead, and
by adding the following clause to the end thereof, to read in its entirety as
follows:

“(x) Administrative Agent shall have reasonably determined that the Borrowers
are, and shall remain, in compliance with the requirements of Section 6.23.”

(q) Article IV of the Credit Agreement is hereby amended by adding the following
new Section to the end thereof to read in its entirety as follows:

“4.42 Cash Flow Forecast. On or before the Fifth Amendment Effective Date,
Holdings has furnished to Agents the Cash Flow Forecast. The Cash Flow Forecast,
when delivered and, as updated and extended from time to time pursuant to
Section 5.1(x), shall be believed by Credit Parties, at the time furnished, to
be reasonable, shall have been prepared on a reasonable basis and in good faith
by Credit Parties, and shall have been based on assumptions believed by Holdings
to be reasonable at the time made and upon the best information then reasonably
available to Credit Parties, and no Credit Party shall be aware of any facts or
information that would lead it to believe that such Cash Flow Forecast, as so
updated, is incorrect or misleading in any material respect.”

 

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(r) Clause (i) of Section 5.1(q) of the Credit Agreement is hereby amended and
restated to read in its entirety as follows:

“(i) each Business Day, current as of the close of business on the immediately
preceding Business Day (except (A) the Accounts and Inventory of Crave
Entertainment Group, Inc. and its Subsidiaries, which shall be current as of the
close of business on the second preceding Business Day, and (B) the Accounts of
Handleman UK Limited, which shall be current on a weekly basis), (x) a Borrowing
Base Certificate, supported by schedules showing the derivation thereof and
containing such detail and other information as the Administrative Agent may
reasonably request from time to time, (y) an Accounts aging report of each
Credit Party (collectively and by individual customer), and (z) an accounts
payable aging report of each Credit Party (collectively and by individual
vendor); and”

(s) Section 5.1 of the Credit Agreement is hereby amended by adding the
following new clause to the end thereof to read in its entirety as follows:

“(x) Cash Flow Forecast. On or before the fifth Business Day following the
Friday of the previous week, (A) an updated and extended copy of the Cash Flow
Forecast, which Cash Flow Forecast, when delivered and as so updated and
extended, shall (1) be consistent with the Cash Flow Forecast delivered to
Agents on or prior to the Fifth Amendment Effective Date, the Projections and
the Financial Plan, (2) be believed by Credit Parties at the time furnished to
be reasonable, (3) be prepared on a reasonable basis and in good faith, (4) be
based on assumptions believed by Credit Parties to be reasonable at the time
made and upon the best information then reasonably available to Credit Parties,
and (5) cover a period of the thirteen consecutive weeks, commencing with the
Friday of the most recently-ended week, and shall be accompanied by a
certificate of an Authorized Officer certifying as to the matters set forth in
subclauses (1), (2), (3) and (4) above; and (B) a reconciliation of variances
above 5% and greater than $100,000 of actual cash receipts, disbursements, net
cash, and outstanding Loans and Working Capital Loans of Credit Parties for the
most recently-ended week (on a weekly and cumulative basis) to the amount set
forth in each line item in the Cash Flow Forecast for such week (and on a
cumulative basis), (ii) a narrative detailing any discrepancies between the
actual results for such week (and on a cumulative basis) and the Cash Flow
Forecast for such week (and on a cumulative basis), and (iii) an outline of
actions to be taken by Credit Parties to eliminate any adverse discrepancies
above 5% and greater than $100,000, if any, and to return to compliance with the
Cash Flow Forecast, in each case, in form and substance satisfactory to Agents.”

(t) Section 5.15(b) of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:

“(b) Cash Management Systems. Holdings and its Subsidiaries shall establish and
maintain cash management systems reasonably acceptable to Administrative Agent,
including with respect to blocked account arrangements. Without limiting the
foregoing, Holdings will, and will cause each of its Subsidiaries to, comply
with all terms and provisions of the Working Capital Agreement (or any successor
or replacement agreement acceptable to Administrative Agent) with

 

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respect to the cash management of Credit Parties, provided that, if the Working
Capital Agreement shall have been terminated and Credit Parties shall not have
entered into a successor or replacement agreement acceptable to Administrative
Agent, then Credit Parties shall enter into control agreements, lockbox
agreements and other similar agreements in form and substance reasonably
satisfactory to Administrative Agent; provided further, that Administrative
Agent shall require Working Capital Agent to transfer (or cause to be
transferred) all funds on deposit in the Blocked Accounts (other than funds
necessary to repay Working Capital Loans then outstanding in full and to cash
collateralize Working Capital Letters of Credit then outstanding in full, which
funds may be retained by Working Capital Agent and applied to repay all Working
Capital Loans then outstanding in full and to cash collateralize all Working
Capital Letters of Credit then outstanding in full) to Administrative Agent’s
Account on a daily basis for application to the Obligations in accordance with
Section 2.13(i); provided that, if, on any Business Day, there are no Revolving
Loans outstanding and the aggregate amount of funds deposited into
Administrative Agent’s Account (when taken together with all funds on deposit in
an interest-bearing cash collateral account in Administrative Agent’s name for
Credit Parties (the “Cash Collateral Account”)) is less than $5,000,000, the
funds deposited into Administrative Agent’s Account on such day shall be
transferred into the Cash Collateral Account (it being understood that at any
time that (i) any Revolving Loan is outstanding, (ii) the funds on deposit in
the Cash Collateral Account equal or exceed $5,000,000, or (iii) a Default or
Event of Default shall have occurred and be continuing, Administrative Agent
shall have the right to apply all funds on deposit in the Cash Collateral
Account to the Obligations in accordance with Section 2.13(i). As of the Fifth
Amendment Effective Date, all bank accounts and investment accounts of Credit
Parties are listed on Schedule 5.15 and such Schedule designates which such
accounts are deposit accounts. Except as permitted by Section 6.6(a), no Credit
Party shall maintain or open any deposit account unless the depository bank for
such account shall have entered into a blocked account agreement with
Administrative Agent, in form and substance reasonably satisfactory to
Administrative Agent. So long as no Default or Event of Default has occurred and
is continuing or would not result therefrom, upon the prior written request by
Borrower Representative, Collateral Agent shall release any Blocked Cash to
Borrowers and instruct the applicable depository bank to transfer the requested
funds in accordance with the instructions received from the Borrower
Representative; provided, that (i) Agent shall have received at least 2 Business
Days (or such greater period as may be required by the applicable depository
bank) advance written notice of such request, and (ii) such requested transfer,
and the use of the proceeds therefrom, is otherwise permitted under the terms
and conditions of this Agreement.”

(u) Section 5.21 of the Credit Agreement is hereby amended and restated to read
in its entirety as follows:

“5.21 Deposit Accounts. By not later than April 15, 2008, Credit Parties shall
provide evidence satisfactory in form and substance to Administrative Agent that
Credit Parties have obtained control agreements, in form and substance
satisfactory to the Administrative Agent, with respect to all Deposit Accounts
maintained by any Credit Party in the U.K., such that all Cash and Cash
Equivalents deposited in such Deposit Accounts would constitute Blocked Cash.”

 

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(v) Article V of the Credit Agreement is hereby amended by adding the following
new Sections to the end thereof to read in their entirety as follows:

“5.23 Projections. By not later than March 30, 2008, Holdings shall deliver to
Agents the Projections of Holdings and its Subsidiaries for the remaining period
of Fiscal Year 2008 and all of Fiscal Year 2009, including monthly projections
for each month from March 2008 through April 2009, which Projections shall
(a) be consistent with the Financial Plan and the Cash Flow Projections (other
than the Financial Plan and Projections previously provided in April 2007 for
fiscal year 2008) and demonstrate the absence of any Default or Event of
Default, (b) be in form and substance satisfactory to Agents in their sole
discretion, (c) show Consolidated Adjusted EBITDA for each period in an amount
not less than the amount required to satisfy the cash flow needs of Holdings and
its Subsidiaries during such period, including, without limitation, amounts
required to fund interest and loan servicing payments, Capital Expenditures,
License Advances, Exclusive Distribution Advances and Software Development Costs
payable during such period, and (d) be accompanied by a certificate of an
Authorized Officer of Holdings, in form and substance satisfactory to Agents,
certifying that (i) such Projections have been prepared on a reasonable basis
and in good faith by Credit Parties, and are based on good faith estimates and
assumptions believed by Credit Parties to be reasonable at the time made and
upon the best information then reasonably available, (ii) at the time furnished,
such Projections are believed by the management of Credit Parties to be
reasonable and attainable, (iii) no Credit Party is aware of any facts or
information that would lead it to believe that such Projections are incorrect or
misleading in any material respect, and (iv) such Projections are consistent
with the Financial Plan and the Cash Flow Forecast of Credit Parties.

5.24 Investment Banker. By not later than March 31, 2008, Credit Parties shall
have (i) retained an investment banker, acceptable to the Agents, for the
purpose of exploring strategic options with respect to Crave/SVG, pursuant to a
written agreement in form and substance acceptable to Agents and Lenders, and
(ii) delivered a fully-executed copy of such agreement to the Administrative
Agent, certified as true and correct by an Authorized Officer of Holdings. The
Credit Parties shall continue the retention of such investment banker until such
time as Credit Parties receive the prior written consent of the Agents to
discontinue such retention. At all times during the retention of such investment
banker, Credit Parties shall provide such investment banker’s representatives
with all assistance and cooperation necessary to fully perform their duties
under such retention agreement, and, upon any Agent’s reasonable request, and in
any event, not less than once every two weeks, shall make such investment
banker’s representatives available to Agents and Lenders to discuss the process
and progress of each strategic option and each aspect thereof, including the
parties involved therewith.

5.25 Operational Advisor. Upon the request of any Agent to Holdings, the Credit
Parties shall promptly, and in any event, within five (5) Business Days
following the receipt of such request, retain and continue the retention of an
operational advisor, which operational advisor shall be selected by the Credit
Parties from a list of three (3) operational advisors identified to the Credit
Parties by such Agent as being acceptable to the Agents, as their operational
advisor pursuant to a written agreement in form and substance acceptable to the
Agents

 

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and the Lenders. At all times during the retention of any such operational
advisor, the Credit Parties shall (a) provide such operational advisor’s
representatives with all assistance and cooperation necessary to fully perform
their duties under such retention agreement, and (b) cause such operational
advisor and members of the management of Credit Parties to (i) participate in
weekly telephone meetings with Collateral Agent to discuss the affairs,
financial performance, operational performance, customers and suppliers,
finances and accounts of the Credit Parties, the Cash-Flow Forecast, compliance
issues and other matters requested by Collateral Agent, and (ii) promptly
respond to questions from Collateral Agent and otherwise promptly meet (by
telephone or otherwise) with Collateral Agent upon request to discuss matters
involving Credit Parties and/or the Credit Documents.”

(w) Clauses (iv) and (v) of Section 6.6(a) of the Credit Agreement are hereby
amended and restated to read in their entirety as follows:

“(iv) maintained in Canada, whether or not in Blocked Accounts, but excluding
any Blocked Cash, will not exceed $1,000,000; and (v) maintained in the United
Kingdom, whether or not in Blocked Accounts, but excluding any Blocked Cash,
will not exceed $2,000,000 for more than one Business Day; provided; however,
notwithstanding anything to the contrary contained in this Section 6.6(a), under
no circumstances shall Deposit Accounts used for collection of customer payments
be maintained unless such Deposit Account is also a Blocked Account;”

(x) Section 6.7(a) of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:

“(a) Consolidated Adjusted EBITDA. Holdings shall not permit Consolidated
Adjusted EBITDA as at the end of any Fiscal Month, beginning with the Fiscal
Month ending on or about June 30, 2008, for the trailing twelve-month period
then ended to be less than an amount to be agreed between Credit Parties and
Administrative Agent based upon the Projections required to be delivered to
Agents pursuant to Section 5.23; provided that in any event, such agreed minimum
Consolidated Adjusted EBITDA amount must be approved by Requisite Lenders.”

(y) Section 6.7(b) of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:

“(b) Maximum Consolidated Capital Expenditures, License Advances, Exclusive
Distribution Advances and Software Development Costs. Holdings shall not make or
incur any Capital Expenditures, License Advances, Exclusive Distribution
Advances or Software Development Costs. Holdings shall not permit its
Subsidiaries to make or incur Consolidated Capital Expenditures, License
Advances, Exclusive Distribution Advances and Software Development Costs, during
the period from January 1, 2008 through May 31, 2008, in an aggregate amount for
all of its Subsidiaries in excess of $4,000,000; provided that Administrative
Agent, in its reasonable discretion, may approve such expenditures over
$4,000,000.”

 

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(z) Sections 6.7(e) of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:

“(e) Minimum Asset Coverage. Credit Parties shall not permit, at any time,
(i) the positive difference between (A) the Working Capital Borrowing Base at
such time (without taking into account the Revolver/Term Loan A Reserve, the
Minimum Availability Amount or any other Reserves (as defined in the Working
Capital Agreement)) and (B) the principal amount of all Indebtedness outstanding
(including without limitation, all undrawn letters of credit) under the Working
Capital Agreement and this Agreement at such time (such positive difference, the
“Minimum Asset Coverage”) to be less than the correlative amount indicated below
under the heading “Minimum Asset Coverage” for such period, or (ii) the
percentage obtained by dividing (A) the amount specified in clause (i)(B) above
at such time by (A) the amount specified in clause (i)(A) above at such time to
be greater than the percentage specified below under the heading “Maximum
Coverage Percentage” for such period:

 

Period

   Minimum Asset
Coverage    Maximum Coverage
Percentage  

Fifth Amendment Effective Date through 3/15/08

   $ 30,000,000    71.5 %

3/16/08 through 3/29/08

   $ 16,000,000    85.0 %

3/30/08 through 4/11/08

   $ 18,500,000    82.0 %

4/12/08 through 5/10/08

   $ 23,500,000    78.0 %

5/11/08 through 5/31/08

   $ 18,500,000    80.5 %

6/1/08 and all times thereafter

   $ 100,000,000    45.0 %

(aa) Section 10.5(b)(ii) of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:

“(ii) waive, reduce or postpone any scheduled repayment due such Lender, any
mandatory prepayment due such Lender pursuant to Section 2.13 (other than any
such waiver, reduction or postponement resulting from the waiver of the
obligation to apply funds in accordance with Section 2.15(g) (which may be
affected by consent of the Requisite Lenders)) or any right of such Lender to
waive a prepayment due such Lender pursuant to Section 2.13;”

 

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(bb) Section 10.5(b)(iv) of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:

“(iv) extend the time for payment of any such interest or fees to such Lender
(other than any extension resulting from the waiver of the obligation to apply
funds in accordance with Section 2.15(g) (which may be affected by consent of
the Requisite Lenders));”

(cc) Schedule 5.15 of the Credit Agreement is hereby amended and restated to
read in its entirety as set forth on Annex I hereto.

3. Conditions to Effectiveness. This Amendment shall become effective (the
“Amendment Effective Date”) upon satisfaction in full of the following
conditions precedent:

(a) Immediately after giving effect to this Amendment, (i) the representations
and warranties contained in this Amendment, the Credit Agreement and the other
Credit Documents shall be correct on and as of the date of this Amendment as
though made on and as of such date (except where such representations and
warranties relate to an earlier date in which case such representations and
warranties shall be true and correct as of such earlier date) and (ii) no
Default or Event of Default shall have occurred and be continuing (or would
result from this Amendment becoming effective in accordance with its terms).

(b) Administrative Agent shall have received counterparts of this Amendment that
bear the signatures of each of Credit Parties, Agents and Lenders.

(c) Administrative Agent shall have received the Fifth Amendment Fee Letter,
duly executed by the parties thereto.

(d) Agents shall have received the Cash Flow Forecast for the 13 week period
ending May 24, 2008, together with a certificate of an Authorized Officer of
Holdings stating that such Cash Flow Forecast has been prepared on a reasonable
basis and in good faith and is based on assumptions believed by Credit Parties
to be reasonable at the time made and from the best information then available
to Credit Parties, which Cash Flow Forecast shall be in form and substance
satisfactory to Agents.

(e) Borrowers shall have paid to Administrative Agent, in immediately available
funds, all amounts due and owing to any Agent or any Lender in connection with
the Credit Documents.

(f) Working Capital Agent shall have notified the depository institutions at
which any Blocked Account is maintained to sweep all cash, on a daily basis, to
Working Capital Agent, and Working Capital Agent shall have agreed to deliver
all such funds to Administrative Agent’s Account on a daily basis, subject to
the provisos contained in Section 5.15(b).

(g) Administrative Agent shall have received a copy of an amendment (or similar
agreement), in form and substance reasonably satisfactory to Agents, duly
executed by Credit Parties, Working Capital Agent, and Working Capital Lenders
amending and waiving the corresponding provisions of the Working Capital
Agreement.

 

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4. Waiver. (a) Credit Parties have advised Agents and Lenders that certain
Events of Default have occurred have occurred and are continuing under
Section 8.1 of the Credit Agreement due to the failure of Credit Parties to
prepay the Borrowing Base Excess, as required by Section 2.12(g) and 6.21(c) of
the Credit Agreement (such Events of Default, the “Specified Events of
Default”).

(b) At the request of Credit Parties, effective upon the Amendment Effective
Date, each of Agents and Lenders hereby waives each Specified Event of Default
that occurred prior to the date hereof.

(c) The waivers set forth in Section 4(b) above shall be effective only in this
specific instance and for the specific purposes set forth herein, and do not
allow for any other or further departure from the terms and conditions of the
Credit Agreement (including, without limitation, any further violation of
Sections 2.12(g) or 6.21(c) of the Credit Agreement), or any further amendment
of any other provision of the Credit Agreement or any other Credit Document,
which terms and conditions shall continue in full force and effect.

5. Credit Parties’ Representations and Warranties. Each Credit Party represents
and warrants to Agents and Lenders as follows:

(a) Such Credit Party (i) is duly organized, validly existing and in good
standing under the laws of the state of its organization and (ii) has all
requisite power, authority and legal right to execute, deliver and perform this
Amendment and to perform the Credit Agreement, as amended hereby.

(b) The execution, delivery and performance by such Credit Party of this
Amendment and the performance by such Credit Party of the Credit Agreement, as
amended hereby (i) have been duly authorized by all necessary action, (ii) do
not and will not violate or create a default under such Credit Party’s
organizational documents, any applicable law or any contractual restriction
binding on or otherwise affecting such Credit Party or any of such Credit
Party’s properties, and (iii) except as provided in the Credit Documents, do not
and will not result in or require the creation of any Lien, upon or with respect
to such Credit Party’s property.

(c) No authorization or approval or other action by, and no notice to or filing
with, any governmental authority is required in connection with the due
execution, delivery and performance by such Credit Party of this Amendment or
the performance by such Credit Party of the Credit Agreement, as amended hereby.

(d) This Amendment and the Credit Agreement, as amended hereby, constitute the
legal, valid and binding obligations of such Credit Party, enforceable against
such Credit Party in accordance with their terms except to the extent the
enforceability thereof may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect affecting
generally the enforcement of creditors’ rights and remedies and by general
principles of equity.

(e) Immediately after giving effect to this Amendment, (i) the representations
and warranties contained in the Credit Agreement are correct on and as of the
date of this Amendment as though made on and as of the date hereof (except where
such representations and warranties relate to an earlier date in which case such
representations and warranties shall be true and correct as of such earlier
date), and (ii) no Default or Event of Default has occurred and is continuing
(or would result from this Amendment becoming effective in accordance with its
terms).

 

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6. Continued Effectiveness of Credit Agreement. Each Credit Party hereby
(a) confirms and agrees that the Credit Agreement and each other Credit Document
to which it is a party is, and shall continue to be, in full force and effect
and is hereby ratified and confirmed in all respects except that on and after
the Amendment Effective Date all references in any such Credit Document to
(i) “the Credit Agreement”, “hereto”, “hereof”, “hereunder”, “thereto”,
“thereof”, “thereunder” or words of like import referring to the Credit
Agreement shall mean the Credit Agreement as amended by this Amendment,
(b) confirms and agrees that to the extent that any such Credit Document
purports to assign or pledge to Collateral Agent, for the ratable benefit of
Lenders, or to grant to Collateral Agent, for the ratable benefit of Lenders a
security interest in or Lien on, any Collateral as security for the Obligations
of the Credit Party, or any of their respective Subsidiaries from time to time
existing in respect of the Credit Agreement and the other Credit Documents, such
pledge, assignment and/or grant of the security interest or Lien is hereby
ratified and confirmed in all respects, and (c) confirms and agrees that no
amendment of any terms or provisions of the Credit Agreement, or the amendments
granted hereunder shall relieve any Credit Party from complying with such terms
and provisions other than as expressly amended hereby or from complying with any
other term or provision thereof or herein.

7. Release. Each Credit Party hereby acknowledges and agrees that: (a) neither
it nor any of its Affiliates has any claim or cause of action against any Agent
or any Lender (or any of their respective Affiliates, officers, directors,
employees, attorneys, consultants or agents) and (b) each Agent and each Lender
has heretofore properly performed and satisfied in a timely manner all of its
obligations to Credit Parties and their Affiliates under the Credit Agreement
and the other Credit Documents. Notwithstanding the foregoing, Credit Parties
wish (and Agents and Lenders agree) to eliminate any possibility that any past
conditions, acts, omissions, events or circumstances would impair or otherwise
adversely affect any Agent’s or any Lenders’ rights, interests, security and/or
remedies under the Credit Agreement and the other Credit Documents. Accordingly,
for and in consideration of the agreements contained in this Amendment and other
good and valuable consideration, each Credit Party (for itself and its
Affiliates and the successors, assigns, heirs and representatives of each of the
foregoing) (collectively, the “Releasors”) does hereby fully, finally,
unconditionally and irrevocably release and forever discharge each Agent and
each Lender and each of their respective Affiliates, officers, directors,
employees, attorneys, consultants and agents (collectively, the “Released
Parties”) from any and all debts, claims, obligations, damages, costs,
attorneys’ fees, suits, demands, liabilities, actions, proceedings and causes of
action, in each case, whether known or unknown, contingent or fixed, direct or
indirect, and of whatever nature or description, and whether in law or in
equity, under contract, tort, statute or otherwise, which any Releasor has
heretofore had or now or hereafter can, shall or may have against any Released
Party by reason of any act, omission or thing whatsoever done or omitted to be
done, arising out of, connected with or related in any way to the Credit
Agreement or any other Credit Document, or any act, event or transaction related
or attendant thereto, or the agreements of any Agent or any Lender contained
therein, or the possession, use, operation or control of any of the assets of
any Credit Party, or the making of any Loans or other advances, or the
management of such Loans or advances or the Collateral.

8. Miscellaneous.

(a) This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which shall be deemed
to be an original but all of which taken together shall constitute one and the
same agreement. Delivery of an executed counterpart of this Amendment by
telefacsimile or electronic method shall be equally as effective as delivery of
an original executed counterpart of this Amendment.

(b) Section and paragraph headings herein are included for convenience of
reference only and shall not constitute a part of this Amendment for any other
purpose.

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(c) This Amendment shall be governed by, and construed in accordance with, the
laws of the State of New York. Each of the parties to this Amendment hereby
irrevocably waives all rights to trial by jury in any action, proceeding or
counterclaim arising out of or relating to this Amendment.

(d) Borrowers will pay on demand all reasonable fees, costs and expenses of
Agents and Lenders in connection with the preparation, execution and delivery of
this Amendment or otherwise payable under the Credit Agreement, including,
without limitation, reasonable fees disbursements and other charges of counsel
to Agents and Lenders.

(e) This Amendment is a Credit Document executed pursuant to the Credit
Agreement and shall be construed, administered and interpreted in accordance
with the terms thereof. Accordingly, it shall be an Event of Default under the
Credit Agreement if any representation or warranty made or deemed made by any
Credit Party under or in connection with this Amendment shall have been
incorrect when made or deemed made or if any Credit Party fails to perform or
comply with any covenant or agreement contained herein.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first written above.

 

BORROWERS: HANDLEMAN CATEGORY MANAGEMENT COMPANY By:  

 

Name:   Title:   HANDLEMAN SERVICES COMPANY By:  

 

Name:   Title:   HANDLEMAN REAL ESTATE LLC By:  

 

Name:   Title:   ARTIST TO MARKET DISTRIBUTION LLC By:  

 

Name:   Title:   REPS, L.L.C. By:  

 

Name:   Title:  

 

FIFTH AMENDMENT TO CREDIT AND GUARANTY AGREEMENT

--------------------------------------------------------------------------------

CREDIT PARTIES: HANDLEMAN COMPANY By:  

 

Name:   Title:   CRAVE ENTERTAINMENT GROUP, INC. By:  

 

Name:   Title:   HANLEY ADVERTISING COMPANY By:  

 

Name:   Title:   HANDLEMAN COMPANY OF CANADA LIMITED By:  

 

Name:   Title:   HANDLEMAN UK LIMITED By:  

 

Name:   Title:  

 

FIFTH AMENDMENT TO CREDIT AND GUARANTY AGREEMENT

--------------------------------------------------------------------------------

SVG DISTRIBUTION, INC. By:  

 

Name:   Title:   CRAVE ENTERTAINMENT, INC. By:  

 

Name:   Title:  

 

FIFTH AMENDMENT TO CREDIT AND GUARANTY AGREEMENT

--------------------------------------------------------------------------------

ADMINISTRATIVE AGENT AND COLLATERAL AGENT:

SILVER POINT FINANCE, LLC,

as Administrative Agent and Collateral Agent

By:

 

 

Name:

 

Title:

 

 

FIFTH AMENDMENT TO CREDIT AND GUARANTY AGREEMENT

--------------------------------------------------------------------------------

LENDERS: SPF CDO I, LTD. By:  

 

Name:   Title:   GRAND CENTRAL ASSET TRUST, SIL SERIES By:  

 

Name:   Title:   THERMOPYLAE FUNDING CORP. By:  

 

Name:   Title:   FIELD POINT I, LTD. By:  

 

Name:   Title:   FIELD POINT III, LTD. By:  

 

Name:   Title:  

 

FIFTH AMENDMENT TO CREDIT AND GUARANTY AGREEMENT