EXHIBIT 10.2
Execution Copy
 
 
CREDIT AGREEMENT
Dated as of March 22, 2007
among
NAVARRE CORPORATION,
as Borrower,
THE OTHER PERSONS PARTY HERETO
THAT ARE DESIGNATED AS CREDIT PARTIES,
THE LENDERS SIGNATORY HERETO
FROM TIME TO TIME,
as Lenders,
and
MONROE CAPITAL ADVISORS, LLC
as Administrative Agent, Agent and Lender
 
 

 

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

 

TABLE OF CONTENTS

                              Page  
 
                1.   AMOUNT AND TERMS OF CREDIT     1  
 
               
 
  1.1   Term Loan     1  
 
  1.2   Intentionally Omitted     2  
 
  1.3   Repayments     2  
 
  1.4   Use of Proceeds     3  
 
  1.5   Interest and Applicable Margins     3  
 
  1.6   Intentionally Omitted     4  
 
  1.7   Intentionally Omitted     4  
 
  1.8   Cash Management Systems     4  
 
  1.9   Fees     5  
 
  1.10   Receipt of Payments     5  
 
  1.11   Application and Allocation of Payments     5  
 
  1.12   Loan Account and Accounting     6  
 
  1.13   Indemnity     6  
 
  1.14   Access     7  
 
  1.15   Taxes     8  
 
  1.16   Capital Adequacy; Increased Costs; Illegality     8  
 
  1.17   Single Loan     10  
 
                2.   CONDITIONS PRECEDENT     10  
 
               
 
  2.1   Conditions to the Term Loan     10  
 
                3.   REPRESENTATIONS AND WARRANTIES     12  
 
               
 
  3.1   Corporate Existence; Compliance with Law     12  
 
  3.2   Executive Offices, Collateral Locations, FEIN     12  
 
  3.3   Corporate Power, Authorization, Enforceable Obligations     12  
 
  3.4   Financial Statements and Projections     13  
 
  3.5   Material Adverse Effect     13  
 
  3.6   Ownership of Property; Liens     14  
 
  3.7   Labor Matters     14  
 
  3.8   Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness     15  
 
  3.9   Government Regulation     15  
 
  3.10   Margin Regulations     15  

i

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

 

TABLE OF CONTENTS
(continued)

                              Page  
 
               
 
  3.11   Taxes     15  
 
  3.12   ERISA     16  
 
  3.13   No Litigation     17  
 
  3.14   Brokers     17  
 
  3.15   Intellectual Property     17  
 
  3.16   Full Disclosure     17  
 
  3.17   Environmental Matters     18  
 
  3.18   Insurance     18  
 
  3.19   Deposit and Disbursement Accounts     18  
 
  3.20   Government Contracts     19  
 
  3.21   Customer and Trade Relations     19  
 
  3.22   Agreements and Other Documents     19  
 
  3.23   Solvency     19  
 
  3.24   Intentionally Omitted     19  
 
  3.25   Status of Navarre CP, Navarre CLP and Navarre CS     19  
 
  3.26   First Lien Credit Facility     19  
 
  3.27   Vendor Advances     20  
 
                4.   FINANCIAL STATEMENTS AND INFORMATION     20  
 
               
 
  4.1   Reports and Notices     20  
 
  4.2   Communication with Accountants     20  
 
                5.   AFFIRMATIVE COVENANTS     20  
 
               
 
  5.1   Maintenance of Existence and Conduct of Business     20  
 
  5.2   Payment of Charges     21  
 
  5.3   Books and Records     21  
 
  5.4   Insurance; Damage to or Destruction of Collateral     21  
 
  5.5   Compliance with Laws     23  
 
  5.6   Supplemental Disclosure     23  
 
  5.7   Intellectual Property     23  
 
  5.8   Environmental Matters     23  
 
  5.9   Landlords’ Agreements     24  
 
  5.10   Further Assurances     24  

ii

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

 

TABLE OF CONTENTS
(continued)

                              Page  
 
                6.   NEGATIVE COVENANTS     25  
 
               
 
  6.1   Mergers, Subsidiaries, Etc     25  
 
  6.2   Investments; Loans and Advances     25  
 
  6.3   Indebtedness     26  
 
  6.4   Employee Loans and Affiliate Transactions     27  
 
  6.5   Capital Structure and Business     27  
 
  6.6   Guaranteed Indebtedness     28  
 
  6.7   Liens and Related Matters     28  
 
  6.8   Sale of Stock and Assets     28  
 
  6.9   ERISA     29  
 
  6.10   Financial Covenants     29  
 
  6.11   Hazardous Materials     29  
 
  6.12   Sale-Leasebacks     29  
 
  6.13   Cancellation of Indebtedness     29  
 
  6.14   Restricted Payments     29  
 
  6.15   Change of Corporate Name or Location; Change of Fiscal Year     30  
 
  6.16   No Impairment of Intercompany Transfers     30  
 
  6.17   No Speculative Transactions     30  
 
  6.18   Leases; Real Estate Purchases     31  
 
  6.19   Amendments     31  
 
  6.20   Navarre CP, Navarre CLP and Navarre CS     31  
 
                7.   TERM     31  
 
               
 
  7.1   Termination     31  
 
  7.2   Survival of Obligations Upon Termination of Financing Arrangements    
31  
 
                8.   EVENTS OF DEFAULT; RIGHTS AND REMEDIES     31  
 
               
 
  8.1   Events of Default     31  
 
  8.2   Remedies     33  
 
  8.3   Waivers by Credit Parties     33  
 
                9.   ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT     34
 
 
               
 
  9.1   Assignment and Participations     34  
 
  9.2   Appointment of Agent     36  

iii

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

 

TABLE OF CONTENTS
(continued)

                              Page  
 
               
 
  9.3   Agent’s Reliance, Etc     37  
 
  9.4   Monroe Capital and Affiliates     38  
 
  9.5   Lender Credit Decision     38  
 
  9.6   Indemnification     38  
 
  9.7   Successor Agent     39  
 
  9.8   Setoff and Sharing of Payments     39  
 
  9.9   Advances; Payments; Non-Funding Lenders; Information; Actions in Concert
    40  
 
  9.10   Intercreditor Agreement     41  
 
                10.   SUCCESSORS AND ASSIGNS     41  
 
               
 
  10.1   Successors and Assigns     41  
 
                11.   MISCELLANEOUS     41  
 
               
 
  11.1   Complete Agreement; Modification of Agreement     41  
 
  11.2   Amendments and Waivers     42  
 
  11.3   Fees and Expenses     43  
 
  11.4   No Waiver     44  
 
  11.5   Remedies     45  
 
  11.6   Severability     45  
 
  11.7   Conflict of Terms     45  
 
  11.8   Confidentiality     45  
 
  11.9   GOVERNING LAW     46  
 
  11.10   Notices     46  
 
  11.11   Section Titles     48  
 
  11.12   Counterparts     48  
 
  11.13   WAIVER OF JURY TRIAL     48  
 
  11.14   Press Releases and Related Matters     48  
 
  11.15   Reinstatement     49  
 
  11.16   Advice of Counsel     49  
 
  11.17   No Strict Construction     49  
 
  11.18   Compliance with Federal Law     49  
 
  11.19   Customer Identification — USA Patriot Act Notice     49  

iv

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

 

TABLE OF CONTENTS
(continued)

                              Page  
 
               
 
  11.20   Source of Funds     50  

v

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

 

INDEX OF APPENDICES

         
Annex A (Recitals)
  —   Definitions
Annex B (Section 1.8)
  —   Cash Management System
Annex C (Section 2.1(a))
  —   Closing Checklist
Annex D (Section 4.1(a))
  —   Financial Statements and Projections — Reporting
Annex E (Section 4.1(b))
  —   Collateral Reports
Annex F (Section 6.10)
  —   Financial Covenants
Annex G (Section 9.9(a))
  —   Lenders’ Wire Transfer Information
Annex H (Section 11.10)
  —   Notice Addresses
Annex I (from Annex A-Commitments definition)
  —   Commitments as of Closing Date
 
  —    
Exhibit 1.1(a)(i)
  —   Form of Term Note
Exhibit 9.1(a)
  —   Form of Assignment Agreement
Exhibit B-1
  —   Application for Standby Letter of Credit
Schedule A-1
  —   Withdrawal From Eligible Investment Account
Disclosure Schedule 3.1
  —   Type of Entity; State of Organization
Disclosure Schedule 3.2
  —   Executive Offices, Collateral Locations, FEIN
Disclosure Schedule 3.4
  —   Financial Statement Exceptions
Disclosure Schedule 3.4(a)
  —   Financial Statements
Disclosure Schedule 3.4(b)
  —   Projections
Disclosure Schedule 3.4(c)
  —   Pro Forma
Disclosure Schedule 3.6
  —   Real Estate and Leases
Disclosure Schedule 3.7
  —   Labor Matters
Disclosure Schedule 3.8
  —   Ventures, Subsidiaries and Affiliates; Outstanding Stock
Disclosure Schedule 3.11
  —   Tax Matters
Disclosure Schedule 3.12
  —   ERISA Plans
Disclosure Schedule 3.13
  —   Litigation
Disclosure Schedule 3.15
  —   Intellectual Property
Disclosure Schedule 3.17
  —   Hazardous Materials
Disclosure Schedule 3.18
  —   Insurance
Disclosure Schedule 3.19
  —   Deposit and Disbursement Accounts
Disclosure Schedule 3.20
  —   Government Contracts
Disclosure Schedule 3.22
  —   Material Agreements
Disclosure Schedule 3.27
  —   Vendor Advances
Disclosure Schedule 5.1
  —   Trade Names
Disclosure Schedule 6.3
  —   Indebtedness
Disclosure Schedule 6.4(a)
  —   Transactions with Affiliates
Disclosure Schedule 6.7
  —   Existing Liens
Disclosure Schedule 6.8
  —   Texas Real Estate Sale Transaction
Disclosure Schedule 6.14
  —   Eric Paulson’s Deferred Compensation Payments

vi

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

 

          This CREDIT AGREEMENT (this “Agreement”), dated as of March 22, 2007,
by and among NAVARRE CORPORATION, a Minnesota corporation (“Borrower”), the
Credit Parties signatory hereto, MONROE CAPITAL ADVISORS, LLC, a Delaware
limited liability company (in its individual capacity, “Monroe Capital”), for
itself, as Lender, and as Agent for Lenders, and the other Lenders signatory
hereto from time to time.
RECITALS
          WHEREAS, Borrower has requested that Lenders extend a term loan credit
facility to Borrower of $15,000,000 for the purposes of (a) refinancing existing
secured debt, (b) providing working capital financing for Borrower and Capital
Expenditures for Borrower as permitted hereunder, (c) providing funds for other
general corporate purposes of Borrower and (d) providing funds for other
purposes permitted hereunder; and for these purposes, Lenders are willing to
make certain loans and other extensions of credit to Borrower of up to such
amount upon the terms and conditions set forth herein;
          WHEREAS, Borrower has agreed to secure all of its obligations under
the Loan Documents by granting to Agent, for the benefit of Agent and Lenders, a
security interest in and lien upon all of its existing and after-acquired
personal and real property;
          WHEREAS, the Credit Parties signatory hereto (other than Borrower)
have agreed to guarantee the Obligations and to grant to Agent, for the benefit
of Agent and Lenders, a security interest in and lien upon all of their existing
and after-acquired personal and real property to secure the Obligations; and
          WHEREAS, capitalized terms used in this Agreement shall have the
meanings ascribed to them in Annex A and, for purposes of this Agreement and the
other Loan Documents, the rules of construction set forth in Annex A shall
govern. All Annexes, Disclosure Schedules, Exhibits and other attachments
(collectively, “Appendices”) hereto, or expressly identified to this Agreement,
are incorporated herein by reference, and taken together with this Agreement,
shall constitute but a single agreement. These Recitals shall be construed as
part of the Agreement.
          NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, and for other good and valuable consideration,
the parties hereto agree as follows:
1. AMOUNT AND TERMS OF TERM LOAN
          1.1 Term Loan.
          (a) Term Loan. Subject to the terms and conditions hereof, each Lender
agrees to make a Loan (collectively, the “Term Loan”) on the Closing Date to
Borrower in an original principal amount equal to such Lender’s Commitment. The
obligations of each Lender hereunder shall be several and not joint. The Loan
shall be evidenced by promissory notes substantially in the form of Exhibit 1.1
(each a “Term Note” and collectively the “Notes”), and, except as provided in
Section 1.12, Borrower shall execute and deliver each Term Note to the
applicable Lender. Each Note shall represent the obligation of Borrower to pay
the amount of the applicable Lender’s Commitment, together with interest thereon
as prescribed in Section 1.5.

 

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

 

          (b) Scheduled Repayment. The Borrower shall repay the outstanding
principal balance of the Term Loan in monthly installments, on the first day of
each calendar month, commencing on May 1, 2007 and continuing on the first day
of each calendar month thereafter until May 1, 2010, in immediately available
funds, each in a principal amount equal to $12,500, provided, that the total
remaining outstanding principal amount of the Term Loan shall be repaid in full
in immediately available funds on the Termination Date, if not sooner paid in
full. No payment with respect to the Term Loan may be reborrowed.
          (c) Manner of Payments. Each payment of principal with respect to the
Term Loan shall be paid to Agent for the ratable benefit of each Lender, ratably
in proportion to each such Lender’s respective Commitment.
          1.2 Intentionally Omitted.
          1.3 Prepayments.
          (a) Intentionally Omitted.
          (b) Optional Prepayments. The Borrower may, subject to the terms of
the Intercreditor Agreement and upon at least five Business Days’ prior written
notice to the Administrative Agent, prepay the principal of the Term Loan, in
whole or in part. Each such prepayment shall be applied against the remaining
installments of principal due on the Term Loan in the inverse order of maturity.
          (c) Mandatory Prepayments.
               (i) Intentionally Omitted.
               (ii) Immediately upon receipt by any Credit Party of any proceeds
of any asset disposition (excluding proceeds of asset dispositions permitted by
Sections 6.8(a) and, as long as no Default or Event of Default then exists,
6.8(d), but including any sale of Stock of any Subsidiary of any Credit Party),
Borrower shall, subject to the terms of the Intercreditor Agreement and unless
such prepayment is waived in writing by the Requisite Lenders, prepay the Loans
in an amount equal to all such proceeds, net of (A) commissions and other
reasonable and customary transaction costs, fees and expenses properly
attributable to such transaction and payable by Borrower in connection therewith
(in each case, paid to non-Affiliates), (B) transfer taxes, (C) amounts payable
to holders of senior Liens (to the extent such Liens constitute Permitted
Encumbrances hereunder), if any, and (D) an appropriate reserve for income taxes
in accordance with GAAP in connection therewith. Any such prepayment shall be
applied in accordance with Section 1.3(d).
               (iii) If Borrower issues or incurs any Indebtedness (other than
Indebtedness permitted under Section 6.3 hereof), no later than the Business Day
following the date of receipt of the proceeds thereof, Borrower shall, subject
to the terms of the Intercreditor Agreement and unless such prepayment is waived
in writing by the Requisite Lenders, prepay the Loans in an amount equal to all
such proceeds, net of underwriting discounts and commissions and other
reasonable costs paid to non-Affiliates in connection therewith. If Borrower
issues Stock, no later than the Business Day following the date of receipt of
the

2

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

 

proceeds thereof, Borrower shall, unless such prepayment is waived in writing by
the Requisite Lenders, prepay the Loans in an amount equal to 50% of such
proceeds, net of underwriting discounts and commissions and other reasonable
costs paid to non-Affiliates in connection therewith. Any such prepayment shall
be applied in accordance with Section 1.3(d).
               (iv) No later than 90 days following the end of each Fiscal Year
(commencing with Fiscal Year 2007), Borrower shall, subject to the terms of the
Intercreditor Agreement, prepay the Term Loan in an aggregate amount equal to
50% of Excess Cash Flow for such Fiscal Year.
          (d) Application of Certain Mandatory Prepayments. Any prepayments to
be made by Borrower pursuant to Section 1.3(c)(ii) or (c)(iii) shall be applied
first to the First Lien Credit Facility to repay the outstanding Obligations (as
defined in the First Lien Credit Agreement). The Revolving Loan Commitment (as
defined in the First Lien Credit Agreement) shall be permanently reduced by the
amount of any such prepayments made pursuant to Section 1.3(c)(ii) or (c)(iii)
that exceed an aggregate amount of $5,000,000. If any such prepayments are not
applied to the First Lien Credit Facility in the manner prescribed in the
preceding two sentences and, in any event, after the Discharge of First Lien
Obligations (as defined in the Intercreditor Agreement), such prepayments shall
be applied to prepay the Term Loan. Each prepayment made by Borrower pursuant to
Section 1.3(c)(iv) shall be applied solely to prepay the Term Loan. Any
prepayments made by Borrower pursuant to Sections 1.3(c)(ii), (c)(iii) or
(c)(iv) above, and any prepayments from insurance or condemnation proceeds in
accordance with Sections 5.4(b) or (d), shall be applied as follows: first, to
Fees and reimbursable expenses of Agent then due and payable pursuant to any of
the Loan Documents; second, to interest then due and payable on the Term Loan;
third, to the remaining installments of principal due on the Term Loan in the
inverse order of maturity, until the outstanding principal balance of the Term
Loan has been paid in full; and fourth, pro rata to all other Obligations then
due and owing.
          (e) Application of Prepayments from Insurance Proceeds and
Condemnation Proceeds. Prepayments from insurance or condemnation proceeds in
accordance with Section 5.4(d), shall, unless such prepayment is waived in
writing by the Lenders, be applied as follows: insurance proceeds from
casualties or losses to cash or Inventory shall first be applied as set forth in
Section 1.3(d) of the First Lien Credit Agreement. If any such prepayments are
not so applied to the First Lien Credit Facility and, in any event, after the
Discharge of First Lien Obligations (as defined in the Intercreditor Agreement),
such prepayments shall be applied to prepay the Term Loan.
          (f) No Implied Consent. Nothing in this Section 1.3 shall be construed
to constitute Agent’s or any Lender’s consent to any transaction that is not
permitted by other provisions of this Agreement or the other Loan Documents.
          1.4 Use of Proceeds.
          Borrower shall utilize the proceeds of the Term Loan solely for the
refinancing of existing secured debt, the financing of Borrower’s ordinary
working capital, Capital Expenditures as permitted hereunder, and for other
general corporate purposes.

3

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

 

          1.5 Interest and Applicable Margin.
          (a) Borrower shall pay interest to Agent, for the ratable benefit of
Lenders in accordance with the Loans being made by each Lender, in arrears on
each applicable Interest Payment Date, at the applicable LIBOR Rate plus the
Applicable Margin per annum, or, if required pursuant to Section 1.16(c), at the
interest rate specified herein for Index Rate Loans.
          (b) If any payment on the Term Loan becomes due and payable on a day
other than a Business Day, the maturity thereof will be extended to the next
succeeding Business Day (except as set forth in the definition of LIBOR Period)
and, with respect to payments of principal, interest thereon shall be payable at
the then applicable rate during such extension.
          (c) All computations of Fees calculated on a per annum basis and
interest shall be made by Agent on the basis of a 360-day year, in each case for
the actual number of days occurring in the period for which such interest and
Fees are payable. Each determination by Agent of an interest rate and Fees
hereunder shall be final, binding and conclusive on Borrower, absent manifest
error.
          (d) So long as any Default or Event of Default has occurred and is
continuing and at the election of Agent (or upon the written request of
Requisite Lenders) confirmed by written notice from Agent to Borrower, the
interest rates applicable to the Term Loan shall be increased by two percentage
points (2%) per annum above the rate of interest otherwise applicable hereunder
(“Default Rate”), and all outstanding Obligations shall bear interest at the
Default Rate applicable to such Obligations. Interest at the Default Rate shall
accrue from the initial date of such Default or Event of Default until that
Default or Event of Default is cured or waived and shall be payable upon demand.
          (e) Notwithstanding anything to the contrary set forth in this
Section 1.5, if a court of competent jurisdiction determines in a final order
that the rate of interest payable hereunder exceeds the highest rate of interest
permissible under law (the “Maximum Lawful Rate”), then so long as the Maximum
Lawful Rate would be so exceeded, the rate of interest payable hereunder shall
be equal to the Maximum Lawful Rate. Thereafter, interest hereunder shall be
paid at the rate(s) of interest and in the manner provided in Sections 1.5(a)
through (d), unless and until the rate of interest again exceeds the Maximum
Lawful Rate, and at that time this paragraph shall again apply. In no event
shall the total interest received by any Lender pursuant to the terms hereof
exceed the amount that such Lender could lawfully have received had the interest
due hereunder been calculated for the full term hereof at the Maximum Lawful
Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph, such
interest shall be calculated at a daily rate equal to the Maximum Lawful Rate
divided by the number of days in the year in which such calculation is made. If,
notwithstanding the provisions of this Section 1.5(e), a court of competent
jurisdiction shall finally determine that a Lender has received interest
hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent
permitted by applicable law, promptly apply such excess in the order specified
in Section 1.11 and thereafter shall refund any excess to Borrower or as a court
of competent jurisdiction may otherwise order.
          1.6 Intentionally Omitted.

4

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

 

          1.7 Intentionally Omitted.
          1.8 Cash Management Systems. On or prior to the Closing Date, Borrower
will establish and will maintain until the Termination Date, the cash management
systems described in Annex B (the “Cash Management Systems”).
          1.9 Fees.
          (a) Borrower shall pay to Monroe Capital, individually, the Fees
specified in the Monroe Capital Fee Letter, at the times specified for payment
therein.
          (b) If Borrower prepays all or any portion of the Term Loan, whether
voluntarily or involuntarily and whether before or after acceleration of the
Obligations or if the Commitments are otherwise terminated, Borrower shall pay
to Agent, for the benefit of Lenders as liquidated damages and compensation for
the costs of being prepared to make funds available hereunder an amount equal to
the Applicable Percentage (as defined below) multiplied by the sum of the
principal amount of the Loan paid after acceleration or prepaid. As used herein,
the term “Applicable Percentage” shall mean (x) two percent (2.00%), in the case
of a prepayment on or prior to the first anniversary of the Closing Date, and
(y) one percent (1.00%), in the case of a prepayment after the first anniversary
of the Closing Date but on or prior to the second anniversary thereof. The
Credit Parties agree that the Applicable Percentages are a reasonable
calculation of Lenders’ lost profits in view of the difficulties and
impracticality of determining actual damages resulting from an early termination
of the Commitments. Notwithstanding the foregoing, no prepayment fee shall be
payable by Borrower upon a mandatory prepayment made pursuant to Sections
1.3(c)(ii), Section 1.16(c) or Section 5.4(d); provided that in the case of
prepayments made pursuant to Sections 1.3(c)(ii), the transaction giving rise to
the applicable prepayment is a sale of a Subsidiary or division of the Borrower
expressly permitted under Section 6.
          1.10 Receipt of Payments. Borrower shall make each payment under this
Agreement not later than 2:00 p.m. (Chicago time) on the day when due in
immediately available funds in Dollars to the Collection Account. All payments
(including prepayments) to be made by Borrower on account of principal, interest
and fees shall be made without defense, set-off or counterclaim (except as
provided in Section 1.15). For purposes of computing interest and Fees as of any
date, all payments shall be deemed received on the first Business Day following
the Business Day on which immediately available funds therefor are received in
the Collection Account prior to 2:00 p.m. Chicago time. Payments received after
2:00 p.m. Chicago time on any Business Day or on a day that is not a Business
Day shall be deemed to have been received on the following Business Day.
          1.11 Application and Allocation of Payments. So long as no Event of
Default has occurred and is continuing, (i) amortization payments on account of
scheduled amortization payments then due shall be applied to those scheduled
payments; (ii) voluntary prepayments shall be applied as set forth in
Section 1.3(b); and (iii) mandatory prepayments shall be applied as set forth in
Sections 1.3(d) and 1.3(e). All payments and prepayments applied to a particular
Loan shall be applied ratably to the portion thereof held by each Lender as
determined by its Pro Rata Share. As to any other payment, and as to all
payments made when an Event of Default has

5

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

 

occurred and is continuing or following the Termination Date, Borrower hereby
irrevocably waives the right to direct the application of any and all payments
received from or on behalf of Borrower, and Borrower hereby irrevocably agrees
that Agent shall have the continuing exclusive right to apply any and all such
payments against the Obligations as Agent may deem advisable notwithstanding any
previous entry by Agent in the Loan Account or any other books and records. In
the absence of a specific determination by Agent with respect thereto, payments
shall be applied to amounts then due and payable in the following order: first,
to Fees and Agent’s expenses reimbursable hereunder; second, to interest on the
Term Loan; third, to principal payments on the Term Loan; and fourth, to all
other Obligations including expenses of Lenders to the extent reimbursable under
Section 11.3
          1.12 Loan Account and Accounting. Agent shall maintain a loan account
(the “Loan Account”) on its books to record: the outstanding principal amount of
the Term Loan, all payments made by Borrower, and all other debits and credits
as provided in this Agreement with respect to the Term Loan or any other
Obligations. All entries in the Loan Account shall be made in accordance with
Agent’s customary accounting practices as in effect from time to time. The
balance in the Loan Account, as recorded on Agent’s most recent printout or
other written statement, shall, absent manifest error, be presumptive evidence
of the amounts due and owing to Agent and Lenders by Borrower; provided that any
failure to so record or any error in so recording shall not limit or otherwise
affect Borrower’s duty to pay the Obligations. Agent shall render to Borrower a
monthly accounting of transactions with respect to the Term Loan setting forth
the balance of the Loan Account for the immediately preceding month. Unless
Borrower notifies Agent in writing of any objection to any such accounting
(specifically describing the basis for such objection), within 90 days after the
date thereof, each and every such accounting shall, absent manifest error, be
deemed final, binding and conclusive on Borrower in all respects as to all
matters reflected therein. Only those items expressly objected to in such notice
shall be deemed to be disputed by Borrower. Notwithstanding any provision herein
contained to the contrary, any Lender may elect (which election may be revoked)
to dispense with the issuance of Notes to that Lender and may rely on the Loan
Account as evidence of the amount of Obligations from time to time owing to it.
          1.13 Indemnity.
          (a) Each Credit Party that is a signatory hereto shall jointly and
severally indemnify and hold harmless each of Agent, Lenders and their
respective Affiliates, and each such Person’s respective officers, directors,
employees, attorneys, agents and representatives (each, an “Indemnified
Person”), from and against any and all suits, actions, proceedings, claims,
damages, losses, liabilities and expenses (including reasonable attorneys’ fees
and disbursements and other costs of investigation or defense, including those
incurred upon any appeal) that may be instituted or asserted against or incurred
by any such Indemnified Person as the result of credit having been extended,
suspended or terminated under this Agreement and the other Loan Documents and
the administration of such credit, and in connection with or arising out of the
transactions contemplated hereunder and thereunder and any actions or failures
to act in connection therewith, including any and all Environmental Liabilities
and legal costs and expenses arising out of or incurred in connection with
disputes between or among any parties to any of the Loan Documents
(collectively, “Indemnified Liabilities”); provided, that no such Credit Party
shall be liable for any indemnification to an Indemnified Person to the extent
that

6

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

 

any such suit, action, proceeding, claim, damage, loss, liability or expense
results from that Indemnified Person’s gross negligence or willful misconduct.
NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY
LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON
OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR
INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A
RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN
DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR
THEREUNDER.
          (b) To induce Lenders to provide the LIBOR Rate on the terms provided
herein, if (i) any LIBOR Loans are repaid in whole or in part prior to the last
day of the LIBOR Period (whether that repayment is made pursuant to any
provision of this Agreement or any other Loan Document or occurs as a result of
acceleration, by operation of law or otherwise); (ii) Borrower shall default in
payment when due of the principal amount of or interest on any LIBOR Loan;
(iii) Borrower shall refuse to accept any borrowing of, or shall request a
termination of any borrowing of LIBOR Loans after Borrower has given notice
requesting the same in accordance herewith; or (iv) Borrower shall fail to make
any prepayment of a LIBOR Loan after Borrower has given a notice thereof in
accordance herewith, then Borrower shall indemnify and hold harmless each Lender
from and against all losses, costs and expenses resulting from or arising from
any of the foregoing. Such indemnification shall include any loss (including
loss of margin) or expense arising from the reemployment of funds obtained by it
or from fees payable to terminate deposits from which such funds were obtained.
For the purpose of calculating amounts payable to a Lender under this
subsection, each Lender shall be deemed to have actually funded its relevant
LIBOR Loan through the purchase of a deposit bearing interest at the LIBOR Rate
in an amount equal to the amount of that LIBOR Loan and having a maturity
comparable to the relevant LIBOR Period; provided, that each Lender may fund
each of its LIBOR Loans in any manner it sees fit, and the foregoing assumption
shall be utilized only for the calculation of amounts payable under this
subsection. This covenant shall survive the termination of this Agreement and
the payment of the Notes and all other amounts payable hereunder. As promptly as
practicable under the circumstances, each Lender shall provide Borrower with its
written calculation of all amounts payable pursuant to this Section 1.13(b), and
such calculation shall be binding on the parties hereto unless Borrower shall
object in writing within 10 Business Days of receipt thereof, specifying the
basis for such objection in detail.
          1.14 Access. Each Credit Party that is a party hereto shall, during
normal business hours, from time to time upon 5 Business Day’s prior notice as
frequently as Agent determines to be appropriate: (a) provide Agent and any of
its officers, employees and agents access to its properties, facilities,
advisors and employees (including officers) of each Credit Party and to the
Collateral, (b) permit Agent, and any of its officers, employees and agents, to
inspect, audit and make extracts from any Credit Party’s books and records, and
(c) permit Agent, and its officers, employees and agents, to inspect, review,
evaluate and make test verifications and counts of the Accounts, Inventory and
other Collateral of any Credit Party. If a Default or Event of Default has
occurred and is continuing or if access is necessary to preserve or protect the
Collateral as determined by the Agent, each such Credit Party shall provide such
access to Agent and to each Lender at all times and without advance notice.
Furthermore, so

7

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

 

long as any Event of Default has occurred and is continuing, Borrower shall
provide Agent and each Lender with access to its suppliers and customers. Each
Credit Party shall make available to Agent and its counsel, as quickly as is
possible under the circumstances, originals or copies of all books and records
that Agent may reasonably request. Each Credit Party shall deliver any document
or instrument necessary for Agent, as it may from time to time request, to
obtain records from any service bureau or other Person that maintains records
for such Credit Party, and shall maintain duplicate records or supporting
documentation on media, including computer tapes and discs owned by such Credit
Party. Agent will give Lenders at least 5 days’ prior notice (10 days’ prior
notice for any audit to be commenced during the period from and including
October 1 through and including January 15) of regularly scheduled audits.
Representatives of other Lenders may accompany Agent’s representatives on
regularly scheduled audits at no charge to Borrower.
          1.15 Taxes.
          (a) Any and all payments by Borrower hereunder or under the Notes
shall be made, in accordance with this Section 1.15, free and clear of and
without deduction for any and all present or future Taxes. If Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the Notes, (i) the sum payable shall be increased as much as
shall be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 1.15) Agent
or Lenders, as applicable, receive an amount equal to the sum they would have
received had no such deductions been made, (ii) Borrower shall make such
deductions, and (iii) Borrower shall pay the full amount deducted to the
relevant taxing or other authority in accordance with applicable law. Within
30 days after the date of any payment of Taxes, Borrower shall furnish to Agent
the original or a certified copy of a receipt evidencing payment thereof. Agent
and Lenders shall not be obligated to return or refund any amounts received
pursuant to this Section.
          (b) Each Credit Party that is a signatory hereto shall indemnify and,
within 10 days of demand therefor, pay Agent and each Lender for the full amount
of Taxes (including any Taxes imposed by any jurisdiction on amounts payable
under this Section 1.15) paid by Agent or such Lender, as appropriate, and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes were correctly or legally asserted.
          (c) Each Lender organized under the laws of a jurisdiction outside the
United States (a “Foreign Lender”) as to which payments to be made under this
Agreement or under the Notes are exempt from United States withholding tax under
an applicable statute or tax treaty shall provide to Borrower and Agent a
properly completed and executed IRS Form W-8ECI or Form W-8BEN or other
applicable form, certificate or document prescribed by the IRS or the United
States certifying as to such Foreign Lender’s entitlement to such exemption (a
“Certificate of Exemption”). Any foreign Person that seeks to become a Lender
under this Agreement shall provide a Certificate of Exemption to Borrower and
Agent prior to becoming a Lender hereunder. No foreign Person may become a
Lender hereunder if such Person fails to deliver a Certificate of Exemption in
advance of becoming a Lender.

8

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

 

          1.16 Capital Adequacy; Increased Costs; Illegality.
          (a) If any Lender shall have determined that any law, treaty,
governmental (or quasi-governmental) rule, regulation, guideline or order
regarding capital adequacy, reserve requirements or similar requirements or
compliance by any Lender with any request or directive regarding capital
adequacy, reserve requirements or similar requirements (whether or not having
the force of law), in each case, adopted after the Closing Date, from any
central bank or other Governmental Authority increases or would have the effect
of increasing the amount of capital, reserves or other funds required to be
maintained by such Lender and thereby reducing the rate of return on such
Lender’s capital as a consequence of its obligations hereunder, then Borrower
shall from time to time upon demand by such Lender (with a copy of such demand
to Agent) pay to Agent, for the account of such Lender, additional amounts
sufficient to compensate such Lender for such reduction. A certificate as to the
amount of that reduction and showing the basis of the computation thereof
submitted by such Lender to Borrower and to Agent shall, absent manifest error,
be final, conclusive and binding for all purposes.
          (b) If, due to either (i) the introduction of or any change in any law
or regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), in each case
adopted after the Closing Date, there shall be any increase in the cost to any
Lender of agreeing to make or making, funding or maintaining any Loan, then
Borrower shall from time to time, upon demand by such Lender (with a copy of
such demand to Agent), pay to Agent for the account of such Lender additional
amounts sufficient to compensate such Lender for such increased cost. A
certificate as to the amount of such increased cost, submitted to Borrower and
to Agent by such Lender, shall be conclusive and binding on Borrower for all
purposes, absent manifest error. Each Lender agrees that, as promptly as
practicable after it becomes aware of any circumstances referred to above which
would result in any such increased cost, the affected Lender shall, to the
extent not inconsistent with such Lender’s internal policies of general
application, use reasonable commercial efforts to minimize costs and expenses
incurred by it and payable to it by Borrower pursuant to this Section 1.16(b).
          (c) Notwithstanding anything to the contrary contained herein, if the
introduction of or any change in any law or regulation (or any change in the
interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to agree
to make or to make or to continue to fund or maintain any LIBOR Loan, then,
unless that Lender is able to make or to continue to fund or to maintain such
LIBOR Loan at another branch or office of that Lender without, in that Lender’s
opinion, adversely affecting it or its Loans or the income obtained therefrom,
on notice thereof and demand therefor by such Lender to Borrower through Agent,
(i) the obligation of such Lender to agree to make or to make or to continue to
fund or maintain LIBOR Loans shall terminate and (ii) all outstanding LIBOR
Loans shall be converted into Index Rate Loans.
          (d) Within 15 days after receipt by Borrower of written notice and
demand from any Lender (an “Affected Lender”) for payment of additional amounts
or increased costs as provided in Sections 1.15(a), 1.16(a) or 1.16(b), Borrower
may, at its option, notify Agent and such Affected Lender of its intention to
replace the Affected Lender. So long as no Default or Event of Default has
occurred and is continuing, Borrower, with the consent of Agent, may

9

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

 

obtain, at Borrower’s expense, a replacement Lender (“Replacement Lender”) for
the Affected Lender, which Replacement Lender must be reasonably satisfactory to
Agent. If Borrower obtains a Replacement Lender within 90 days following notice
of its intention to do so, the Affected Lender must sell and assign its Loans
and Commitments to such Replacement Lender for an amount equal to the principal
balance of all Loans held by the Affected Lender and all accrued interest and
Fees with respect thereto through the date of such sale; provided, that Borrower
shall have reimbursed such Affected Lender for the additional amounts or
increased costs that it is entitled to receive under this Agreement through the
date of such sale and assignment. Notwithstanding the foregoing, Borrower shall
not have the right to obtain a Replacement Lender if the Affected Lender
rescinds its demand for increased costs or additional amounts within 15 days
following its receipt of Borrower’s notice of intention to replace such Affected
Lender. Furthermore, if Borrower gives a notice of intention to replace and does
not so replace such Affected Lender within 90 days thereafter, Borrower’s rights
under this Section 1.16(d) shall terminate and Borrower shall promptly pay all
increased costs or additional amounts demanded by such Affected Lender pursuant
to Sections 1.15(a), 1.16(a) and 1.16(b).
          1.17 Single Loan. All Loans to Borrower and all of the other
Obligations of Borrower arising under this Agreement and the other Loan
Documents shall constitute one general obligation of Borrower secured, until the
Termination Date, by all of the Collateral.
2. CONDITIONS PRECEDENT
          2.1 Conditions to the Term Loan. No Lender shall be obligated to make
any Loan on the Closing Date, or to take, fulfill, or perform any other action
hereunder, until the following conditions have been satisfied or provided for in
a manner satisfactory to Agent, or waived in writing by Agent and Requisite
Lenders:
          (a) Credit Agreement; Loan Documents. This Agreement or counterparts
hereof shall have been duly executed by, and delivered to, Borrower, Agent and
Lenders; and Agent shall have received such documents, instruments, agreements
and legal opinions as Agent shall reasonably request in connection with the
transactions contemplated by this Agreement and the other Loan Documents,
including all those listed in the Closing Checklist attached hereto as Annex C,
each in form and substance reasonably satisfactory to Agent.
          (b) Approvals. Agent shall have received (i) satisfactory evidence
that the Credit Parties have obtained all required consents and approvals of all
Persons including all requisite Governmental Authorities, to the execution,
delivery and performance of this Agreement and the other Loan Documents and the
consummation of the Related Transactions or (ii) an officer’s certificate in
form and substance reasonably satisfactory to Agent affirming that no such
consents or approvals are required.
          (c) Payment of Fees. Borrower shall have paid the Fees required to be
paid on the Closing Date in the respective amounts specified in Section 1.9 and
shall have reimbursed Agent for all fees, costs and expenses of closing
presented as of the Closing Date.

10

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

 

          (d) Capital Structure: Other Indebtedness. The capital structure of
each Credit Party and the terms and conditions of all Indebtedness of each
Credit Party shall be acceptable to Agent in its sole discretion.
          (e) Due Diligence. Agent shall have completed its business and legal
due diligence with results reasonably satisfactory to Agent.
          (f) Specific Items of Due Diligence. Agent shall have completed and be
satisfied with its review of (i) the Credit Parties’ material contractual
relationships, (ii) the financial condition of the Credit Parties and the books,
records and Collateral of the Credit Parties including, without limitation, a
special purpose review of Borrower’s historical cash flow and EBITDA
adjustments, conducted by an accounting firm acceptable to Agent, (iii) the
Financial Statements identified in Section 3.4(a) and other historical and
projected financial information requested by Agent.
          (g) Consummation of Related Transactions. Agent shall have received
fully executed, final and complete copies of each of the Related Transactions
Documents, each of which shall be in full force and effect in form and substance
reasonably satisfactory to Agent. The Related Transactions shall have been
consummated in accordance with the terms of the Related Transactions Documents.
The initial borrowing under the First Lien Credit Facility shall have been
funded.
          (h) Total Indebtedness. After giving effect to the Term Loan and the
initial borrowing under the First Lien Credit Agreement and the payment of all
fees and expenses in connection therewith, the aggregate Indebtedness of
Borrower and its Subsidiaries on a consolidated basis shall not exceed
$70,000,000.
          (i) Indebtedness to EBITDA. After giving effect to the Term Loan and
the initial borrowing under the First Lien Credit Agreement and the payment of
all fees and expenses in connection therewith, the aggregate Indebtedness of
Borrower and its Subsidiaries on a consolidated basis shall not exceed the
product of (A) 3.25 times (B) the EBITDA of the Borrower for the most recent 12
consecutive month period then ended.
          (j) Background Checks. Lender shall have received and be satisfied
with background checks on Cary Deacon and Reid Porter+.
          (k) Opening Availability. The First Lien Agent shall have determined
that the Borrower’s Borrowing Availability (under, and as defined in, the First
Lien Credit Agreement), on the Closing Date and after giving effect to the
making of the Term Loan and the consummation of the Related Transactions (on a
pro forma basis, with trade payables being paid currently consistent with past
practice, and expenses and liabilities being paid in the ordinary course of
business and without acceleration of sales) is at least $15,000,000.
          (l) Representations and Warranties. All representations and warranties
by any Credit Party contained herein or in any other Loan Document shall be true
and correct as of the Closing Date, except to the extent that any such
representation or warranty expressly relates to an earlier date and except for
changes therein expressly permitted or expressly contemplated by this Agreement;

11

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

 

          (m) Material Adverse Effect. No event or circumstance having a
Material Adverse Effect shall have occurred since March 31, 2006, as determined
by the Requisite Lenders;
          (n) No Default. No Default or Event of Default shall have occurred and
be continuing or would result after giving effect to the making of the Term
Loan;
The request and acceptance by Borrower of the proceeds of the Term Loan shall be
deemed to constitute, as of the date thereof, (i) a representation and warranty
by Borrower that the conditions in this Section 2.1 have been satisfied.
3. REPRESENTATIONS AND WARRANTIES
          To induce Lenders to make the Term Loan, the Credit Parties executing
this Agreement, jointly and severally, make the following representations and
warranties to Agent and each Lender with respect to all Credit Parties, each and
all of which shall survive the execution and delivery of this Agreement.
          3.1 Corporate Existence; Compliance with Law. Each Credit Party (a) is
a corporation, limited liability company or limited partnership duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization set forth in Disclosure Schedule (3.1); (b) is
duly qualified to conduct business and is in good standing in each other
jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification, except where the failure to be so
qualified would not result in exposure to losses, damages or liabilities in
excess of $50,000; (c) has the requisite power and authority and the legal right
to own, pledge, mortgage or otherwise encumber and operate its properties, to
lease the property it operates under lease and to conduct its business as now,
heretofore and proposed to be conducted; (d) subject to specific representations
regarding Environmental Laws, has all material licenses, permits, consents or
approvals from or by, and has made all material filings with, and has given all
material notices to, all Governmental Authorities having jurisdiction, to the
extent required for such ownership, operation and conduct; (e) is in compliance
with its charter and bylaws or partnership or operating agreement, as
applicable; and (f) subject to specific representations set forth herein
regarding ERISA, Environmental Laws, tax and other laws, is in compliance with
all applicable provisions of law, except where the failure to comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
          3.2 Executive Offices, Collateral Locations, FEIN. As of the Closing
Date, each Credit Party’s name as it appears in official filings in its state of
incorporation or organization, state of incorporation or organization,
organization type, organization number, if any, issued by its state
incorporation or organization, and the current location of each Credit Party’s
chief executive office and the warehouses and premises at which any Collateral
is located are set forth in Disclosure Schedule (3.2), and none of such
locations has changed within 12 months preceding the Closing Date. In addition,
Disclosure Schedule (3.2) lists the federal employer identification number of
each Credit Party.

12

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

 

          3.3 Corporate Power, Authorization, Enforceable Obligations. The
execution, delivery and performance by each Credit Party of the Loan Documents
to which it is a party and the creation of all Liens provided for therein:
(a) are within such Person’s power; (b) have been duly authorized by all
necessary corporate, limited liability company or limited partnership action;
(c) do not contravene any provision of such Person’s charter, bylaws or
partnership or operating agreement as applicable; (d) do not violate any law or
regulation, or any order or decree of any court or Governmental Authority;
(e) do not conflict with or result in the breach or termination of, constitute a
default under or accelerate or permit the acceleration of any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which such Person is a party or by which such Person or any of its
property is bound; (f) do not result in the creation or imposition of any Lien
upon any of the property of such Person other than those in favor of Agent, on
behalf of itself and Lenders, pursuant to the Loan Documents; and (g) do not
require the consent or approval of any Governmental Authority or any other
Person, except those referred to in Section 2.1(b), all of which will have been
duly obtained, made or complied with prior to the Closing Date. Each of the Loan
Documents shall be duly executed and delivered by each Credit Party that is a
party thereto and each such Loan Document shall constitute a legal, valid and
binding obligation of such Credit Party enforceable against it in accordance
with its terms.
          3.4 Financial Statements and Projections. Except for the Projections
and except as described in Disclosure Schedule 3.4, all Financial Statements
concerning Borrower and its Subsidiaries that are referred to below have been
prepared in accordance with GAAP consistently applied throughout the periods
covered (except as disclosed therein and except, with respect to unaudited
Financial Statements, for the absence of footnotes and normal year-end audit
adjustments) and present fairly in all material respects the financial position
of the Persons covered thereby as at the dates thereof and the results of their
operations and cash flows for the periods then ended.
          (a) Financial Statements. The following Financial Statements attached
hereto as Disclosure Schedule (3.4(a)) have been delivered on the date hereof:
               (i) The audited consolidated and consolidating balance sheets at
March 31, 2006 and the related statements of income and cash flows of Borrower
and its Subsidiaries for the Fiscal Year 2006 then ended, certified by Grant
Thornton, LLP.
               (ii) The unaudited balance sheet(s) at December 31, 2006 and the
related statement(s) of income and cash flows of Borrower and its Subsidiaries
for the nine month period then ended.
          (b) Projections. The Projections delivered on the date hereof and
attached hereto as Disclosure Schedule (3.4(b)) have been prepared by Borrower
in light of the past operations of its businesses, and reflect projections for
the period beginning on January 1, 2007 and ending on March 31, 2011 on a
month-by-month basis through March 31, 2008 and on a year-by-year basis
thereafter. The Projections are based upon estimates and assumptions stated
therein, all of which Borrower believes to be reasonable and fair in light of
current conditions and current facts known to Borrower and, as of the Closing
Date, reflect Borrower’s good faith

13

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

 

and reasonable estimates of the future financial performance of Borrower and of
the other information projected therein for the period set forth therein.
          (c) Pro Forma. The Pro Forma delivered on the date hereof and attached
hereto as Disclosure Schedule (3.4(c)) was prepared by Borrower giving pro forma
effect to the Related Transactions, was based on the unaudited consolidated and
consolidating balance sheets of Borrower and its Subsidiaries dated January 31,
2007 and was prepared in accordance with GAAP, with only such adjustments
thereto as would be required in accordance with GAAP.
          3.5 Material Adverse Effect. Between March 31, 2006 and the Closing
Date, (a) no Credit Party has incurred any obligations, contingent or
noncontingent liabilities, liabilities for Charges, long-term leases or unusual
forward or long-term commitments that, alone or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, (b) no contract, lease
or other agreement or instrument has been entered into by any Credit Party or
has become binding upon any Credit Party’s assets and no law or regulation
applicable to any Credit Party has been adopted that has had or could reasonably
be expected to have a Material Adverse Effect, and (c) no Credit Party is in
default and to the best of Borrower’s knowledge no third party is in default
under any material contract, lease or other agreement or instrument, that alone
or in the aggregate could reasonably be expected to have a Material Adverse
Effect. Between March 31, 2006 and the Closing Date no event has occurred, that
alone or together with other events, could reasonably be expected to have a
Material Adverse Effect.
          3.6 Ownership of Property; Liens. As of the Closing Date, the real
estate (“Real Estate”) listed in Disclosure Schedule (3.6) constitutes all of
the real property owned, leased, subleased, or used by any Credit Party. Each
Credit Party owns good and marketable fee simple title to all of its owned Real
Estate, and valid and marketable leasehold interests in all of its leased Real
Estate, all as described on Disclosure Schedule (3.6), and copies of all such
leases or a summary of terms thereof reasonably satisfactory to Agent have been
delivered to Agent. Disclosure Schedule (3.6) further describes any Real Estate
with respect to which any Credit Party is a lessor, sublessor or assignor as of
the Closing Date. Each Credit Party also has good and marketable title to, or
valid leasehold interests in, all of its personal property and assets. As of the
Closing Date, none of the properties and assets of any Credit Party are subject
to any Liens other than Permitted Encumbrances, and there are no facts,
circumstances or conditions known to any Credit Party that may result in any
Liens (including Liens arising under Environmental Laws) other than Permitted
Encumbrances. Each Credit Party has received all deeds, assignments, waivers,
consents, nondisturbance and attornment or similar agreements, bills of sale and
other documents, and has duly effected all recordings, filings and other actions
necessary to establish, protect and perfect such Credit Party’s right, title and
interest in and to all such Real Estate and other properties and assets.
Disclosure Schedule (3.6) also describes any purchase options, rights of first
refusal or other similar contractual rights pertaining to any Real Estate. As of
the Closing Date, no portion of any Credit Party’s Real Estate has suffered any
material damage by fire or other casualty loss that has not heretofore been
repaired and restored in all material respects to its original condition or
otherwise remedied. As of the Closing Date, all material permits required to
have been issued or appropriate to enable the Real Estate to be lawfully
occupied and used for all of the purposes for which it is currently occupied and
used have been lawfully issued and are in full force and effect.

14

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

 

          3.7 Labor Matters. As of the Closing Date (a) no strikes or other
material labor disputes against any Credit Party are pending or, to any Credit
Party’s knowledge, threatened; (b) hours worked by and payment made to employees
of each Credit Party comply with the Fair Labor Standards Act and each other
federal, state, local or foreign law applicable to such matters; (c) all
payments due from any Credit Party for employee health and welfare insurance
have been paid or accrued as a liability on the books of such Credit Party;
(d) except as set forth in Disclosure Schedule (3.7), no Credit Party is a party
to or bound by any collective bargaining agreement, management agreement,
consulting agreement, employment agreement, bonus, restricted stock, stock
option, or stock appreciation plan or agreement or any similar plan, agreement
or arrangement (and true and complete copies of any agreements described on
Disclosure Schedule (3.7) have been delivered to Agent); (e) there is no
organizing activity involving any Credit Party pending or, to any Credit Party’s
knowledge, threatened by any labor union or group of employees; (f) there are no
representation proceedings pending or, to any Credit Party’s knowledge,
threatened with the National Labor Relations Board, and no labor organization or
group of employees of any Credit Party has made a pending demand for
recognition; and (g) except as set forth in Disclosure Schedule (3.7), there are
no material complaints or charges against any Credit Party pending or, to the
knowledge of any Credit Party, threatened to be filed with any Governmental
Authority or arbitrator based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment by any Credit
Party of any individual.
          3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness. Except as set forth in Disclosure Schedule (3.8), as of the
Closing Date, no Credit Party has any Subsidiaries, is engaged in any joint
venture or partnership with any other Person, or is an Affiliate of any other
Person. All of the issued and outstanding Stock of each Credit Party is owned by
each of the Stockholders and in the amounts set forth in Disclosure Schedule
(3.8). Except as set forth in Disclosure Schedule (3.8), there are no
outstanding rights to purchase, options, warrants or similar rights or
agreements pursuant to which any Credit Party may be required to issue, sell,
repurchase or redeem any of its Stock or other equity securities or any Stock or
other equity securities of its Subsidiaries. All outstanding Indebtedness and
Guaranteed Indebtedness of each Credit Party as of the Closing Date (except for
the Obligations) is described in Section 6.3 (including Disclosure Schedule
(6.3)).
          3.9 Government Regulation. No Credit Party is an “investment company”
or an “affiliated person” of, or “promoter” or “principal underwriter” for, an
“investment company,” as such terms are defined in the Investment Company Act of
1940. No Credit Party is subject to regulation under the Federal Power Act, or
any other federal or state statute that restricts or limits its ability to incur
Indebtedness or to perform its obligations hereunder. The making of the Term
Loan by Lenders to Borrower, the application of the proceeds thereof and
repayment thereof and the consummation of the Related Transactions will not
violate any provision of any such statute or any rule, regulation or order
issued by the Securities and Exchange Commission.
          3.10 Margin Regulations. No Credit Party is engaged, nor will it
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of “purchasing” or “carrying” any “margin
stock” as such terms are defined in Regulation U of the Federal Reserve Board as
now and from time to time hereafter in effect (such securities being

15

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

 

referred to herein as “Margin Stock”). No Credit Party owns any Margin Stock,
and none of the proceeds of the Loans or other extensions of credit under this
Agreement will be used, directly or indirectly, for the purpose of purchasing or
carrying any Margin Stock, for the purpose of reducing or retiring any
Indebtedness that was originally incurred to purchase or carry any Margin Stock
or for any other purpose that might cause any of the Loans or other extensions
of credit under this Agreement to be considered a “purpose credit” within the
meaning of Regulations T, U or X of the Federal Reserve Board. No Credit Party
will take or permit to be taken any action that might cause any Loan Document to
violate any regulation of the Federal Reserve Board.
          3.11 Taxes. All tax returns, reports and statements, including
information returns, required by any Governmental Authority to be filed by any
Credit Party have been filed with the appropriate Governmental Authority and all
Charges have been paid prior to the date on which any fine, penalty, interest or
late charge may be added thereto for nonpayment thereof (or any such fine,
penalty, interest, late charge or loss has been paid), excluding Charges or
other amounts being contested in accordance with Section 5.2(b). Proper and
accurate amounts have been withheld by each Credit Party from its respective
employees for all periods in full and complete compliance with all applicable
federal, state, local and foreign laws and such withholdings have been timely
paid to the respective Governmental Authorities. Disclosure Schedule (3.11) sets
forth as of the Closing Date those taxable years for which any Credit Party’s
tax returns are currently being audited by the IRS or any other applicable
Governmental Authority and any assessments or threatened assessments in
connection with such audit, or otherwise currently outstanding. Except as
described in Disclosure Schedule (3.11), no Credit Party has executed or filed
with the IRS or any other Governmental Authority any agreement or other document
extending, or having the effect of extending, the period for assessment or
collection of any Charges. None of the Credit Parties and their respective
predecessors are liable for any Charges: (a) under any agreement (including any
tax sharing agreements) or (b) to each Credit Party’s knowledge, as a
transferee. As of the Closing Date, no Credit Party has agreed or been requested
to make any adjustment under IRC Section 481(a), by reason of a change in
accounting method or otherwise, which would have a Material Adverse Effect.
          3.12 ERISA.
          (a) Disclosure Schedule (3.12) lists all Plans and separately
identifies all Pension Plans, including Title IV Plans, Multiemployer Plans,
ESOPs and Welfare Plans, including all Retiree Welfare Plans. Copies of all such
listed Plans, together with a copy of the latest form. IRS/DOL 5500-series for
each such Plan have been delivered to Agent. Except with respect to
Multiemployer Plans, each Qualified Plan has been determined by the IRS to
qualify under Section 401 of the IRC, the trusts created thereunder have been
determined to be exempt from tax under the provisions of Section 501 of the IRC,
and nothing has occurred that would cause the loss of such qualification or
tax-exempt status. Each Plan is in compliance with the applicable provisions of
ERISA and the IRC, including the timely filing of all reports required under the
IRC or ERISA, including the statement required by 29 CFR Section 2520.104-23.
Neither any Credit Party nor ERISA Affiliate has failed to make any contribution
or pay any amount due as required by either Section 412 of the IRC or
Section 302 of ERISA or the terms of any such Plan. Neither any Credit Party nor
ERISA Affiliate has engaged in a “prohibited transaction,” as defined in
Section 406 of ERISA and Section 4975 of the IRC, in connection

16

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

 

with any Plan, that would subject any Credit Party to a material tax on
prohibited transactions imposed by Section 502(i) of ERISA or Section 4975 of
the IRC.
          (b) Except as set forth in Disclosure Schedule (3.12): (i) no Title IV
Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event described
in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge of
any Credit Party, threatened claims (other than claims for benefits in the
normal course), sanctions, actions or lawsuits, asserted or instituted against
any Plan or any Person as fiduciary or sponsor of any Plan; (iv) no Credit Party
or ERISA Affiliate has incurred or reasonably expects to incur any liability as
a result of a complete or partial withdrawal from a Multiemployer Plan;
(v) within the last five years no Title IV Plan of any Credit Party or ERISA
Affiliate has been terminated, whether or not in a “standard termination” as
that term is used in Section 404(b)(1) of ERISA, nor has any Title IV Plan of
any Credit Party or ERISA Affiliate (determined at any time within the past five
years) with Unfunded Pension Liabilities been transferred outside of the
“controlled group” (within the meaning of Section 4001(a)(14) of ERISA) of any
Credit Party or ERISA Affiliate; (vi) except in the case of any ESOP, Stock of
all Credit Parties and their ERISA Affiliates makes up, in the aggregate, no
more than 10% of fair market value of the assets of any Plan measured on the
basis of fair market value as of the latest valuation date of any Plan; and
(vii) no liability under any Title IV Plan has been satisfied with the purchase
of a contract from an insurance company that is not rated AAA by the Standard &
Poor’s Corporation or an equivalent rating by another nationally recognized
rating agency.
          3.13 No Litigation. No action, claim, lawsuit, demand, investigation
or proceeding is now pending or, to the knowledge of any Credit Party,
threatened against any Credit Party, before any Governmental Authority or before
any arbitrator or panel of arbitrators (collectively, “Litigation”), (a) that
challenges any Credit Party’s right or power to enter into or perform any of its
obligations under the Loan Documents to which it is a party, or the validity or
enforceability of any Loan Document or any action taken thereunder, or (b) that
has a reasonable risk of being determined adversely to any Credit Party and
that, if so determined, could reasonably be expected to have a Material Adverse
Effect. Except as set forth on Disclosure Schedule (3.13), as of the Closing
Date there is no Litigation pending or threatened that seeks damages in excess
of $500,000 or injunctive relief against, or alleges criminal misconduct of, any
Credit Party.
          3.14 Brokers. No broker or finder acting on behalf of any Credit Party
or Affiliate thereof brought about the obtaining, making or closing of the Loans
or the Related Transactions, and no Credit Party or Affiliate thereof has any
obligation to any Person in respect of any finder’s or brokerage fees in
connection therewith.
          3.15 Intellectual Property. As of the Closing Date, each Credit Party
owns or has rights to use all Intellectual Property necessary to continue to
conduct its business as now or heretofore conducted by it or proposed to be
conducted by it, and each Patent, Trademark, Copyright and License is listed,
together with application or registration numbers, as applicable, in Disclosure
Schedule (3.15). Each Credit Party conducts its business and affairs without
infringement of or interference with any Intellectual Property of any other
Person in any material respect. Except as set forth on Disclosure Schedule
(3.15), no Credit Party is aware of any

17

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

 

infringement claim by any other Person with respect to any Intellectual Property
that (i) seeks damages in excess of $250,000 or (ii) pursuant to a formal
proceeding, seeks injunctive relief.
          3.16 Full Disclosure. No information contained in this Agreement, any
of the other Loan Documents, any Projections, Financial Statements, Pro Forma or
Collateral Reports or other written reports from time to time delivered
hereunder or any written statement furnished by or on behalf of any Credit Party
to Agent or any Lender pursuant to the terms of this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made. Projections
from time to time delivered hereunder are or will be based upon the estimates
and assumptions stated therein, all of which Borrower believed at the time of
delivery to be reasonable and fair in light of current conditions and current
facts known to Borrower as of such delivery date, and reflect Borrower’s good
faith and reasonable estimates of the future financial performance of Borrower
and of the other information projected therein for the period set forth therein.
The Liens granted to Agent, on behalf of itself and Lenders, pursuant to the
Collateral Documents will at all times be fully perfected first priority Liens
in and to the Collateral described therein, subject, as to priority, only to
Permitted Encumbrances. After giving effect to the Related Transactions, no
default or event of default under or with respect to any of the Related
Transactions Documents has occurred and is continuing.
          3.17 Environmental Matters.
          (a) Except as set forth in Disclosure Schedule (3.17), as of the
Closing Date: (i) the Credit Parties are and have been in compliance with all
Environmental Laws, except for such noncompliance that would not result in
Environmental Liabilities which could reasonably be expected to exceed $100,000;
(ii) the Credit Parties have obtained, and are in compliance with, all
Environmental Permits required by Environmental Laws for the operations of their
respective businesses as presently conducted or as proposed to be conducted,
except where the failure to so obtain or comply with such Environmental Permits
would not result in Environmental Liabilities that could reasonably be expected
to exceed $100,000, and all such Environmental Permits are valid, uncontested
and in good standing; (iii) no Credit Party is involved in operations or knows
of any facts, circumstances or conditions, including any Releases of Hazardous
Materials, that are likely to result in any Environmental Liabilities of such
Credit Party which could reasonably be expected to exceed $100,000, and no
Credit Party has permitted any current or former tenant or occupant of the Real
Estate to engage in any such operations; (iv) there is no Litigation arising
under or related to any Environmental Laws, Environmental Permits or Hazardous
Material that seeks damages, penalties, fines, costs or expenses in excess of
$25,000 or injunctive relief against, or that alleges criminal misconduct by,
any Credit Party; (v) no notice has been received by any Credit Party
identifying it as a “potentially responsible party” or requesting information
under CERCLA or analogous state statutes, and to the knowledge of the Credit
Parties, there are no facts, circumstances or conditions that may result in any
Credit Party being identified as a “potentially responsible party” under CERCLA
or analogous state statutes; and (vi) the Credit Parties have provided to Agent
copies of all existing environmental reports, reviews and audits and all written
information pertaining to actual or potential Environmental Liabilities, in each
case relating to any Credit Party.

18

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

 

          (b) Each Credit Party hereby acknowledges and agrees that Agent (i) is
not now, and has not ever been, in control of any of the Real Estate or any
Credit Party’s affairs, and (ii) does not have the capacity through the
provisions of the Loan Documents or otherwise to influence any Credit Party’s
conduct with respect to the ownership, operation or management of any of its
Real Estate or compliance with Environmental Laws or Environmental Permits.
          3.18 Insurance. Disclosure Schedule (3.18) lists all insurance
policies of any nature maintained, as of the Closing Date, for current
occurrences by each Credit Party, as well as a summary of the terms of each such
policy.
          3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19)
lists all banks and other financial institutions at which any Credit Party
maintains deposit or other accounts as of the Closing Date, including any
Disbursement Accounts, and such Schedule correctly identifies the name, address
and telephone number of each depository, the name in which the account is held,
a description of the purpose of the account, and the complete account number
therefor.
          3.20 Government Contracts. Except as set forth in Disclosure Schedule
(3.20), as of the Closing Date, no Credit Party is a party to any contract or
agreement with any Governmental Authority and no Credit Party’s Accounts are
subject to the Federal Assignment of Claims Act (31 U.S.C. Section 3727) or any
similar state or local law.
          3.21 Customer and Trade Relations. As of the Closing Date, there
exists no actual or, to the knowledge of any Credit Party, threatened
termination or cancellation of, or any material adverse modification or change
in: the business relationship of any Credit Party with any customer or group of
customers whose purchases during the preceding 12 months caused them to be
ranked among the ten largest customers of such Credit Party; or the business
relationship of any Credit Party with any supplier material to its operations.
          3.22 Agreements and Other Documents. As of the Closing Date, each
Credit Party has provided to Agent or its counsel, on behalf of Lenders,
accurate and complete copies (or summaries) of all of the following agreements
or documents to which it is subject and each of which is listed in Disclosure
Schedule (3.22): supply agreements and purchase agreements involving
transactions in excess of $5,000,000 per annum; agreements relating to Vendor
Advances in excess of $2,000,000; leases of Equipment having a remaining term of
one year or longer and requiring aggregate rental and other payments in excess
of $1,000,000 per annum; licenses and permits held by the Credit Parties, the
absence of which could be reasonably likely to have a Material Adverse Effect;
instruments and documents evidencing any Indebtedness or Guaranteed Indebtedness
of such Credit Party and any Lien granted by such Credit Party with respect
thereto; and instruments and agreements evidencing the issuance of any equity
securities, warrants, rights or options to purchase equity securities of such
Credit Party.
          3.23 Solvency. Both before and after giving effect to (a) the Loans to
be made on the Closing Date, (b) the disbursement of the proceeds of such Loans
pursuant to the instructions of Borrower, (c) the consummation of the other
Related Transactions, and (d) the payment and accrual of all transaction costs
in connection with the foregoing, each Credit Party is and will be Solvent.

19

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

 

          3.24 Intentionally Omitted.
          3.25 Status of Navarre CP, Navarre CLP and Navarre CS. None of Navarre
CP, Navarre CLP and Navarre CS has engaged in any business or incurred any
Indebtedness or any other liabilities (except in connection with its corporate
formation, the Related Transactions Documents and this Agreement).
          3.26 First Lien Credit Facility. As of the Closing Date, Borrower
shall have delivered to Agent a complete and correct copy of the First Lien
Credit Agreement and all related documents (including all schedules, exhibits,
amendments, supplements, modifications, assignments and all other documents
delivered pursuant thereto or in connection therewith). Borrower has the
corporate power and authority to incur the First Lien Credit Facility. All
Obligations hereunder, constitute Second Lien Obligations (as defined in the
Intercreditor Agreement) and are entitled to the benefits of the provisions
thereof.
          3.27 Vendor Advances. As of the last day of the last month to end
prior to the Closing Date, Disclosure Schedule 3.27 sets forth an accurate
listing of all outstanding Vendor Advances.
4. FINANCIAL STATEMENTS AND INFORMATION
          4.1 Reports and Notices.
          (a) Each Credit Party executing this Agreement hereby agrees that from
and after the Closing Date and until the Termination Date, it shall deliver to
Agent or to Agent and Lenders, as required, the Financial Statements, notices,
Projections and other information at the times, to the Persons and in the manner
set forth in Annex D.
          (b) Each Credit Party executing this Agreement hereby agrees that from
and after the Closing Date and until the Termination Date, it shall deliver to
Agent or to Agent and Lenders, as required, the various Collateral Reports at
the times, to the Persons and in the manner set forth in Annex E.
          4.2 Communication with Accountants. Each Credit Party executing this
Agreement authorizes (a) Agent and (b) so long as an Event of Default has
occurred and is continuing, each Lender, to communicate directly with the
partner in charge of such Credit Party’s audit at such Credit Party’s
independent certified public accountants, and authorizes and shall request those
accountants and advisors to communicate to Agent and each Lender information
relating to any Credit Party with respect to the business, results of operations
and financial condition of any Credit Party.
5. AFFIRMATIVE COVENANTS
          Each Credit Party executing this Agreement jointly and severally
agrees as to all Credit Parties that from and after the date hereof and until
the Termination Date:
          5.1 Maintenance of Existence and Conduct of Business. Each Credit
Party shall: do or cause to be done all things necessary to preserve and keep in
full force and effect its

20

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

 

corporate existence and its rights and franchises; continue to conduct its
business substantially as now conducted or as otherwise permitted hereunder; at
all times maintain, preserve and protect all of its assets and properties used
or useful in the conduct of its business, and keep the same in good repair,
working order and condition in all material respects (taking into consideration
ordinary wear and tear) and from time to time make, or cause to be made, all
necessary or appropriate repairs, replacements and improvements thereto
consistent with industry practices; and transact business only in such corporate
and trade names as are set forth in Disclosure Schedule (5.1).
          5.2 Payment of Charges.
          (a) Subject to Section 5.2(b), each Credit Party shall pay and
discharge or cause to be paid and discharged promptly all Charges payable by it,
including (i) Charges imposed upon it, its income and profits, or any of its
property (real, personal or mixed) and all Charges with respect to tax, social
security and unemployment withholding with respect to its employees, (ii) lawful
claims for labor, materials, supplies and services or otherwise, and (iii) all
storage or rental charges payable to warehousemen and bailees, in each case,
before any thereof shall become past due.
          (b) Each Credit Party may in good faith contest, by appropriate
proceedings, the validity or amount of any Charges, Taxes or claims described in
Section 5.2(a); provided, that (i) adequate reserves with respect to such
contest are maintained on the books of such Credit Party, in accordance with
GAAP; (ii) no Lien shall be imposed to secure payment of such Charges (other
than payments to warehousemen and/or bailees) that is superior to any of the
Liens securing payment of the Obligations and such contest is maintained and
prosecuted continuously and with diligence and operates to suspend collection or
enforcement of such Charges, (iii) none of the Collateral becomes subject to
forfeiture or loss as a result of such contest, (iv) such Credit Party shall
promptly pay or discharge such contested Charges, Taxes or claims and all
additional charges, interest, penalties and expenses, if any, and shall deliver
to Agent evidence reasonably acceptable to Agent of such compliance, payment or
discharge, if such contest is terminated or discontinued adversely to such
Credit Party or the conditions set forth in this Section 5.2(b) are no longer
met, and (v) Agent has not advised Borrower in writing that Agent reasonably
believes that nonpayment or nondischarge thereof could have or result in a
Material Adverse Effect.
          5.3 Books and Records. Each Credit Party shall keep adequate books and
records with respect to its business activities in which proper entries,
reflecting all financial transactions, are made in accordance with GAAP and on a
basis consistent with the Financial Statements attached as Disclosure Schedule
(3.4(a)).
          5.4 Insurance; Damage to or Destruction of Collateral.
          (a) The Credit Parties shall, at their sole cost and expense, maintain
the policies of insurance described on Disclosure Schedule (3.18) as in effect
on the date hereof or otherwise in form and amounts and with insurers reasonably
acceptable to Agent. Such policies of insurance (or the loss payable and
additional insured endorsements delivered to Agent) shall contain provisions
pursuant to which the insurer agrees to provide 30 days prior written notice to

21

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

 

Agent in the event of any non-renewal, cancellation or amendment of any such
insurance policy. If any Credit Party at any time or times hereafter shall fail
to obtain or maintain any of the policies of insurance required above or to pay
all premiums relating thereto, Agent may at any time or times thereafter obtain
and maintain such policies of insurance and pay such premiums and take any other
action with respect thereto that Agent deems advisable. Agent shall have no
obligation to obtain insurance for any Credit Party or pay any premiums
therefor. By doing so, Agent shall not be deemed to have waived any Default or
Event of Default arising from any Credit Party’s failure to maintain such
insurance or pay any premiums therefor. All sums so disbursed, including
reasonable attorneys’ fees, court costs and other charges related thereto, shall
be payable on demand by Borrower to Agent and shall be additional Obligations
hereunder secured by the Collateral.
          (b) Agent reserves the right at any time upon any change in any Credit
Party’s risk profile (including any change in the product mix maintained by any
Credit Party or any laws affecting the potential liability of such Credit Party)
to require additional forms and limits of insurance to, in Agent’s reasonable
opinion, adequately protect both Agent’s and Lender’s interests in all or any
portion of the Collateral and to ensure that each Credit Party is protected by
insurance in amounts and with coverage customary for its industry. If reasonably
requested by Agent, each Credit Party shall deliver to Agent from time to time a
report of a reputable insurance broker, reasonably satisfactory to Agent, with
respect to its insurance policies.
          (c) Borrower shall deliver to Agent, in form and substance reasonably
satisfactory to Agent, endorsements to (i) all “All Risk” and business
interruption insurance policies naming Agent, on behalf of itself and Lenders,
as loss payee, and (ii) all general liability and other liability policies
naming Agent and Lenders, as additional insured.
          (d) Solely with respect to such “All Risk” and other casualty
insurance policies, Borrower irrevocably makes, constitutes and appoints Agent
(and all officers, employees or agents designated by Agent), so long as any
Default or Event of Default has occurred and is continuing or the anticipated
insurance proceeds under such insurance policies exceed $1,000,000, as
Borrower’s true and lawful agent and attorney-in-fact for the purpose of making,
settling and adjusting claims under such “All Risk” policies, endorsing the name
of Borrower on any check or other item of payment for the proceeds of such “All
Risk” policies and for making all determinations and decisions with respect to
such “All Risk” policies. Agent shall have no duty to exercise any rights or
powers granted to it pursuant to the foregoing power-of-attorney. Borrower shall
promptly notify Agent of any loss, damage, or destruction to the Collateral in
the amount of $250,000 or more, whether or not covered by insurance. After
deducting from such proceeds the expenses, if any, incurred by Agent in the
collection or handling thereof, Agent may, at its option, apply such proceeds to
the reduction of the Obligations in accordance with Section 1.3(c), or permit or
require Borrower to use such money, or any part thereof, to replace, repair,
restore or rebuild the Collateral in a diligent and expeditious manner with
materials and workmanship of substantially the same quality as existed before
the loss, damage or destruction. Notwithstanding the foregoing, if the casualty
giving rise to such insurance proceeds could not reasonably be expected to have
a Material Adverse Effect and such insurance proceeds do not exceed $1,000,000
in the aggregate, Agent shall permit Borrower to replace, restore, repair or
rebuild the Collateral; provided that if Borrower has not completed or entered
into binding agreements to complete such replacement, restoration, repair

22

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

 

or rebuilding within 180 days of such casualty, Agent may apply such insurance
proceeds to the Obligations in accordance with Section 1.3(e). All insurance
proceeds that are to be made available to Borrower to replace, repair, restore
or rebuild the Collateral shall be applied in accordance with the terms of the
First Lien Credit Agreement, until the Discharge of First Lien Obligations (as
defined in the Intercreditor Agreement) has occurred. After the occurrence of
the Discharge of First Lien Obligations, all insurance proceeds that are to be
made available to Borrower to replace, repair, restore or rebuild the Collateral
shall be deposited in a cash collateral account in which Agent has a first
priority Lien and thereafter such funds shall be made available to such Credit
Party to provide funds to replace, repair, restore or rebuild the Collateral
upon Agent’s receipt of a request from Borrower to release such funds in
connection with any such replacement, repair, restoration or rebuilding, subject
to the foregoing provisions of this Section 5.4(c). To the extent not used to
replace, repair, restore or rebuild the Collateral, such insurance proceeds
shall be applied in accordance with Section 1.3(c).
          5.5 Compliance with Laws. Each Credit Party shall comply with all
federal, state, local and foreign laws and regulations applicable to it
(including, without limitation, rules and regulations of the Securities and
Exchange Commission requiring the filing of certain financial and other
information or materials), including those relating to ERISA and labor matters
and Environmental Laws and Environmental Permits, except to the extent that the
failure to comply, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
          5.6 Supplemental Disclosure. From time to time as may be reasonably
requested by Agent (which request will not be made more frequently than once
each year absent the occurrence and continuance of a Default or an Event of
Default), the Credit Parties shall supplement each Disclosure Schedule hereto,
or any representation herein or in any other Loan Document, with respect to any
matter hereafter arising that, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedule or as an exception to such representation or that is
necessary to correct any information in such Disclosure Schedule or
representation which has been rendered inaccurate thereby (and, in the case of
any supplements to any Disclosure Schedule, such Disclosure Schedule shall be
appropriately marked to show the changes made therein); provided that (a) no
such supplement to any such Disclosure Schedule or representation shall amend,
supplement or otherwise modify any Disclosure Schedule or representation, or be
or be deemed a waiver of any Default or Event of Default resulting from the
matters disclosed therein, except as consented to by Agent and Requisite Lenders
in writing, and (b) no supplement shall be required or permitted as to
representations and warranties that relate solely to the Closing Date.
          5.7 Intellectual Property. Each Credit Party will conduct its business
and affairs without infringement of or interference with any Intellectual
Property of any other Person in any material respect.
          5.8 Environmental Matters. Each Credit Party shall and shall cause
each Person within its control to: (a) conduct its operations and keep and
maintain its Real Estate in compliance with all Environmental Laws and
Environmental Permits other than noncompliance that could not reasonably be
expected to have a Material Adverse Effect; (b) implement any and all
investigation, remediation, removal and response actions that are appropriate or
necessary to

23

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

 

maintain the value and marketability of the Real Estate or to otherwise comply
with Environmental Laws and Environmental Permits pertaining to the presence,
generation, treatment, storage, use, disposal, transportation or Release of any
Hazardous Material on, at, in, under, above, to, from or about any of its Real
Estate; (c) notify Agent promptly after such Credit Party becomes aware of any
violation of Environmental Laws or Environmental Permits or any Release on, at,
in, under, above, to, from or about any Real Estate that is reasonably likely to
result in Environmental Liabilities in excess of $25,000; and (d) promptly
forward to Agent a copy of any order, notice, request for information or any
communication or report received by such Credit Party in connection with any
such violation or Release or any other matter relating to any Environmental Laws
or Environmental Permits that could reasonably be expected to result in
Environmental Liabilities in excess of $50,000, in each case whether or not the
Environmental Protection Agency or any Governmental Authority has taken or
threatened any action in connection with any such violation, Release or other
matter. If Agent at any time has a reasonable basis to believe that there may be
a violation of any Environmental Laws or Environmental Permits by any Credit
Party or any Environmental Liability arising thereunder, or a Release of
Hazardous Materials on, at, in, under, above, to, from or about any of its Real
Estate, that, in each case, could reasonably be expected to have a Material
Adverse Effect, then each Credit Party shall, upon Agent’s written request
(i) cause the performance of such environmental audits including subsurface
sampling of soil and groundwater, and preparation of such environmental reports,
at Borrower’s expense, as Agent may from time to time reasonably request, which
shall be conducted by reputable environmental consulting firms reasonably
acceptable to Agent and shall be in form and substance reasonably acceptable to
Agent, and (ii) permit Agent or its representatives to have access to all Real
Estate for the purpose of conducting such environmental audits and testing as
Agent deems appropriate, including subsurface sampling of soil and groundwater.
Borrower shall reimburse Agent for the costs of such audits and tests and the
same will constitute a part of the Obligations secured hereunder.
          5.9 Landlords’ Agreements. Each Credit Party shall obtain a landlord’s
agreement, mortgagee agreement and bailee letter as applicable, from the lessor
of each leased property, mortgagee of owned property or bailee with respect to
any warehouse, processor or converter facility or other location where
Collateral is stored or located, which agreement or letter shall contain a
waiver or subordination of all Liens or claims that the landlord, mortgagee or
bailee may assert against the Collateral at that location, and shall otherwise
be reasonably satisfactory in form and substance to Agent. After the Closing
Date, no real property or warehouse space shall be leased by any Credit Party
and no Inventory shall be shipped to a processor or converter under arrangements
established after the Closing Date without the prior written consent of Agent
or, unless and until a satisfactory landlord agreement or bailee letter, as
appropriate, shall first have been obtained with respect to such location. Each
Credit Party shall timely and fully pay and perform its obligations under all
leases and other agreements with respect to each leased location or public
warehouse where any Collateral is or may be located. To the extent permitted
hereunder, if any Credit Party proposes to acquire a fee ownership interest in
Real Estate after the Closing Date, it shall first provide to Agent a mortgage
or deed of trust granting Agent a second priority Lien on such Real Estate,
together with environmental audits, mortgage title insurance commitment, real
property survey, local counsel opinion(s), and, if required by Agent,
supplemental casualty insurance and flood insurance, and such other documents,
instruments or agreements reasonably requested by Agent, in each case, in form
and substance reasonably satisfactory to Agent.

24

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

 

          5.10 Further Assurances. Each Credit Party executing this Agreement
agrees that it shall and shall cause each other Credit Party to, at such Credit
Party’s expense and upon request of Agent, duly execute and deliver, or cause to
be duly executed and delivered, to Agent such further instruments and do and
cause to be done such further acts as may be necessary or proper in the
reasonable opinion of Agent to carry out more effectively the provisions and
purposes of this Agreement or any other Loan Document.
6. NEGATIVE COVENANTS
          Each Credit Party executing this Agreement jointly and severally
agrees as to all Credit Parties that from and after the date hereof until the
Termination Date:
          6.1 Mergers, Subsidiaries, Etc. Without the prior written consent of
the Requisite Lenders (which consent may be provided or withheld in the
Requisite Lender’s sole discretion), no Credit Party shall directly or
indirectly, by operation of law or otherwise, (a) form or acquire any
Subsidiary, (b) merge with, consolidate with, acquire all or substantially all
of the assets or Stock of, or otherwise combine with or acquire, any Person, or
(c) other than purchases of Inventory and licenses of Intellectual Property, in
each case in the ordinary course of business consistent with practices as in
effect on the date hereof, purchase assets from any Person if (i) such purchase
is not a Capital Expenditure or (ii) the amount paid for such purchase does not
reduce the EBITDA, during the period such purchase is made and by the amount
paid for such purchase, of the Credit Party which makes such purchase.
Notwithstanding the foregoing, Credit Parties may form one or more new wholly
owned Subsidiaries as long as (i) no more than ten new subsidiaries are formed
after the date hereof; (ii) as of the date of such formation of such new
Subsidiary, no Event of Default shall have occurred and be continuing;
(iii) pursuant to documentation acceptable to the Agent, each of such new
Subsidiaries at the time it is formed becomes a Credit Party (each, a “New
Credit Party”) under this Agreement; and (iv) at the time that such New Credit
Party is formed, all Credit Parties, including each such New Credit Party, shall
have executed and delivered such amendments, restatements or other supplements
to this Agreement and/or the other existing Loan Documents, and such new Loan
Documents and other notes, documents, certificates, opinions and agreements as
Agent may deem necessary or appropriate, including, without limitation, (a) a
joinder agreement with respect to this Agreement, the Security Agreement and the
Guaranty and a Mortgage, as applicable, together with all necessary financing
statements and/or fixture filings, as applicable, by each New Credit Party to
ensure that the Obligations are secured by second priority Liens on
substantially all of the assets of such New Credit Party and that each New
Credit Party is guarantying the Obligations, (b) a Pledge Amendment to the
Pledge Agreement pledging 100% of the Stock of each such New Credit Party to
Agent, and (c) formation and organization documents, certificates, resolutions
and legal opinions with respect to the foregoing which shall, in each case, be
in form and substance satisfactory to Agent.
          6.2 Investments; Loans and Advances. No Credit Party shall make or
permit to exist any investment in, or make, accrue or permit to exist loans or
advances of money to, any Person, through the direct or indirect lending of
money, holding of securities or otherwise, except that: (a) Credit Parties may
hold investments comprised of notes payable, or stock or other securities issued
by Account Debtors to such Credit Party, as applicable pursuant to negotiated
agreements with respect to settlement of such Account Debtor’s Accounts in the

25

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

 

ordinary course of business, so long as the aggregate amount of such Accounts so
settled by the Credit Parties does not exceed $500,000 in the aggregate
outstanding at any time (in the aggregate for the Credit Parties combined);
(b) each Credit Party may maintain its existing equity investments in its
Subsidiaries as of the Closing Date; (c) Borrower may maintain Eligible
Certificate of Deposits; (d) so long as no Default or Event of Default has
occurred and there is no outstanding Revolving Loan (as defined in the First
Lien Credit Agreement) balance, Borrower may make investments, subject to
Control Letters in favor of Agent for the benefit of Lenders or otherwise
subject to a perfected security interest in favor of Agent for the benefit of
Lenders, in Permitted Cash Equivalents; (e) Credit Parties may make Vendor
Advances as long as the aggregate amount of Net Vendor Advances made during any
Fiscal Year does not at any time during such Fiscal Year exceed for each Fiscal
Year ending on or prior to March 31, 2007, $15,000,000, (ii) for each Fiscal
Year ending after March 31, 2007 but on or prior to March 31, 2009, $16,500,000
and (iii) for each Fiscal Year thereafter, $17,500,000 (provided, that the
amount set forth for any Fiscal Year shall be increased by the lesser of (x)
$3,000,000 or (y) the maximum Net Vendor Advances which were, pursuant to this
Section, permitted to be made during the then immediately preceding Fiscal Year
less the actual amount of Net Vendor Advances made during such immediately
preceding Fiscal Year; (f) advances by a Credit Party to its employees expressly
permitted by Section 6.4(b) hereof; (g) the Credit Parties may make loans or
advances to the other Credit Parties as permitted under Section 6.3(a)(v);
(h) the Borrower may make (and permit to exist) capital contributions to Navarre
CP, Navarre CLP and Navarre CS as long as each of such Persons uses all of the
proceeds thereof on the date received to either make a payment due pursuant to
Section 1.4 of the FUNimation Purchase Agreement or make a Performance Payment
(as defined in the FUNimation Purchase Agreement); (i) a loan by the Borrower to
Eric Paulson pursuant to Eric Paulson’s employment agreement in an aggregate
principal amount not to exceed $400,000 may exist and (j) the Credit Parties may
make other investments not exceeding $250,000 in the aggregate at any time
outstanding.
          6.3 Indebtedness.
          (a) No Credit Party shall create, incur, assume or permit to exist any
Indebtedness, except (without duplication) (i) Indebtedness secured by purchase
money security interests and Capital Leases permitted in Section 6.7(c),
(ii) the Loans and the other Obligations, (iii) unfunded pension fund and other
employee benefit plan obligations and liabilities to the extent they are
permitted to remain unfunded under applicable law, (iv) existing Indebtedness
described in Disclosure Schedule (6.3) and refinancings thereof or amendments or
modifications thereof that do not have the effect of increasing the principal
amount thereof or changing the amortization thereof (other than to extend the
same) and that are otherwise on terms and conditions no less favorable to any
Credit Party, Agent or any Lender, as determined by Agent, than the terms of the
Indebtedness being refinanced, amended or modified, (v) Indebtedness consisting
of intercompany loans and advances made by a Credit Party to any other Credit
Party; provided, that: (A) each Credit Party shall have executed and delivered a
master subordinated intercompany note ( the “Intercompany Note”) to evidence any
such Indebtedness owing at any time, which Intercompany Note shall be in form
and substance reasonably satisfactory to Agent and shall be pledged and
delivered to Agent pursuant to the applicable Pledge Agreement or Security
Agreement as security for the Obligations; (B) each Credit Party shall record
all intercompany transactions on its books and records in a manner reasonably
satisfactory to Agent; (C) the obligations of each Credit Party under such
Intercompany Note shall be subordinated to

26

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

 

the Obligations in a manner reasonably satisfactory to Agent; (D) at the time
any such intercompany loan or advance is made by a Credit Party and after giving
effect thereto, each applicable Credit Party shall be Solvent; (E) no Default or
Event of Default would occur and be continuing after giving effect to any such
proposed loan or advance and (F) in the case of any New Credit Party, the
related loans to such New Credit Party are permitted pursuant to Section 6.2(h),
(vi) obligations for Performance Payments (as defined in the FUNimation Purchase
Agreement) or similar payment obligations incurred by the Borrower, Navarre CP,
Navarre CLP and/or Navarre CS in connection with the FUNimation Acquisition in
an aggregate amount not to exceed $17,000,000, (vii) Indebtedness incurred
pursuant to the First Lien Credit Agreement in an aggregate amount not to exceed
the limitations thereon set forth in Section 5.3 of the Intercreditor Agreement
and (viii) hedging obligations under swaps, caps and collar arrangements
arranged by General Electric Capital Corporation, a Delaware corporation.
          (b) No Credit Party shall, directly or indirectly, voluntarily
purchase, redeem, defease or prepay any principal of, premium, if any, interest
or other amount payable in respect of any Indebtedness, other than (i) the
Obligations; (ii) Indebtedness (other than Indebtedness under the First Lien
Credit Agreement) secured by a Permitted Encumbrance if the asset securing such
Indebtedness has been sold or otherwise disposed of in accordance with
Sections 6.8(b) or (c); (iii) Indebtedness permitted by Section 6.3(a)(iv) upon
any refinancing thereof in accordance with Section 6.3(a)(iv); (iv) other
Indebtedness (other than Indebtedness under the First Lien Credit Agreement) not
in excess of $250,000; and (v) as otherwise permitted in Section 6.14.
          6.4 Employee Loans and Affiliate Transactions.
          (a) No Credit Party shall enter into or be a party to any transaction
with any other Credit Party or any Affiliate thereof except in the ordinary
course of and pursuant to the reasonable requirements of such Credit Party’s
business and upon fair and reasonable terms that are no less favorable to such
Credit Party than would be obtained in a comparable arm’s length transaction
with a Person not an Affiliate of such Credit Party. In addition, if any such
transaction or series of related transactions involves payments in excess of
$100,000 in the aggregate, the terms of these transactions must be disclosed in
advance to Agent and Lenders. All such transactions existing as of the date
hereof are described in Disclosure Schedule (6.4(a)).
          (b) No Credit Party shall enter into any lending or borrowing
transaction with any employees of any Credit Party, except loans to its
respective employees on an arm’s-length basis in the ordinary course of business
consistent with past practices for travel and entertainment expenses, relocation
costs and similar purposes and stock option financing up to a maximum of
$100,000 to any employee and up to a maximum of $500,000 in the aggregate at any
one time outstanding.
          6.5 Capital Structure and Business. No Credit Party shall (a) make any
changes in any of its business objectives, purposes or operations that could in
any way adversely affect the repayment of the Term Loan or any of the other
Obligations or could reasonably be expected to have or result in a Material
Adverse Effect, (b) make any change in its capital structure as described in
Disclosure Schedule (3.8), including the issuance or sale of any shares of
Stock, warrants or other securities convertible into Stock or any revision of
the terms of its outstanding Stock; provided, that the Borrower may issue or
sell its Stock for cash so long as (i)

27

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

 

the proceeds thereof are applied in prepayment of the Obligations as required by
Section 1.3(b)(iii), and (ii) no Change of Control occurs after giving effect
thereto, or (c) amend its charter or bylaws in a manner that would adversely
affect Agent or Lenders or such Credit Party’s duty or ability to repay the
Obligations. No Credit Party shall engage in any business other than the
businesses currently engaged in by it or businesses reasonably related thereto.
          6.6 Guaranteed Indebtedness. No Credit Party shall create, incur,
assume or permit to exist any Guaranteed Indebtedness except (a) by endorsement
of instruments or items of payment for deposit to the general account of any
Credit Party, and (b) for Guaranteed Indebtedness incurred for the benefit of
any other Credit Party if the primary obligation is expressly permitted by this
Agreement.
          6.7 Liens and Related Matters. (a) No Credit Party shall create,
incur, assume or permit to exist any Lien on or with respect to its Accounts or
any of its other properties or assets (whether now owned or hereafter acquired)
except for (a) Permitted Encumbrances; (b) Liens in existence on the date hereof
and summarized on Disclosure Schedule (6.7) securing Indebtedness described on
Disclosure Schedule (6.3) and permitted refinancings, extensions and renewals
thereof, including extensions or renewals of any such Liens; provided that the
principal amount so secured is not increased and the Lien does not attach to any
other property; (c) Liens created after the date hereof by conditional sale or
other title retention agreements (including Capital Leases) or in connection
with purchase money Indebtedness with respect to Equipment and Fixtures acquired
by any Credit Party in the ordinary course of business, involving the incurrence
of an aggregate amount of purchase money Indebtedness and Capital Lease
Obligations of not more than $250,000 outstanding at any one time for all such
Liens (provided that such Liens attach only to the assets subject to such
purchase money debt and such Indebtedness is incurred within 20 days following
such purchase and does not exceed 100% of the purchase price of the subject
assets); and (d) Liens securing obligations under the First Lien Credit
Agreement, as long as the principal amount thereof is Indebtedness permitted
pursuant to Section 6.3(a)(xii) and such Liens do not attach to any assets that
are not subject to Liens securing the Obligations. In addition, no Credit Party
shall become a party to any agreement, note, indenture or instrument, or take
any other action, that would prohibit the creation of a Lien on any of its
properties or other assets in favor of Agent, on behalf of itself and Lenders,
as additional collateral for the Obligations, except operating leases, Capital
Leases or Licenses which prohibit Liens upon the assets that are subject
thereto.
          (b) The Credit Parties shall not, and shall not cause or permit their
Subsidiaries to, directly or indirectly enter into or assume any agreement
(other than the Loan Documents or the First Lien Credit Agreement and related
documents) prohibiting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired and other than (i)
provisions restricting subletting or assignment under any lease governing a
leasehold interest or lease of personal property and (ii) restrictions on
assignments or sublicensing of licensed Intellectual Property.
          (c) Except as provided herein or in the First Lien Credit Agreement
and related documents, the Credit Parties shall not, and shall not cause or
permit their Subsidiaries to, directly or indirectly create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or restriction
of any kind on the ability of any such Subsidiary to (1)

28

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

 

pay dividends or make any other distribution on any of such Subsidiary’s Stock
owned by a Credit Party, (2) pay any Indebtedness owed to any Credit Party,
(3) make loans or advances to any Credit Party, or (4) transfer any of its
property or assets to any Credit Party.
          6.8 Sale of Stock and Assets. No Credit Party shall sell, transfer,
convey, assign or otherwise dispose of any of its properties or other assets,
including the Stock of any of its Subsidiaries (whether in a public or a private
offering or otherwise) or any of its Accounts, other than (a) the sale of
Inventory in the ordinary course of business, (b) the sale, transfer, conveyance
or other disposition by a Credit Party of Equipment, Fixtures or Real Estate
that are obsolete or no longer used or useful in such Credit Party’s business
and having an appraised value not exceeding $100,000 in any single transaction
or $500,000 in the aggregate in any Fiscal Year, (c) a sale, transfer,
conveyance or other disposition permitted under Section 6.1 and (d) the sale by
animeOnline of the real property located in Decatur, Wise County, Texas as more
fully described on Disclosure Schedule (6.8) (such transaction, the “Texas Real
Estate Sale Transaction”) for an amount not less than the amount set forth on
Disclosure Schedule (6.8), as long as at the time of such sale and after giving
effect thereto, no Default or Event of Default has occurred and is continuing.
With respect to any disposition of assets or other properties permitted pursuant
to clauses (b) and (d) above, subject to Section 1.3(b), Agent agrees on
reasonable prior written notice to release its Lien on such assets or other
properties in order to permit the applicable Credit Party to effect such
disposition and shall execute and deliver to Borrower, at Borrower’s expense,
appropriate UCC-3 termination statements and other releases as reasonably
requested by Borrower.
          6.9 ERISA. No Credit Party shall, or shall cause or permit any ERISA
Affiliate to, cause or permit to occur an event that could result in the
imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of
ERISA or cause or permit to occur an ERISA Event to the extent such ERISA Event
could reasonably be expected to have a Material Adverse Effect.
          6.10 Financial Covenants. Borrower shall not breach or fail to comply
with any of the Financial Covenants.
          6.11 Hazardous Materials. No Credit Party shall cause or permit a
Release of any Hazardous Material on, at, in, under, above, to, from or about
any of the Real Estate where such Release would (a) violate in any respect, or
form the basis for any Environmental Liabilities under, any Environmental Laws
or Environmental Permits or (b) otherwise adversely impact the value or
marketability of any of the Real Estate or any of the Collateral, other than
such violations or Environmental Liabilities that could not reasonably be
expected to have a Material Adverse Effect.
          6.12 Sale-Leasebacks. No Credit Party shall engage in any
sale-leaseback, synthetic lease or similar transaction involving any of its
assets.
          6.13 Cancellation of Indebtedness. No Credit Party shall cancel any
claim or debt owing to it, except for reasonable consideration negotiated on an
arm’s-length basis and in the ordinary course of its business consistent with
past practices.

29

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

 

          6.14 Restricted Payments. No Credit Party shall make any Restricted
Payment, except (a) dividends and distributions by Subsidiaries of Borrower paid
to Borrower, (b) employee loans permitted under Section 6.4(b),(c) on any day,
the Borrower may repurchase the Borrower’s own shares of common stock, as long
as (i) at the time of such repurchase and after giving effect thereto, no
Default or Event of Default has occurred and is continuing, (ii) after giving
effect to such repurchase, the Borrowing Availability (as defined in the First
Lien Credit Agreement) shall be at least $15,000,000 and (iii) the aggregate
consideration paid for all such repurchases during any consecutive twelve month
period does not exceed $250,000, (d) payment of Earnout Amounts (under and as
defined in the BCI Eclipse Purchase Agreement as in effect on November 5, 2003)
as long as (i) at the time of such payment and after giving effect thereto, no
Default or Event of Default has occurred and is continuing, (ii) the aggregate
amount of such payments to be made after the Closing Date shall not exceed
$300,000 in any Fiscal Year, (iii) the aggregate amount of all such payments to
be made after the closing date shall not at any time exceed $750,000 and
(iv) prior to such payment the Borrower has delivered evidence satisfactory to
the Agent demonstrating that, had such payment been made on the last day of the
then most recently completed Fiscal Quarter, Borrower would have been in
compliance with the financial covenants set forth on Annex F to the Credit
Agreement as of the end of such Fiscal Quarter, (e) payment of Performance
Payments (under, as defined in and in accordance with the FUNimation Purchase
Agreement) in an aggregate amount not to exceed $17,000,000, (f) payments made
to or for the benefit of Eric Paulson pursuant to his employment agreement with
the Borrower, as more particularly described on Disclosure Schedule (6.14).
          6.15 Change of Corporate Name or Location; Change of Fiscal Year. No
Credit Party shall (a) change its name as it appears in official filings in the
state of its incorporation or other organization, (b) change its chief executive
office, principal place of business, corporate offices or warehouses or
locations at which Collateral is held or stored, or the location of its records
concerning the Collateral, (c) change the type of entity that it is, (d) change
its organization identification number, if any, issued by its state of
incorporation or other organization, or (e) change its state of incorporation or
organization, in each case without at least 30 days prior written notice to
Agent and after Agent’s written acknowledgment that any reasonable action
requested by Agent in connection therewith, including to continue the perfection
of any Liens in favor of Agent, on behalf of Lenders, in any Collateral, has
been completed or taken, and provided that any such new location shall be in the
continental United States. Without limiting the foregoing, no Credit Party shall
change its name, identity or corporate structure in any manner that might make
any financing or continuation statement filed in connection herewith seriously
misleading as such term is defined in and/or used in the Code or any other then
applicable provision of the Code except upon prior written notice to Agent and
Lenders and after Agent’s written acknowledgment that any reasonable action
requested by Agent in connection therewith, including to continue the perfection
of any Liens in favor of Agent, on behalf of Lenders, in any Collateral, has
been completed or taken. No Credit Party shall change its Fiscal Year.
          6.16 No Impairment of Intercompany Transfers. No Credit Party shall
directly or indirectly enter into or become bound by any agreement, instrument,
indenture or other obligation (other than this Agreement and the other Loan
Documents) that could directly or indirectly restrict, prohibit or require the
consent of any Person with respect to the payment of

30

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

 

dividends or distributions or the making or repayment of intercompany loans by a
Subsidiary of Borrower to Borrower.
          6.17 No Speculative Transactions. No Credit Party shall engage in any
transaction involving commodity options, futures contracts or similar
transactions, except solely to hedge against fluctuations in the prices of
commodities owned or purchased by it and the values of foreign currencies
receivable or payable by it and interest swaps, caps or collars.
          6.18 Leases; Real Estate Purchases. No Credit Party shall enter into
any operating lease for Equipment or Real Estate, if the aggregate of all such
operating lease payments payable in any year for Borrower on a consolidated
basis would exceed $250,000. No Credit Party shall purchase a fee simple
ownership interest in Real Estate.
          6.19 Amendments. Without the prior written consent of the Requisite
Lenders, the Borrower shall not enter into any amendment, supplement,
restatement, other modification or waiver with respect to any of the Minnesota
Sale-Leaseback Documents or the FUNimation Acquisition Documents. In addition,
the Borrower shall not amend, supplement or otherwise modify the First Lien
Credit Agreement or the related documents in a manner which would violate the
Intercreditor Agreement.
          6.20 Navarre CP, Navarre CLP and Navarre CS. Each of Navarre CP,
Navarre CLP and Navarre CS shall not engage in any trade or business, own any
assets (other than Stock of FUNimation Productions and animeOnline) or incur any
Indebtedness or Guaranteed Indebtedness (other than the Obligations); provided,
however, that each of Navarre CP, Navarre CLP and Navarre CS may guarantee the
First Lien Credit Facility in the manner provided in the First Lien Credit
Agreement.
7. TERM
          7.1 Termination. The financing arrangements contemplated hereby shall
be in effect until the Termination Date, and the Loans and all other Obligations
shall be automatically due and payable in full on such date.
          7.2 Survival of Obligations Upon Termination of Financing
Arrangements. Except as otherwise expressly provided for in the Loan Documents,
no termination or cancellation (regardless of cause or procedure) of any
financing arrangement under this Agreement shall in any way affect or impair the
obligations, duties and liabilities of the Credit Parties or the rights of Agent
and Lenders relating to any unpaid portion of the Loans or any other
Obligations, due or not due, liquidated, contingent or unliquidated or any
transaction or event occurring prior to such termination, or any transaction or
event, the performance of which is required after the Termination Date. Except
as otherwise expressly provided herein or in any other Loan Document, all
undertakings, agreements, covenants, warranties and representations of or
binding upon the Credit Parties, and all rights of Agent and each Lender, all as
contained in the Loan Documents, shall not terminate or expire, but rather shall
survive any such termination or cancellation and shall continue in full force
and effect until the Termination Date; provided, that the provisions of
Section 11, the payment obligations under Sections 1.15 and 1.16, and the
indemnities contained in the Loan Documents shall survive the Termination Date.

31

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

 

8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
          8.1 Events of Default. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an “Event
of Default” hereunder:
          (a) Borrower (i) fails to make any payment of principal of, or
interest on, or Fees owing in respect of, the Loans or any of the other
Obligations when due and payable, or (ii) fails to pay or reimburse Agent or
Lenders for any expense reimbursable hereunder or under any other Loan Document
within 10 days following Agent’s demand for such reimbursement or payment of
expenses.
          (b) Any Credit Party fails or neglects to perform, keep or observe any
of the provisions of Sections 1.4, 1.8, 5.4(a) or 6, or any of the provisions
set forth in Annexes D or F, respectively.
          (c) Borrower fails or neglects to perform, keep or observe any of the
provisions of Section 4 or any provisions set forth in Annexes B or E,
respectively, and the same shall remain unremedied for 5 days or more.
          (d) Any Credit Party fails or neglects to perform, keep or observe any
other provision of this Agreement or of any of the other Loan Documents (other
than any provision embodied in or covered by any other clause of this
Section 8.1) and the same shall remain unremedied for 30 days or more.
          (e) A default or breach occurs under any other agreement, document or
instrument to which any Credit Party is a party that is not cured within any
applicable grace period therefor, and such default or breach (i) involves the
failure to make any payment when due in respect of any Indebtedness or
Guaranteed Indebtedness (other than the Obligations) of any Credit Party in
excess of $250,000 in the aggregate (including (x) undrawn committed or
available amounts and (y) amounts owing to all creditors under any combined or
syndicated credit arrangements), or (ii) causes, or permits any holder of such
Indebtedness or Guaranteed Indebtedness or a trustee to cause, Indebtedness or
Guaranteed Indebtedness or a portion thereof in excess of $250,000 in the
aggregate to become due prior to its stated maturity or prior to its regularly
scheduled dates of payment, or cash collateral to be demanded in respect
thereof, in each case, regardless of whether such default is waived, or such
right is exercised, by such holder or trustee;
          (f) Intentionally Omitted.
          (g) Assets of any Credit Party with a fair market value of $250,000 or
more are attached, seized, levied upon or subjected to a writ or distress
warrant, or come within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors of any Credit Party and such condition
continues for 30 days or more.
          (h) A case or proceeding is commenced against any Credit Party seeking
a decree or order in respect of such Credit Party (i) under the Bankruptcy Code
or any other applicable federal, state or foreign bankruptcy or other similar
law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) for such Credit Party or

32

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

 

for any substantial part of any such Credit Party’s assets, or (iii) ordering
the winding-up or liquidation of the affairs of such Credit Party, and such case
or proceeding shall remain undismissed or unstayed for 60 days or more or a
decree or order granting the relief sought in such case or proceeding by a court
of competent jurisdiction.
          (i) Any Credit Party (i) files a petition seeking relief under the
Bankruptcy Code or any other applicable federal, state or foreign bankruptcy or
other similar law, (ii) consents to or fails to contest in a timely and
appropriate manner to the institution of proceedings thereunder or to the filing
of any such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar
official) for such Credit Party or for any substantial part of any such Credit
Party’s assets, (iii) makes an assignment for the benefit of creditors, or
(iv) takes any action in furtherance of any of the foregoing, or (v) admits in
writing its inability to, or is generally unable to, pay its debts as such debts
become due.
          (j) A final judgment or judgments for the payment of money in excess
of $250,000 in the aggregate at any time are outstanding against one or more of
the Credit Parties and the same are not, within 30 days after the entry thereof,
discharged or execution thereof stayed or bonded pending appeal, or such
judgments are not discharged prior to the expiration of any such stay.
          (k) Any material provision of any Loan Document for any reason ceases
to be valid, binding and enforceable in accordance with its terms (or any Credit
Party shall challenge the enforceability of any Loan Document or shall assert in
writing, or engage in any action or inaction based on any such assertion, that
any provision of any of the Loan Documents has ceased to be or otherwise is not
valid, binding and enforceable in accordance with its terms), or any Lien
created under any Loan Document ceases to be a valid and perfected first
priority Lien (except as otherwise permitted herein or therein) in any of the
Collateral purported to be covered thereby.
          (l) Any Change of Control occurs.
          (m) Any representation or warranty herein or in any Loan Document or
in any written statement, report, financial statement or certificate made or
delivered to Agent or any Lender by any Credit Party is untrue or incorrect in
any material respect as of the date when made or deemed made.
          8.2 Remedies.
          (a) If any Default or Event of Default has occurred and is continuing,
Agent may (and at the written request of the Requisite Lenders shall), without
notice except as otherwise expressly provided herein, increase the rate of
interest applicable to the Term Loan to the Default Rate.
          (b) If any Event of Default has occurred and is continuing, Agent may
(and at the written request of the Requisite Lenders shall), without notice:
(i) declare all or any portion of the Obligations, including all or any portion
of any Loan to be forthwith due and payable, all without presentment, demand,
protest or further notice of any kind, all of which are expressly

33

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

 

waived by Borrower and each other Credit Party; or (ii) exercise any rights and
remedies provided to Agent under the Loan Documents or at law or equity,
including all remedies provided under the Code; provided, that upon the
occurrence of an Event of Default specified in Sections 8.1(h) or (i), all of
the Obligations, including the Term Loan, shall become immediately due and
payable without declaration, notice or demand by any Person.
          8.3 Waivers by Credit Parties. Except as otherwise provided for in
this Agreement or by applicable law, each Credit Party waives: (a) presentment,
demand and protest and notice of presentment, dishonor, notice of intent to
accelerate, notice of acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by Agent on which any Credit Party may in any way be
liable, and hereby ratifies and confirms whatever Agent may do in this regard,
(b) all rights to notice and a hearing prior to Agent’s taking possession or
control of, or to Agent’s replevy, attachment or levy upon, the Collateral or
any bond or security that might be required by any court prior to allowing Agent
to exercise any of its remedies, and (c) the benefit of all valuation,
appraisal, marshaling and exemption laws.
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT
          9.1 Assignment and Participations.
          (a) Subject to the terms of this Section 9.1, any Lender may make an
assignment to a Qualified Assignee of, or sale of participations in, at any time
or times, the Loan Documents and Loans or any portion thereof or interest
therein (provided that assignments of the Term Loan shall not exceed $5,000,000
in aggregate principal amount), including any Lender’s rights, title, interests,
remedies, powers or duties thereunder. Any assignment by a Lender shall: (i)
require the consent of Agent (which consent shall not be unreasonably withheld
or delayed with respect to a Qualified Assignee) and the execution of an
assignment agreement (an “Assignment Agreement” substantially in the form
attached hereto as Exhibit 9.1(a) and otherwise in form and substance reasonably
satisfactory to, and acknowledged by, Agent; (ii) be conditioned on such
assignee Lender representing to the assigning Lender and Agent that it is
purchasing the applicable Loans to be assigned to it for its own account, for
investment purposes and not with a view to the distribution thereof; (iii) after
giving effect to any such partial assignment, the assignee Lender shall have
Commitments in an amount at least equal to $1,000,000 and the assigning Lender
shall have retained Commitments in an amount at least equal to $1,000,000;
(iv) include a payment to Agent of an assignment fee of $3,500. In the case of
an assignment by a Lender under this Section 9.1, the assignee shall have, to
the extent of such assignment, the same rights, benefits and obligations as all
other Lenders hereunder. The assigning Lender shall be relieved of its
obligations hereunder with respect to its Commitments or assigned portion
thereof from and after the date of such assignment. Borrower hereby acknowledges
and agrees that any assignment shall give rise to a direct obligation of
Borrower to the assignee and that the assignee shall be considered to be a
“Lender”. In all instances, each Lender’s liability to make Loans hereunder
shall be several and not joint and shall be limited to such Lender’s Pro Rata
Share of the applicable Commitment. In the event Agent or any Lender assigns or
otherwise transfers all or any part of the Obligations, Agent or any such Lender
shall so notify Borrower and Borrower shall, upon the request of Agent or such
Lender, execute new

34

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

 

Notes in exchange for the Notes, if any, being assigned. Notwithstanding the
foregoing provisions of this Section 9.1(a), any Lender may at any time pledge
the Obligations held by it and such Lender’s rights under this Agreement and the
other Loan Documents to a Federal Reserve Bank, and any lender that is an
investment fund may assign the Obligations held by it and such Lender’s rights
under this Agreement and the other Loan Documents to another investment fund
managed by the same investment advisor; provided, that no such pledge to a
Federal Reserve Bank shall release such Lender from such Lender’s obligations
hereunder or under any other Loan Document.
          (b) In addition to the other rights provided in this Section 9.1, each
Lender may, (x) with notice to the Agent, grant to an SPV the option to make all
or any part of any Loan that such Lender would otherwise be required to make
hereunder (and the exercise of such option by such SPV and the making of Loans
pursuant thereto shall satisfy the obligation of such Lender to make such Loans
hereunder) and such SPV may assign to such Lender the right to receive payment
with respect to any Obligation and (y) without notice to or consent from the
Agent or the Borrower, (i) sell participations to one or more Persons in or to
all or a portion of its rights and obligations under the Loan Documents
(including all its rights and obligations with respect to the Term Loan) and
(ii) transfer its rights to receive payments hereunder to one or more Affiliates
(a “Transferee”); provided, however, that, whether as a result of any term of
any Loan Document or of such grant, participation or transfer, (i) no such SPV,
participant or Transferee shall have a commitment, or be deemed to have made an
offer to commit, to make Loans hereunder, and, except as provided in the
applicable option agreement, none shall be liable for any obligation of such
Lender hereunder, (ii) such Lender’s rights and obligations, and the rights and
obligations of the Loan Parties and the secured parties towards such Lender
under any Loan Document shall remain unchanged and each other party hereto shall
continue to deal solely with such Lender, which shall remain the registered
holder of the Obligations, except that (A) each such participant and SPV shall
be entitled to the benefit of Sections 1.15 and 1.16, but only to the extent
such participant or SPV delivers the tax forms such Lender is required to
collect pursuant hereto and then only to the extent of any amount to which such
Lender would be entitled in the absence of any such grant or participation and
(B) each such SPV may receive other payments that would otherwise be made to
such Lender with respect to Loans funded by such SPV to the extent provided in
the applicable option agreement and set forth in a notice provided to the Agent
by such SPV and such Lender, provided, however, that in no case (including
pursuant to clause (A) or (B) above) shall an SPV, participant or Transferee
have the right to enforce any of the terms of any Loan Document, and (iii) the
consent of such SPV, participant or Transferee shall not be required (either
directly, as a restraint on such Lender’s ability to consent hereunder or
otherwise) for any amendments, waivers or consents with respect to any Loan
Document or to exercise or refrain from exercising any powers or rights such
Lender may have under or in respect of the Loan Documents (including the right
to enforce or direct enforcement of the Obligations), except with respect to an
SPV or a participant for those described in clauses 11.2(c)(ii) or (iii) with
respect to amounts, or dates fixed for payment of amounts, to which such
participant or SPV would otherwise be entitled and, in the case of participants,
except for those described in Section 11.2(c)(ii) or (iii) (or amendments,
consents and waivers with respect to Section 11.2(c)(ii) or (iii) the release of
all or substantially all of the Collateral). No party hereto shall institute
against any SPV grantee of an option pursuant to this clause (b) any bankruptcy,
reorganization, insolvency, liquidation or similar proceeding, prior to the date
that is one year and one day after the payment in full of all outstanding
commercial

35

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

 

paper of such SPV; provided, however, that each Lender having designated an SPV
as such agrees to indemnify each Indemnitee against any liability that may be
incurred by, or asserted against, such Indemnitee as a result of failing to
institute such proceeding (including a failure to get reimbursed by such SPV for
any such liability). The agreement in the preceding sentence shall survive the
termination of the Commitments and the payment in full of the Obligations.
          (c) Except as expressly provided in this Section 9.1, no Lender shall,
as between Borrower and that Lender, or Agent and that Lender, be relieved of
any of its obligations hereunder as a result of any sale, assignment, transfer
or negotiation of, or granting of participation in, all or any part of the
Loans, the Notes or other Obligations owed to such Lender.
          (d) Each Credit Party executing this Agreement shall assist any Lender
permitted to sell assignments or participations under this Section 9.1 as
reasonably required to enable the assigning or selling Lender to effect any such
assignment or participation, including the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be requested and
the preparation of informational materials for, and the participation of
management in meetings with, potential assignees or participants. Each Credit
Party executing this Agreement shall certify the correctness, completeness and
accuracy of all descriptions of the Credit Parties and their respective affairs
contained in any selling materials provided by it and all other information
provided by it and included in such materials, except that any Projections
delivered by Borrower shall only be certified by Borrower as having been
prepared by Borrower in compliance with the representations contained in
Section 3.4(c).
          (e) A Lender may furnish any information concerning Credit Parties in
the possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants); provided that such Lender
shall obtain from assignees or participants confidentiality covenants
substantially equivalent to those contained in Section 11.8.
          (f) So long as no Event of Default has occurred and is continuing, no
Lender shall assign or sell participations in any portion of its Loans or
Commitments to a potential Lender or participant, if, as of the date of the
proposed assignment or sale, the assignee Lender or participant would be subject
to capital adequacy or similar requirements under Section 1.16(a), increased
costs under Section 1.16(b), an inability to fund LIBOR Loans under
Section 1.16(c), or withholding taxes in accordance with Section 1.15(a).
          (g) In addition to the other rights provided in this Section 9.1, each
Lender may grant a security interest in, or otherwise assign as collateral, any
of its rights under this Agreement, whether now owned or hereafter acquired
(including rights to payments of principal or interest on the Loans), to (A) any
federal reserve bank (pursuant to Regulation A of the Federal Reserve Board),
without notice to the Agent or (B) any holder of, or trustee for the benefit of
the holders of, such Lender’s securities by notice to the Agent; provided,
however, that no such holder or trustee, whether because of such grant or
assignment or any foreclosure thereon (unless such foreclosure is made through
an assignment in accordance with clause (a) above), shall be entitled to any
rights of such Lender hereunder and no such Lender shall be relieved of any of
its obligations hereunder.

36

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

 

          9.2 Appointment of Agent. Monroe Capital is hereby appointed to act on
behalf of all Lenders as Agent under this Agreement and the other Loan
Documents. The provisions of this Section 9.2 are solely for the benefit of
Agent and Lenders and no Credit Party nor any other Person shall have any rights
as a third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement and the other Loan Documents, Agent
shall act solely as an agent of Lenders and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for any Credit Party or any other Person. Agent shall have no duties or
responsibilities except for those expressly set forth in this Agreement and the
other Loan Documents. The duties of Agent shall be mechanical and administrative
in nature and Agent shall not have, or be deemed to have, by reason of this
Agreement, any other Loan Document or otherwise a fiduciary relationship in
respect of any Lender. Except as expressly set forth in this Agreement and the
other Loan Documents, Agent shall not have any duty to disclose, and shall not
be liable for failure to disclose, any information relating to any Credit Party
or any of their respective Subsidiaries or any Account Debtor that is
communicated to or obtained by Monroe Capital or any of its Affiliates in any
capacity. Neither Agent nor any of its Affiliates nor any of their respective
officers, directors, employees, agents or representatives shall be liable to any
Lender for any action taken or omitted to be taken by it hereunder or under any
other Loan Document, or in connection herewith or therewith, except for damages
caused by its or their own gross negligence or willful misconduct.
          If Agent shall request instructions from Requisite Lenders or all
affected Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any other Loan Document, then Agent shall be
entitled to refrain from such act or taking such action unless and until Agent
shall have received instructions from Requisite Lenders or all affected Lenders,
as the case may be, and Agent shall not incur liability to any Person by reason
of so refraining. Agent shall be fully justified in failing or refusing to take
any action hereunder or under any other Loan Document (a) if such action would,
in the opinion of Agent, be contrary to law or the terms of this Agreement or
any other Loan Document, (b) if such action would, in the opinion of Agent,
expose Agent to Environmental Liabilities or (c) if Agent shall not first be
indemnified to its satisfaction against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against Agent as a result of Agent acting or refraining from acting
hereunder or under any other Loan Document in accordance with the instructions
of Requisite Lenders or all affected Lenders, as applicable.
          9.3 Agent’s Reliance, Etc. Neither Agent nor any of its Affiliates nor
any of their respective directors, officers, agents or employees shall be liable
for any action taken or omitted to be taken by it or them under or in connection
with this Agreement or the other Loan Documents, except for damages caused by
its or their own gross negligence or willful misconduct. Without limiting the
generality of the foregoing, Agent: (a) may treat the payee of any Note as the
holder thereof until Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form reasonably satisfactory to Agent;
(b) may consult with legal counsel, independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken by it in good faith in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or

37

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

 

representations made in or in connection with this Agreement or the other Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the other Loan Documents on the part of any Credit Party or to
inspect the Collateral (including the books and records) of any Credit Party;
(e) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
the other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; and (f) shall incur no liability under or in respect of this
Agreement or the other Loan Documents by acting upon any notice, consent,
certificate or other instrument or writing (which may be by telecopy, telegram,
cable or telex) believed by it to be genuine and signed or sent by the proper
party or parties.
          9.4 Monroe Capital and Affiliates. With respect to its Commitments and
Loans hereunder, Monroe Capital shall have the same rights and powers under this
Agreement and the other Loan Documents as any other Lender and may exercise the
same as though it were not Agent; and the term “Lender” or “Lenders” shall,
unless otherwise expressly indicated, include Monroe Capital in its individual
capacity. Monroe Capital and its Affiliates may lend money to, invest in, and
generally engage in any kind of business with, any Credit Party, any of their
Affiliates and any Person who may do business with or own securities of any
Credit Party or any such Affiliate, all as if Monroe Capital were not Agent and
without any duty to account therefor to Lenders. Monroe Capital and its
Affiliates may accept fees and other consideration from any Credit Party for
services in connection with this Agreement or otherwise without having to
account for the same to Lenders. Monroe Capital and its affiliates may also make
Loans under the First Lien Credit Agreement and/or act as agent thereunder. Each
Lender acknowledges and waives the potential conflict of interest between Monroe
Capital as a Lender holding interests in the Loans and Monroe Capital as Agent
and Monroe Capital as lender and/or agent under the First Lien Credit Agreement.
          9.5 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon Agent or any other Lender and based on
the Financial Statements referred to in Section 3.4(a) and such other documents
and information as it has deemed appropriate, made its own credit and financial
analysis of the Credit Parties and its own decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement. Each
Lender acknowledges the potential conflict of interest of each other Lender as a
result of Lenders holding disproportionate interests in the Loans, and expressly
consents to, and waives any claim based upon, such conflict of interest.
          9.6 Indemnification. Lenders agree to indemnify Agent (to the extent
not reimbursed by Credit Parties and without limiting the obligations of
Borrower hereunder), ratably according to their respective Pro Rata Shares, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by, or asserted against Agent
in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted to be taken by Agent in connection
therewith; provided, that no Lender shall be liable for any portion of such
liabilities, obligations, losses,

38

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

 

damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from Agent’s gross negligence or willful misconduct. Without limiting
the foregoing, each Lender agrees to reimburse Agent promptly upon demand for
its ratable share of any out-of-pocket expenses (including reasonable counsel
fees) incurred by Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement and each other Loan Document,
to the extent that Agent is not reimbursed for such expenses by Credit Parties.
          9.7 Successor Agent. Agent may resign at any time by giving not less
than 30 days’ prior written notice thereof to Lenders and Borrower. Upon any
such resignation, the Requisite Lenders shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Requisite Lenders and shall have accepted such appointment within 30 days after
the resigning Agent’s giving notice of resignation, then the resigning Agent
may, on behalf of Lenders, appoint a successor Agent, which shall be a Lender,
if a Lender is willing to accept such appointment, or otherwise shall be a
commercial bank or financial institution or a subsidiary of a commercial bank or
financial institution if such commercial bank or financial institution is
organized under the laws of the United States of America or of any State thereof
and has a combined capital and surplus of at least $300,000,000. If no successor
Agent has been appointed pursuant to the foregoing, within 30 days after the
date such notice of resignation was given by the resigning Agent, such
resignation shall become effective and the Requisite Lenders shall thereafter
perform all the duties of Agent hereunder until such time, if any, as the
Requisite Lenders appoint a successor Agent as provided above. Any successor
Agent appointed by Requisite Lenders hereunder shall be subject to the approval
of Borrower, such approval not to be unreasonably withheld or delayed; provided
that such approval shall not be required if a Default or an Event of Default has
occurred and is continuing. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall succeed to and become
vested with all the rights, powers, privileges and duties of the resigning
Agent. Upon the earlier of the acceptance of any appointment as Agent hereunder
by a successor Agent or the effective date of the resigning Agent’s resignation,
the resigning Agent shall be discharged from its duties and obligations under
this Agreement and the other Loan Documents, except that any indemnity rights or
other rights in favor of such resigning Agent shall continue. After any
resigning Agent’s resignation hereunder, the provisions of this Section 9 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was acting as Agent under this Agreement and the other Loan Documents.
          9.8 Setoff and Sharing of Payments. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of any such
rights, upon the occurrence and during the continuance of any Event of Default
and subject to Section 9.9(f), each Lender is hereby authorized at any time or
from time to time, without notice to any Credit Party or to any other Person,
any such notice being hereby expressly waived, to offset and to appropriate and
to apply any and all balances held by it at any of its offices for the account
of Borrower or any Guarantor (regardless of whether such balances are then due
to Borrower or any Guarantor) and any other properties or assets at any time
held or owing by that Lender or that holder to or for the credit or for the
account of Borrower or any Guarantor against and on account of any of the
Obligations that are not paid when due. Any Lender exercising a right of setoff
or otherwise receiving any payment on account of the Obligations in excess of
its Pro Rata

39

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

 

Share thereof shall purchase for cash (and the other Lenders or holders shall
sell) such participations in each such other Lender’s or holder’s Pro Rata Share
of the Obligations as would be necessary to cause such Lender to share the
amount so offset or otherwise received with each other Lender or holder in
accordance with their respective Pro Rata Shares, (other than offset rights
exercised by any Lender with respect to Sections 1.13, 1.15 or 1.16). Borrower
and each Guarantor agrees, to the fullest extent permitted by law, that (a) any
Lender may exercise its right to offset with respect to amounts in excess of its
Pro Rata Share of the Obligations and may sell participations in such amounts so
offset to other Lenders and holders and (b) any Lender so purchasing a
participation in the Loans made or other Obligations held by other Lenders or
holders may exercise all rights of offset, bankers’ lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender or
holder were a direct holder of the Loans and the other Obligations in the amount
of such participation. Notwithstanding the foregoing, if all or any portion of
the offset amount or payment otherwise received is thereafter recovered from the
Lender that has exercised the right of offset, the purchase of participations by
that Lender shall be rescinded and the purchase price restored without interest.
          9.9 Advances; Payments; Non-Funding Lenders; Information; Actions in
Concert.
          (a) Advances; Payments.
               (i) Each Lender shall make the amount of such Lender’s Pro Rata
Share of the Term Loan available to Agent in same day funds by wire transfer to
Agent’s account as set forth in Annex G not later than 12:00 p.m. (Chicago time)
on the Closing Date. After receipt of such wire transfers (or, in the Agent’s
sole discretion, before receipt of such wire transfers), subject to the terms
hereof, Agent shall make the requested Loan to Borrower. All payments by each
Lender shall be made without setoff, counterclaim or deduction of any kind.
               (ii) On the 2nd Business Day of each calendar week or more
frequently at Agent’s election (each, a “Settlement Date”), Agent shall advise
each Lender by telephone, or telecopy of the amount of such Lender’s Pro Rata
Share of principal, interest and Fees paid for the benefit of Lenders with
respect to the Term Loan. Provided that each Lender has funded its Loan as of
such Settlement Date, Agent shall pay to each Lender such Lender’s Pro Rata
Share of principal, interest and Fees paid by Borrower since the previous
Settlement Date for the benefit of such Lender on the Loans held by it. To the
extent that any Lender (a “Non-Funding Lender”) has failed to fund all such
payments and Loans or failed to fund the purchase of all such participations,
Agent shall be entitled to set off the funding short-fall against that
Non-Funding Lender’s Pro Rata Share of all payments received from Borrower. Such
payments shall be made by wire transfer to such Lender’s account (as specified
by such Lender in Annex G or the applicable Assignment Agreement) not later than
1:00 p.m. (Chicago time) on the next Business Day following each Settlement
Date.
          (b) Intentionally Omitted.

40

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

 

          (c) Return of Payments.
               (i) If Agent pays an amount to a Lender under this Agreement in
the belief or expectation that a related payment has been or will be received by
Agent from Borrower and such related payment is not received by Agent, then
Agent will be entitled to recover such amount from such Lender on demand without
setoff, counterclaim or deduction of any kind.
               (ii) If Agent determines at any time that any amount received by
Agent under this Agreement must be returned to Borrower or paid to any other
Person pursuant to any insolvency law or otherwise, then, notwithstanding any
other term or condition of this Agreement or any other Loan Document, Agent will
not be required to distribute any portion thereof to any Lender. In addition,
each Lender will repay to Agent on demand any portion of such amount that Agent
has distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to Borrower or such other Person, without setoff,
counterclaim or deduction of any kind.
          (d) Intentionally Omitted.
          (e) Dissemination of Information. Agent shall use reasonable efforts
to provide Lenders with any notice of Default or Event of Default received by
Agent from, or delivered by Agent to, any Credit Party, with notice of any Event
of Default of which Agent has actually become aware and with notice of any
action taken by Agent following any Event of Default; provided, that Agent shall
not be liable to any Lender for any failure to do so, except to the extent that
such failure is attributable to Agent’s gross negligence or willful misconduct.
Lenders acknowledge that Borrower is required to provide Financial Statements
and Collateral Reports to Lenders in accordance with Annexes E and F hereto and
agree that Agent shall have no duty to provide the same to Lenders.
          (f) Actions in Concert. Anything in this Agreement to the contrary
notwithstanding, each Lender hereby agrees with each other Lender that no Lender
shall take any action to protect or enforce its rights arising out of this
Agreement or the Notes (including exercising any rights of setoff) without first
obtaining the prior written consent of Agent and Requisite Lenders, it being the
intent of Lenders that any such action to protect or enforce rights under this
Agreement and the Notes shall be taken in concert and at the direction or with
the consent of Agent or Requisite Lenders.
          9.10 Intercreditor Agreement. Agent is authorized to execute and
deliver the Intercreditor Agreement with the initial lenders and/or agent under
the First Lien Credit Agreement, and each Lender by making or purchasing an
interest in any Commitment or Loan at any time shall be deemed to have agreed to
be bound by such agreement.
10. SUCCESSORS AND ASSIGNS
          10.1 Successors and Assigns. This Agreement and the other Loan
Documents shall be binding on and shall inure to the benefit of each Credit
Party, Agent, Lenders and their respective successors and assigns (including, in
the case of any Credit Party, a debtor-in-possession on behalf of such Credit
Party), except as otherwise provided herein or therein. No Credit Party may
assign, transfer, hypothecate or otherwise convey its rights, benefits,

41

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

 

obligations or duties hereunder or under any of the other Loan Documents without
the prior express written consent of Agent and Lenders. Any such purported
assignment, transfer, hypothecation or other conveyance by any Credit Party
without the prior express written consent of Agent and Lenders shall be void.
The terms and provisions of this Agreement are for the purpose of defining the
relative rights and obligations of each Credit Party, Agent and Lenders with
respect to the transactions contemplated hereby and no Person shall be a third
party beneficiary of any of the terms and provisions of this Agreement or any of
the other Loan Documents.
11. MISCELLANEOUS
          11.1 Complete Agreement; Modification of Agreement. The Loan Documents
constitute the complete agreement between the parties with respect to the
subject matter thereof and may not be modified, altered or amended except as set
forth in Section 11.2. Any letter of interest, commitment letter or fee letter
(other than the Monroe Capital Fee Letter) or confidentiality agreement, if any,
between any Credit Party and Agent or any Lender or any of their respective
Affiliates, predating this Agreement and relating to a financing of
substantially similar form, purpose or effect shall be superseded by this
Agreement.
          11.2 Amendments and Waivers.
          (a) Except for actions expressly permitted to be taken by Agent, no
amendment, modification, termination or waiver of any provision of this
Agreement or any other Loan Document, or any consent to any departure by any
Credit Party therefrom, shall in any event be effective unless the same shall be
in writing and signed by Agent and Borrower, and by Requisite Lenders or all
affected Lenders, as applicable. Except as set forth in clauses (b) and (c)
below, all such amendments, modifications, terminations or waivers requiring the
consent of any Lenders shall require the written consent of Requisite Lenders.
          (b) Intentionally Omitted.
          (c) No amendment, modification, termination or waiver shall, unless in
writing and signed by Agent and each Lender directly affected thereby:
(i) increase the principal amount of any Lender’s Commitment (which action shall
be deemed to directly affect all Lenders); (ii) reduce the principal of, rate of
interest on or Fees payable with respect to the Loan of any affected Lender;
(iii) extend any scheduled payment date (other than payment dates of mandatory
prepayments under Section 1.3(b)(ii)-(iii) or final maturity date of the
principal amount of any Loan of any affected Lender; (iv) waive, forgive, defer,
extend or postpone any payment of interest or Fees as to any affected Lender;
(v) release any Guaranty or, except as otherwise permitted herein or in the
other Loan Documents, release, or permit any Credit Party to sell or otherwise
dispose of, any Collateral with a value exceeding $5,000,000 in the aggregate
(which action shall be deemed to directly affect all Lenders); (vi) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Loans that shall be required for Lenders or any of them to take any action
hereunder; and (vii) amend or waive this Section 11.2 or the definitions of the
term “Requisite Lenders” insofar as such definitions affect the substance of
this Section 11.2. Furthermore, no amendment, modification, termination or
waiver affecting the rights or duties of Agent under this Agreement or any other
Loan Document, including any

42

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

 

release of any Guaranty or Collateral requiring a writing signed by all Lenders,
shall be effective unless in writing and signed by Agent in addition to Lenders
required hereinabove to take such action. Each amendment, modification,
termination or waiver shall be effective only in the specific instance and for
the specific purpose for which it was given. No amendment, modification,
termination or waiver shall be required for Agent to take additional Collateral
pursuant to any Loan Document. No amendment, modification, termination or waiver
of any provision of any Note shall be effective without the written concurrence
of the holder of that Note. No notice to or demand on any Credit Party in any
case shall entitle such Credit Party or any other Credit Party to any other or
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
Section 11.2 shall be binding upon each holder of the Notes at the time
outstanding and each future holder of the Notes.
          (d) If, in connection with any proposed amendment, modification,
waiver or termination (a “Proposed Change”):
               (i) requiring the consent of all affected Lenders, the consent of
Requisite Lenders is obtained, but the consent of other Lenders whose consent is
required is not obtained (any such Lender whose consent is not obtained as
described in this clause (i) and in clause (ii) below being referred to as a
“Non-Consenting Lender”), or
               (ii) requiring the consent of Requisite Lenders, the consent of
Lenders holding 51% or more of the aggregate outstanding Term Loan is obtained,
but the consent of Requisite Lenders is not obtained;
then, so long as Agent is not a Non-Consenting Lender, at Borrower’s request
Agent, or a Person reasonably acceptable to Agent, shall have the right with
Agent’s consent and in Agent’s sole discretion (but shall have no obligation) to
purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders agree
that they shall, upon Agent’s request, sell and assign to Agent or such Person,
all of the Loans of such Non-Consenting Lenders for an amount equal to the
principal balance of all Loans held by the Non-Consenting Lenders and all
accrued interest and Fees with respect thereto through the date of sale, such
purchase and sale to be consummated pursuant to an executed Assignment
Agreement. It being acknowledged and agreed by the parties hereto that the
requirements for the payment of any prepayment fee shall not be applicable with
respect to any purchase by Agent of all of the Commitments of a Non-Consenting
Lender as set forth in this clause (d).
          (e) Upon payment in full in cash and performance of all of the
Obligations (other than indemnification Obligations), termination of the
Commitments and a release of all claims against Agent and Lenders, and so long
as no suits, actions proceedings, or claims are pending or threatened against
any Indemnified Person asserting any damages, losses or liabilities that are
Indemnified Liabilities, Agent shall deliver to Borrower termination statements,
mortgage releases and other documents necessary or appropriate to evidence the
termination of the Liens securing payment of the Obligations.
          11.3 Fees and Expenses. Borrower shall reimburse (i) Agent for all
fees, costs and expenses (including the reasonable fees and expenses of all of
its counsel, advisors,

43

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

 

consultants and auditors) and (ii) Agent (and, with respect to clauses (c) and
(d) below, all Lenders) for all fees, costs and expenses, including the
reasonable fees, costs and expenses of counsel or other advisors (including
environmental and management consultants and appraisers) incurred in connection
with the negotiation, preparation and filing and/or recordation of the Loan
Documents and incurred in connection with:
          (a) the forwarding to Borrower or any other Person on behalf of
Borrower by Agent of the proceeds of any Loan (including a wire transfer fee of
$25 per wire transfer);
          (b) any amendment, modification or waiver of, or consent with respect
to, or termination of, any of the Loan Documents or Related Transactions
Documents or advice in connection with the syndication and administration of the
Loans made pursuant hereto or its rights hereunder or thereunder;
          (c) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Agent, any Lender, any Credit Party or any other Person
and whether as a party, witness or otherwise) in any way relating to the
Collateral, any of the Loan Documents or any other agreement to be executed or
delivered in connection herewith or therewith, including any litigation,
contest, dispute, suit, case, proceeding or action, and any appeal or review
thereof, in connection with a case commenced by or against any or all of the
Credit Parties or any other Person that may be obligated to Agent by virtue of
the Loan Documents, including any such litigation, contest, dispute, suit,
proceeding or action arising in connection with any work-out or restructuring of
the Loans during the pendency of one or more Events of Default; provided that in
the case of reimbursement of counsel for Lenders other than Agent, such
reimbursement shall be limited to one counsel for all such Lenders; provided,
further, that no Person shall be entitled to reimbursement under this clause (c)
in respect of any litigation, contest, dispute, suit, proceeding or action to
the extent any of the foregoing results from such Person’s gross negligence or
willful misconduct;
          (d) any attempt to enforce any remedies of Agent or any Lender against
any or all of the Credit Parties or any other Person that may be obligated to
Agent or any Lender by virtue of any of the Loan Documents, including any such
attempt to enforce any such remedies in the course of any work-out or
restructuring of the Loans during the pendency of one or more Events of Default;
provided, that in the case of reimbursement of counsel for Lenders other than
Agent, such reimbursement shall be limited to one counsel for all such Lenders;
          (e) any workout or restructuring of the Loans during the pendency of
one or more Events of Default; and
          (f) efforts to (i) monitor the Loans or any of the other Obligations,
(ii) evaluate, observe or assess any of the Credit Parties or their respective
affairs, and (iii) verify, protect, evaluate, assess, appraise, collect, sell,
liquidate or otherwise dispose of any of the Collateral;
including, as to each of clauses (a) through (f) above, all reasonable
attorneys’ and other professional and service providers’ fees arising from such
services and other advice, assistance or other representation, including those
in connection with any appellate proceedings, and all

44

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

 

expenses, costs, charges and other fees incurred by such counsel and others in
connection with or relating to any of the events or actions described in this
Section 11.3, all of which shall be payable, on demand, by Borrower to Agent.
Without limiting the generality of the foregoing, such expenses, costs, charges
and fees may include: fees, costs and expenses of accountants, environmental
advisors, appraisers, investment bankers, management and other consultants and
paralegals; court costs and expenses; photocopying and duplication expenses;
court reporter fees, costs and expenses; long distance telephone charges; air
express charges; telegram or telecopy charges; secretarial overtime charges; and
expenses for travel, lodging and food paid or incurred in connection with the
performance of such legal or other advisory services.
          11.4 No Waiver. Agent’s or any Lender’s failure, at any time or times,
to require strict performance by the Credit Parties of any provision of this
Agreement or any other Loan Document shall not waive, affect or diminish any
right of Agent or such Lender thereafter to demand strict compliance and
performance herewith or therewith. Any suspension or waiver of an Event of
Default shall not suspend, waive or affect any other Event of Default whether
the same is prior or subsequent thereto and whether the same or of a different
type. Subject to the provisions of Section 11.2, none of the undertakings,
agreements, warranties, covenants and representations of any Credit Party
contained in this Agreement or any of the other Loan Documents and no Default or
Event of Default by any Credit Party shall be deemed to have been suspended or
waived by Agent or any Lender, unless such waiver or suspension is by an
instrument in writing signed by an officer of or other authorized employee of
Agent and the applicable required Lenders and directed to Borrower specifying
such suspension or waiver.
          11.5 Remedies. Agent’s and Lenders’ rights and remedies under this
Agreement shall be cumulative and nonexclusive of any other rights and remedies
that Agent or any Lender may have under any other agreement, including the other
Loan Documents, by operation of law or otherwise. Recourse to the Collateral
shall not be required.
          11.6 Severability. Wherever possible, each provision of this Agreement
and the other Loan Documents shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
or any other Loan Document shall be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement or such other Loan Document.
          11.7 Conflict of Terms. Except as otherwise provided in this Agreement
or any of the other Loan Documents by specific reference to the applicable
provisions of this Agreement, if any provision contained in this Agreement
conflicts with any provision in any of the other Loan Documents, the provision
contained in this Agreement shall govern and control.
          11.8 Confidentiality. Agent and each Lender agree to use commercially
reasonable efforts (equivalent to the efforts Agent or such Lender applies to
maintain the confidentiality of its own confidential information) to maintain as
confidential all confidential information provided to them by the Credit Parties
and designated as confidential following receipt thereof, except that Agent and
each Lender may disclose such information (a) to Persons employed or engaged by
Agent or such Lender; (b) to any bona fide assignee or participant or potential
assignee or participant that has agreed to comply with the covenant contained in
this

45

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

 

Section 11.8 (and any such bona fide assignee or participant or potential
assignee or participant may disclose such information to Persons employed or
engaged by them as described in clause (a) above); (c) as required or requested
by any Governmental Authority or reasonably believed by Agent or such Lender to
be compelled by any court decree, subpoena or legal or administrative order or
process; (d) as, on the advise of Agent’s or such Lender’s counsel, is required
by law; (e) in connection with the exercise of any right or remedy under the
Loan Documents or in connection with any Litigation to which Agent or such
Lender is a party; (f) that ceases to be confidential through no fault of Agent
or any Lender; (g) to a Person that is an investor or prospective investor in a
Securitization that agrees that its access to information regarding the Borrower
and the Loans is solely for purposes of evaluating an investment in such
Securitization; or (h) to a Person that is a trustee, collateral manager,
servicer, noteholder or secured party in a Securitization in connection with the
administration, servicing and reporting on the assets serving as collateral for
such Securitization. For purposes of this Section, “Securitization” means a
public or private offering by a Lender or any of its Affiliates or their
respective successors and assigns, of securities which represent an interest in,
or which are collateralized, in whole or in part, by the Loans.
          11.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF
THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE
AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH CREDIT PARTY
HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN COOK
COUNTY, CITY OF CHICAGO, ILLINOIS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND LENDERS
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS;
PROVIDED, THAT AGENT, LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
COOK COUNTY AND; PROVIDED, FURTHER THAT NOTHING IN THIS AGREEMENT SHALL BE
DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL
ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF AGENT. EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
CREDIT PARTY HEREBY WAIVES ANY OBJECTION THAT SUCH CREDIT PARTY MAY HAVE BASED
UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND
HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS, COMPLAINT AND

46

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

 

OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN ANNEX I OF THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
SUCH CREDIT PARTY’S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE UNITED
STATES MAILS, PROPER POSTAGE PREPAID.
          11.10 Notices
          (a) Addresses. All notices, demands, requests, directions and other
communications required or expressly authorized to be made by this Agreement
shall, whether or not specified to be in writing but unless otherwise expressly
specified to be given by any other means, be given in writing and (i) addressed
to (A) the party to be notified and sent to the address or facsimile number
indicated in Annex H, or (B) otherwise to the party to be notified at its
address specified on the signature page of any applicable Assignment Agreement,
(ii) solely with respect to notices to Lenders, posted to Intralinks® (to the
extent such system is available and set up by or at the direction of the Agent
prior to posting) in an appropriate location by uploading such notice, demand,
request, direction or other communication to www.intralinks.com, faxing it to
866-545-6600 with an appropriate bar-coded fax coversheet or using such other
means of posting to Intralinks® as may be available and reasonably acceptable to
the Agent prior to such posting, (iii) solely with respect to notices to
Lenders, posted to any other E-System set up by or at the direction of Agent in
an appropriate location or (iv) addressed to such other address as shall be
notified in writing (A) in the case of Borrower and Agent to the other parties
hereto and (B) in the case of all other parties, to Borrower and Agent.
Transmission by electronic mail (including E-Fax, even if transmitted to the fax
numbers set forth in clause (i) above) shall not be sufficient or effective to
transmit any such notice under this clause (a) unless such transmission is an
available means to post to any E-System.
          (b) Effectiveness. All communications described in clause (a) above
and all other notices, demands, requests and other communications made in
connection with this Agreement shall be effective and be deemed to have been
received (i) if delivered by hand, upon personal delivery, (ii) if delivered by
overnight courier service, one Business Day after delivery to such courier
service, (iii) if delivered by mail, when deposited in the mails, (iv) if
delivered by facsimile (other than to post to an E-System pursuant to clause
(a)(ii) or (a)(iii) above), upon sender’s receipt of confirmation of proper
transmission, and (v) if delivered by posting to any E-System, on the later of
the date of such posting in an appropriate location and the date access to such
posting is given to the recipient thereof in accordance with the standard
procedures applicable to such E-System. Failure or delay in delivering copies of
any notice, demand, request, consent, approval, declaration or other
communication to any Person (other than Borrower or Agent) designated in Annex H
to receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
The giving of any notice required hereunder may be waived in writing by the
party entitled to receive such notice.
          (c) Electronic Transmissions, Authorization. Subject to the provisions
of Section 11.10(a), each of the Agent, the Credit Parties, the Lenders, and
each of their Related

47

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

 

Persons is authorized (but not required) to transmit, post or otherwise make or
communicate, in its sole discretion, Electronic Transmissions in connection with
any Loan Document and the transactions contemplated therein. Each of the Credit
Parties, Agent and the Lenders hereby acknowledges and agrees that the use of
Electronic Transmissions is not necessarily secure and that there are risks
associated with such use, including risks of interception, disclosure and abuse
and each indicates it assumes and accepts such risks by hereby authorizing the
transmission of Electronic Transmissions.
          (d) Signatures. Subject to the provisions of Section 11.10(a), (i)(A)
no posting to any E-System shall be denied legal effect merely because it is
made electronically, (B) each E-Signature on any such posting shall be deemed
sufficient to satisfy any requirement for a “signature” and (C) each such
posting shall be deemed sufficient to satisfy any requirement for a “writing”,
in each case including pursuant to any Loan Document, any applicable provision
of any UCC, the federal Uniform Electronic Transactions Act, the Electronic
Signatures in Global and National Commerce Act and any substantive or procedural
requirement of law governing such subject matter, (ii) each such posting that is
not readily capable of bearing either a signature or a reproduction of a
signature may be signed, and shall be deemed signed, by attaching to, or
logically associating with such posting, an E-Signature, upon which each of
Agent, the Lenders and the Credit Parties may rely and assume the authenticity
thereof, (iii) each such posting containing a signature, a reproduction of a
signature or an E-Signature shall, for all intents and purposes, have the same
effect and weight as a signed paper original and (iv) each party hereto or
beneficiary hereto agrees not to contest the validity or enforceability of any
posting on any E-System or E-Signature on any such posting under the provisions
of any applicable requirement of law requiring certain documents to be in
writing or signed; provided, however, that nothing herein shall limit such
party’s or beneficiary’s right to contest whether any posting to any E-System or
E-Signature has been altered after transmission.
          (e) Separate Agreements. All uses of an E-System shall be governed by
and subject to, in addition to this Section 11.11, separate terms and conditions
posted or referenced in such E-System and related contractual obligations
executed by Agent, the Lenders and Credit Parties in connection with the use of
such E-System.
          11.11 Section Titles. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.
          11.12 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which shall collectively and separately
constitute one agreement.
          11.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE

48

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

 

PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE, AMONG AGENT, LENDERS AND ANY CREDIT PARTY ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN
CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS RELATED THERETO.
          11.14 Press Releases and Related Matters. Each Credit Party executing
this Agreement agrees that neither it nor its Affiliates will in the future
issue any press releases or other public disclosure using the name of Monroe
Capital or its affiliates or referring to this Agreement, the other Loan
Documents or the Related Transactions Documents without at least 2 Business
Days’ prior notice to Monroe Capital and without the prior written consent of
Monroe Capital unless (and only to the extent that) such Credit Party or
Affiliate is required to do so under law and then, in any event, such Credit
Party or Affiliate will consult with Monroe Capital before issuing such press
release or other public disclosure. Each Credit Party consents to the
publication by Agent or any Lender of a tombstone or similar advertising
material relating to the financing transactions contemplated by this Agreement.
Agent or such Lender shall provide a draft of any such tombstone or similar
advertising material to each Credit Party for review and comment prior to the
publication thereof. Agent reserves the right to provide to industry trade
organizations information necessary and customary for inclusion in league table
measurements.
          11.15 Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
any Credit Party for liquidation or reorganization, should any Credit Party
become insolvent or make an assignment for the benefit of any creditor or
creditors or should a receiver or trustee be appointed for all or any
significant part of any Credit Party’s assets, and shall continue to be
effective or to be reinstated, as the case may be, if at any time payment and
performance of the Obligations, or any part thereof, is, pursuant to applicable
law, rescinded or reduced in amount, or must otherwise be restored or returned
by any obligee of the Obligations, whether as a “voidable preference,”
“fraudulent conveyance,” or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Obligations shall be reinstated
and deemed reduced only by such amount paid and not so rescinded, reduced,
restored or returned.
          11.16 Advice of Counsel. Each of the parties represents to each other
party hereto that it has discussed this Agreement and, specifically, the
provisions of Sections 11.9 and 11.13, with its counsel.
          11.17 No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
          11.18 Compliance with Federal Law. Each Credit Party shall (a) ensure,
and cause each Subsidiary to ensure, that no Person who owns a controlling
interest in or otherwise

49

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

 

controls such Credit Party or such Subsidiary is or shall be listed on the
Specially Designated Nationals and Blocked Person List or other similar lists
maintained by the Office of Foreign Assets Control (“OFAC”), the Department of
the Treasury or included in any Executive Orders, (b) not use or permit the use
of the proceeds of the Loans to violate any of the foreign asset control
regulations of OFAC or any enabling statute or Executive Order relating thereto,
and (c) comply, and cause each Subsidiary to comply, with all applicable Bank
Secrecy Act laws and regulations, as amended.
          11.19 Customer Identification — USA Patriot Act Notice. Each Lender
and the Agent (for itself and not on behalf of any other party) hereby notifies
the Credit Parties that, pursuant to the requirements of the USA Patriot Act,
Title III of Pub. L. 107-56, signed into law October 26, 2001 (the “Patriot
Act”), it is required to obtain, verify and record information that identifies
the Credit Parties, which information includes the name and address of the
Credit Parties and other information that will allow such Lender or the Agent,
as applicable, to identify the Credit Parties in accordance with the Patriot
Act.
          11.20 Source of Funds. Notwithstanding the use by the Lenders of the
Index Rate and the LIBOR Rate as reference rates for the determination of
interest on the Term Loan, the Lenders shall be under no obligation to obtain
funds from any particular source in order to charge interest to the Borrower at
interest rates tied to such reference rates.
[Signature Pages Follow]

50

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

 

          IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.

            NAVARRE CORPORATION, as Borrower
      By:           Name:           Title:           MONROE CAPITAL ADVISORS,
LLC, as Agent and Lender
      By:           Name:           Title:      

[Signature Page to Credit Agreement]

S-1

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

 

          IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above by below Persons in their capacity as Credit Parties
not as Borrower.

            ENCORE SOFTWARE, INC., as Credit Party
      By:           Name:           Title:        

            BCI ECLIPSE COMPANY, LLC, as Credit Party
      By:           Name:           Title:        

            FUNIMATION PRODUCTIONS LTD., as Credit Party
 
By: Navarre CP, LLC, its General Partner
 
    By:           Name:           Title:        

            ANIMEONLINE, LTD., as Credit Party
 
By: Navarre CS, LLC, its General Partner
       By:           Name:           Title:        

            NAVARRE CP, LLC, as Credit Party
      By:           Name:           Title:      

[Signature Page to Credit Agreement]

S-2

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

 

            NAVARRE CLP, LLC, as Credit Party
      By:           Name:           Title:           NAVARRE CS, LLC, as Credit
Party
      By:           Name:           Title:           NAVARRE LOGISTICAL
SERVICES, INC., as Credit Party
      By:           Name:           Title:           NAVARRE DIGITAL SERVICES,
INC., as Credit Party
      By:           Name:           Title:           NAVARRE ONLINE FULFILLMENT
SERVICES, INC., as Credit Party
      By:           Name:           Title:      

[Signature Page to Credit Agreement]

S-3

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

 

            NAVARRE DISTRIBUTION SERVICES, INC., as Credit Party
      By:           Name:           Title:           NAVARRE MEDIA
ENTERTAINMENT, INC., as Credit Party
      By:           Name:           Title:           FUNIMATION CHANNEL, INC.,
as Credit Party
      By:           Name:           Title:      

[Signature Page to Credit Agreement]

S-4

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

 

ANNEX A (Recitals)
to
CREDIT AGREEMENT
DEFINITIONS
          Capitalized terms used in the Loan Documents shall have (unless
otherwise provided elsewhere in the Loan Documents) the following respective
meanings and all references to Sections, Exhibits, Schedules or Annexes in the
following definitions shall refer to Sections, Exhibits, Schedules or Annexes of
or to the Agreement:
          “Account Debtor” means any Person who may become obligated to any
Credit Party under, with respect to, or on account of, an Account, Chattel Paper
or General Intangibles (including a payment intangible).
          “Accounting Changes” has the meaning ascribed thereto in Annex F.
          “Accounts” means all “accounts,” as such term is defined in the Code,
now owned or hereafter acquired by any Credit Party, including (a) all accounts
receivable, other receivables, book debts and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper or Instruments), (including
any such obligations that may be characterized as an account or contract right
under the Code), (b) all of each Credit Party’s rights in, to and under all
purchase orders or receipts for goods or services, (c) all of each Credit
Party’s rights to any goods represented by any of the foregoing (including
unpaid sellers’ rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods), (d) all rights
to payment due to any Credit Party for property sold, leased, licensed, assigned
or otherwise disposed of, for a policy of insurance issued or to be issued, for
a secondary obligation incurred or to be incurred, for energy provided or to be
provided, for the use or hire of a vessel under a charter or other contract,
arising out of the use of a credit card or charge card, or for services rendered
or to be rendered by such Credit Party or in connection with any other
transaction (whether or not yet earned by performance on the part of such Credit
Party), (e) all healthcare insurance receivables, and (f) all collateral
security of any kind, now or hereafter in existence, given by any Account Debtor
or other Person with respect to any of the foregoing.
          “Affiliate” means, with respect to any Person, (a) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, 5% or more of the Stock having ordinary voting
power in the election of directors of such Person, (b) each Person that
controls, is controlled by or is under common control with such Person, (c) each
of such Person’s officers, directors, joint venturers and partners and (d) in
the case of Borrower, the immediate family members, spouses and lineal
descendants of individuals who are Affiliates of Borrower. For the purposes of
this definition, “control” of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise; provided, however, that the term “Affiliate” shall specifically
exclude Agent and each Lender.
          “Agent” means Monroe Capital in its capacity as Agent for Lenders or
its successor appointed pursuant to Section 9.7.

Annex A-1

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

 

          “Agreement” means the Credit Agreement dated as of the Closing Date by
and among Borrower, the other Credit Parties party thereto, Monroe Capital, as
Agent and Lender and the other Lenders from time to time party thereto, as the
same may be amended, supplemented, restated or otherwise modified from time to
time (including, without limitation, by any joinder agreement thereto by any New
Credit Party).
          “animeOnline” means animeOnline, Ltd., a Texas limited partnership.
          “Appendices” has the meaning ascribed to it in the recitals to the
Agreement.
          “Applicable Margin” means 7.50% per annum.
          “Approved Fund” means, with respect to any Lender, any Person (other
than a natural Person) that (a) is or will be engaged in making, purchasing,
holding or otherwise investing in commercial loans and similar extensions of
credit in the ordinary course of its business and (b) is advised or managed by
(i) such Lender, (ii) any Affiliate of such Lender or (iii) any Person (other
than an individual) or any Affiliate of any Person (other than an individual)
that administers or manages such Lender.
          “Approved Obligor” shall mean each Person which the Agent has notified
the Borrower in writing from time to time constitutes an “Approved Obligor” for
the purposes of this Agreement. As of the Closing Date, each of Costco Wholesale
Corporation, Sam’s Club, Best Buy Co., Inc., Target Stores, Inc., Circuit City
Stores, Inc. and Wal-Mart Stores, Inc. constitutes an Approved Obligor.
          “Assignment Agreement” has the meaning ascribed to it in
Section 9.1(a).
          “Bankruptcy Code” means the provisions of Title 11 of the United
States Code, 11 U.S.C. §§ 101 et seq.
          “BCI Eclipse” means BCI Eclipse Company, LLC, a Minnesota limited
liability company, a wholly owned Subsidiary of Borrower.
          “BCI Eclipse Purchase Agreement” means that certain Asset Purchase
Agreement, dated as of November 3, 2003, by and among Borrower, BCI Eclipse as
buyer, BCI Eclipse, LLC, a New York limited liability company as seller and the
Members (as defined therein) named therein (together with any exhibits,
schedules and any other annexes or supplements thereto and as in effect as of
November 3, 2003 and as amended or otherwise modified in a manner not prohibited
by the Credit Agreement.
          “Blocked Accounts” has the meaning ascribed to it in Annex B.
          “Borrower” has the meaning ascribed thereto in the preamble to the
Agreement.
          “Business Day” means any day that is not a Saturday, a Sunday or a day
on which banks are required or permitted to be closed in the States of Illinois
and/or New York and in reference to LIBOR Loans shall mean any such day that is
also a LIBOR Business Day.

Annex A-2

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

 

          “Capital Expenditures” means, with respect to any Person, all
expenditures (by the expenditure of cash or the incurrence of Indebtedness) by
such Person during any measuring period for any fixed assets or improvements or
for replacements, substitutions or additions thereto, that have a useful life of
more than one year and that are required to be capitalized under GAAP.
          “Capital Lease” means, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, would be required to be classified and accounted for as a
capital lease on a balance sheet of such Person.
          “Capital Lease Obligation” means, with respect to any Capital Lease of
any Person, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease.
          “Cash Management Systems” has the meaning ascribed to it in
Section 1.8.
          “Change of Control” means any of the following: (a) other than the
holders of the Borrower’s capital Stock as of the Closing Date, any person or
group of persons (within the meaning of the Securities Exchange Act of 1934)
shall have acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 20% or more of the issued and outstanding shares of
capital Stock of the Borrower having the right to vote for the election of
directors of the Borrower under ordinary circumstances; (b) during any period of
twelve consecutive calendar months, individuals who at the beginning of such
period constituted the board of directors of the Borrower (together with any new
directors whose election by the board of directors of the Borrower or whose
nomination for election by the Stockholders of the Borrower was approved by a
vote of at least two-thirds of the directors then still in office who either
were directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason other than death
or disability to constitute a majority of the directors then in office; or
(c) Borrower ceases to own and control all of the economic and voting rights
associated with all of the outstanding capital Stock of any of its Subsidiaries.
          “Charges” means all federal, state, county, city, municipal, local,
foreign or other governmental taxes (including taxes owed to the PBGC at the
time due and payable), levies, assessments, charges, liens, claims or
encumbrances upon or relating to (a) the Collateral, (b) the Obligations,
(c) the employees, payroll, income or gross receipts of any Credit Party,
(d) any Credit Party’s ownership or use of any properties or other assets, or
(e) any other aspect of any Credit Party’s business.
          “Chattel Paper” means any “chattel paper,” as such term is defined in
the Code, including electronic chattel paper, now owned or hereafter acquired by
any Credit Party, wherever located.
          “Closing Checklist” means the schedule, including all appendices,
exhibits or schedules thereto, listing certain documents and information to be
delivered in connection with

Annex A-3

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

 

the Agreement, the other Loan Documents and the transactions contemplated
thereunder, substantially in the form attached hereto as Annex C.
          “Closing Date” means March 22, 2007.
          “Code” means the Uniform Commercial Code as the same may, from time to
time, be enacted and in effect in the State of Illinois; provided, that to the
extent that the Code is used to define any term herein or in any Loan Document
and such term is defined differently in different Articles or Divisions of the
Code, the definition of such term contained in Article or Division 9 shall
govern; provided further, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection or priority of, or
remedies with respect to, Agent’s or any Lender’s Lien on any Collateral is
governed by the Uniform Commercial Code as enacted and in effect in a
jurisdiction other than the State of Illinois, the term “Code” shall mean the
Uniform Commercial Code as enacted and in effect in such other jurisdiction
solely for purposes of the provisions thereof relating to such attachment,
perfection, priority or remedies and for purposes of definitions related to such
provisions.
          “Collateral” means the property covered by the Security Agreement, the
Mortgages and the other Collateral Documents and any other property, real or
personal, tangible or intangible, now existing or hereafter acquired, that may
at any time be or become subject to a security interest or Lien in favor of
Agent, on behalf of itself and Lenders, to secure the Obligations.
          “Collateral Documents” means the Security Agreements, the Guaranties,
the Pledge Agreements, the Mortgages, the Patent Security Agreements, the
Trademark Security Agreements, the Copyright Security Agreements and all similar
agreements entered into guaranteeing payment of, or granting a Lien upon
property as security for payment of, the Obligations.
          “Collateral Reports” means the reports with respect to the Collateral
referred to in Annex E.
          “Collection Account” means that certain account of Agent, account
number 5800969056 in the name of Agent at LaSalle Bank NA, ABA No. 071000505, or
such other account as may be specified in writing by Agent as the “Collection
Account.”
          “Compliance Certificate” has the meaning ascribed to it in Annex D.
          “Commitment” means (a) as to any Lender, the aggregate commitment of
such Lender to make a Loan as set forth on Annex I to the Agreement or in the
most recent Assignment Agreement executed by such Lender and (b) as to all
Lenders, the aggregate commitment of all Lenders to make Loans, which aggregate
commitment shall be Fifteen Million Dollars ($15,000,000).
          “Concentration Account” has the meaning ascribed to it in Annex B.
          “Contingent Obligation” means, as applied to any Person, any direct or
indirect liability of that Person: (i) with respect to Guaranteed Indebtedness
and with respect to any

Annex A-4

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

 

Indebtedness, lease, dividend or other obligation of another Person if the
purpose or intent of the Person incurring such liability, or the effect thereof,
is to provide assurance to the obligee of such liability that such liability
will be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such liability will be protected (in whole
or in part) against loss with respect thereto; (ii) with respect to any letter
of credit issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings; (iii) under any foreign exchange
contract, currency swap agreement, interest rate swap agreement (including,
without limitation, Interest Rate Agreements) or other similar agreement or
arrangement designed to alter the risks of that Person arising from fluctuations
in currency values or interest rates, (iv) any agreement, contract or
transaction involving commodity options or future contracts, (v) to make
take-or-pay or similar payments if required regardless of nonperformance by any
other party or parties to an agreement, or (vi) pursuant to any agreement to
purchase, repurchase or otherwise acquire any obligation or any property
constituting security therefor, to provide funds for the payment or discharge of
such obligation or to maintain the solvency, financial condition or any balance
sheet item or level of income of another. The amount of any Contingent
Obligation shall be equal to the amount of the obligation so guaranteed or
otherwise supported or, if not a fixed and determined amount, the maximum amount
so guaranteed.
          “Contracts” means all “contracts,” as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, in any event,
including all contracts, undertakings, or agreements (other than rights
evidenced by Chattel Paper, Documents or Instruments) in or under which any
Credit Party may now or hereafter have any right, title or interest, including
any agreement relating to the terms of payment or the terms of performance of
any Account.
          “Control Letter” means a letter agreement between Agent and (i) the
issuer of uncertificated securities with respect to uncertificated securities in
the name of any Credit Party, (ii) a securities intermediary with respect to
securities, whether certificated or uncertificated, securities entitlements and
other financial assets held in a securities account in the name of any Credit
Party, (iii) a futures commission merchant or clearing house, as applicable,
with respect to commodity accounts and commodity contracts held by any Credit
Party, whereby, among other things, the issuer, securities intermediary or
futures commission merchant disclaims any security interest in the applicable
financial assets, acknowledges the Lien of Agent, on behalf of itself and
Lenders, on such financial assets, and agrees to follow the instructions or
entitlement orders of Agent without further consent by the affected Credit
Party.
          “Copyright License” means any and all rights now owned or hereafter
acquired by any Credit Party under any written agreement granting any right to
use any Copyright or Copyright registration.
          “Copyright Security Agreements” means the Copyright Security
Agreements made in favor of Agent, on behalf of itself and Lenders, by each
applicable Credit Party.
          “Copyrights” means all of the following now owned or hereafter adopted
or acquired by any Credit Party: (a) all copyrights and General Intangibles of
like nature (whether registered or unregistered), all registrations and
recordings thereof, and all applications in

Annex A-5

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

 

connection therewith, including all registrations, recordings and applications
in the United States Copyright Office or in any similar office or agency of the
United States, any state or territory thereof, or any other country or any
political subdivision thereof, and (b) all reissues, extensions or renewals
thereof.
          “Credit Parties” means Borrower and its Subsidiaries.
          “Default” means any event that, with the passage of time or notice or
both, would, unless cured or waived, become an Event of Default.
          “Default Rate” has the meaning ascribed to it in Section 1.5(d).
          “Deposit Accounts” means all “deposit accounts” as such term in
defined in the Code, now or hereafter held in the name of any Credit Party.
          “Disbursement Accounts” has the meaning ascribed to it in Annex B.
          “Disclosure Schedules” means the Schedules prepared by Borrower and
denominated as Disclosure Schedules (3.1) through (6.7) in the Index to the
Agreement.
          “Documents” means any “documents,” as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located.
          “Dollars” or “$” means lawful currency of the United States of
America.
          “EBITDA” means, with respect to any Person for any fiscal period,
without duplication, an amount equal to (a) consolidated net income of such
Person for such period, determined in accordance with GAAP, minus (b) the sum of
(i) income tax credits, (ii) interest income, (iii) gain from extraordinary
items for such period, (iv) any aggregate net gain (but not any aggregate net
loss) during such period arising from the sale, exchange or other disposition of
capital assets by such Person (including any fixed assets, whether tangible or
intangible, all inventory sold in conjunction with the disposition of fixed
assets and all securities), (v) any other non-cash gains that have been added in
determining consolidated net income, in each case to the extent included in the
calculation of net income of such Person for such period in accordance with
GAAP, but without duplication and (vi) amounts paid on behalf of or for the
benefit of Goldhil Media, Tower Records or any trust, trustee or fund relating
thereto or successor to any of the foregoing, plus (c) the sum of (i) any
provision for income taxes, (ii) Interest Expense, (iii) loss from extraordinary
items for such period, (iv) depreciation and amortization for such period (other
than amortization with respect to Vendor Advances), (v) amortized debt discount
for such period, (vi) the amount of any deduction to consolidated net income as
the result of any grant to any members of the management of such Person of any
Stock and (vii) write-offs of Accounts owing to Borrower from (x) Goldhil Media
in the aggregate amount not to exceed $2,100,000 and (y) Tower Records in the
aggregate amount no to exceed $1,900,000, in each case to the extent included in
the calculation of consolidated net income of such Person for such period in
accordance with GAAP, but without duplication. For purposes of this definition,
the following items shall be excluded in determining consolidated net income of
a Person: (1) the income (or deficit) of any other Person accrued prior to the
date it became a Subsidiary of, or was merged or consolidated into, such Person
or any of such Person’s Subsidiaries; (2) the income (or deficit) of

Annex A-6

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

 

any other Person (other than a Subsidiary) in which such Person has an ownership
interest, except to the extent any such income has actually been received by
such Person in the form of cash dividends or distributions; (3) the
undistributed earnings of any Subsidiary of such Person to the extent that the
declaration or payment of dividends or similar distributions by such Subsidiary
is not at the time permitted by the terms of any contractual obligation or
requirement of law applicable to such Subsidiary; (4) any restoration to income
of any contingency reserve, except to the extent that provision for such reserve
was made out of income accrued during such period; (5) any write-up of any
asset; (6) any net gain from the collection of the proceeds of life insurance
policies; (7) any net gain arising from the acquisition of any securities, or
the extinguishment, under GAAP, of any Indebtedness, of such Person, (8) in the
case of a successor to such Person by consolidation or merger or as a transferee
of its assets, any earnings of such successor prior to such consolidation,
merger or transfer of assets, and (9) any deferred credit representing the
excess of equity in any Subsidiary of such Person at the date of acquisition of
such Subsidiary over the cost to such Person of the investment in such
Subsidiary.
          “E-Fax” means any system used to receive or transmit faxes
electronically.
          “Electronic Transmission” means each document, instruction,
authorization, file, information and any other communication transmitted, posted
or otherwise made or communicated by e-mail or E-Fax, or otherwise to or from an
E-System or other equivalent service.
          “Eligible Certificate of Deposit” means a certificate of deposit
(i) in which the Agent has a first priority perfected security interest subject
to no other Liens, (ii) issued by a Person acceptable to the Agent and
(iii) held in an account for which an account control agreement in form and
substance satisfactory to the Agent has been executed and delivered by all
parties thereto.
          “Eligible Investment Funds” means the aggregate amount of cash and
Permitted Cash Equivalents (valued at the fair market value thereof) (i) which
are on deposit or credited to a segregated investment account or bank account
subject to the control of the Agent and which the Agent has agreed in writing
constitutes the “Eligible Investment Account” for the purposes hereof and
(ii) which the Agent has, to secure the Obligations, pursuant to a control
agreement in form and substance satisfactory to Agent, a second priority
perfected security interest (subject to no other Liens other than the Lien of
the First Lien Agent) (provided, that the Agent will agree, pursuant to
documentation acceptable to the Agent, to permit the withdrawal of cash from
such Eligible Investment Account in the amounts, at the time and upon the
request of the Persons, set forth on Schedule A-1).
          “Encore Software” means Encore Software, Inc. (f/k/a Encore Software
Corporation), a Minnesota corporation.
          “Environmental Laws” means all applicable federal, state, local and
foreign laws, statutes, ordinances, codes, rules, standards and regulations, now
or hereafter in effect, and any applicable judicial or administrative
interpretation thereof, including any applicable judicial or administrative
order, consent decree, order or judgment, imposing liability or standards of
conduct for or relating to the regulation and protection of human health,
safety, the environment

Annex A-7

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

 

and natural resources (including ambient air, surface water, groundwater,
wetlands, land surface or subsurface strata, wildlife, aquatic species and
vegetation). Environmental Laws include the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 (42 U.S.C. §§ 9601 et seq.)
(“CERCLA”); the Hazardous Materials Transportation Authorization Act of 1994 (49
U.S.C. §§ 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act
(7 U.S.C. §§ 136 et seq.); the Solid Waste Disposal Act (42 U.S.C. §§ 6901 et
seq.); the Toxic Substance Control Act (15 U.S.C. §§ 2601 et seq.); the Clean
Air Act (42 U.S.C. §§ 7401 et seq.); the Federal Water Pollution Control Act (33
U.S.C. §§ 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C. §§
651 et seq.); and the Safe Drinking Water Act (42 U.S.C. §§ 300(f) et seq.), and
any and all regulations promulgated thereunder, and all analogous state, local
and foreign counterparts or equivalents and any transfer of ownership
notification or approval statutes.
          “Environmental Liabilities” means, with respect to any Person, all
liabilities, obligations, responsibilities, response, remedial and removal
costs, investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and expenses
(including all reasonable fees, disbursements and expenses of counsel, experts
and consultants), fines, penalties, sanctions and interest incurred as a result
of or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law, including any arising under
or related to any Environmental Laws, Environmental Permits, or in connection
with any Release or threatened Release or presence of a Hazardous Material
whether on, at, in, under, from or about or in the vicinity of any real or
personal property.
          “Environmental Permits” means all permits, licenses, authorizations,
certificates, approvals or registrations required by any Governmental Authority
under any Environmental Laws.
          “Equipment” means all “equipment,” as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located and,
in any event, including all such Credit Party’s machinery and equipment,
including processing equipment, conveyors, machine tools, data processing and
computer equipment, including embedded software and peripheral equipment and all
engineering, processing and manufacturing equipment, office machinery,
furniture, materials handling equipment, tools, attachments, accessories,
automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor
vehicles, rolling stock and other equipment of every kind and nature, trade
fixtures and fixtures not forming a part of real property, together with all
additions and accessions thereto, replacements therefor, all parts therefor, all
substitutes for any of the foregoing, fuel therefor, and all manuals, drawings,
instructions, warranties and rights with respect thereto, and all products and
proceeds thereof and condemnation awards and insurance proceeds with respect
thereto.
          “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulations promulgated thereunder.

Annex A-8

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

 

          “ERISA Affiliate” means, with respect to any Credit Party, any trade
or business (whether or not incorporated) that, together with such Credit Party,
are treated as a single employer within the meaning of Sections 414(b), (c),
(m) or (o) of the IRC.
          “ERISA Event” means, with respect to any Credit Party or any ERISA
Affiliate, (a) any event described in Section 4043(c) of ERISA with respect to a
Title IV Plan; (b) the withdrawal of any Credit Party or ERISA Affiliate from a
Title IV Plan subject to Section 4063 of ERISA during a plan year in which it
was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the
complete or partial withdrawal of any Credit Party or any ERISA Affiliate from
any Multiemployer Plan; (d) the filing of a notice of intent to terminate a
Title IV Plan or the treatment of a plan amendment as a termination under
Section 4041 of ERISA; (e) the institution of proceedings to terminate a Title
IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Credit Party
or ERISA Affiliate to make when due required contributions to a Multiemployer
Plan or Title IV Plan unless such failure is cured within 30 days; (g) any other
event or condition that might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Title IV Plan or Multiemployer Plan or for the imposition of
liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a
Multiemployer Plan under Section 4041A of ERISA or the reorganization or
insolvency of a Multiemployer Plan under Section 4241 or 4245 of ERISA; or
(i) the loss of a Qualified Plan’s qualification or tax exempt status; or
(j) the termination of a Plan described in Section 4064 of ERISA.
          “ESOP” means a Plan that is intended to satisfy the requirements of
Section 4975(e)(7) of the IRC.
          “E-Signature” means the process of attaching to or logically
associating with an Electronic Transmission an electronic symbol, encryption,
digital signature or process (including the name or an abbreviation of the name
of the party transmitting the Electronic Transmission) with the intent to sign,
authenticate or accept such Electronic Transmission.
          “E-System” means any electronic system, including Intralinks® and any
other Internet or extranet-based site, whether such electronic system is owned,
operated or hosted by Agent, any of its Affiliates, or any of such Person’s
respective officers, directors, employees, attorneys, agents and representatives
or any other Person, providing for access to data protected by passcodes or
other security system.
          “Event of Default” has the meaning ascribed to it in Section 8.1.
          “Excess Cash Flow” means, with respect to the Borrower for any period,
an amount (if positive) equal to: (i) the amount for such period of EBITDA,
minus (ii) the sum, without duplication, of the amounts for such period of
(a) scheduled repayments of Indebtedness for borrowed money (excluding
repayments of Indebtedness under the First Lien Credit Facility, except to the
extent the commitments in respect thereof are permanently reduced in connection
with such repayments), (b) Capital Expenditures (net of any proceeds of (y) any
related financings, including purchase money financings, with respect to such
expenditures and (z) any Capital Expenditures made with the proceeds of asset
dispositions), (c) Interest Expense,

Annex A-9

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

 

(d) provisions for current taxes based on income of Borrower and payable in cash
with respect to such period, and (e) the aggregate Net Vendor Advances made
during such period.
          “Existing First Lien Credit Agreement” means the Third Amended and
Restated Credit Agreement dated as of June 1, 2005, among Borrower, the credit
parties party thereto, the lenders party thereto, and First Lien Agent, as
amended.
          “Fair Labor Standards Act” means the Fair Labor Standards Act, 29
U.S.C. §201 et seq.
          “Federal Funds Rate” means, for any day, a floating rate equal to the
weighted average of the rates on overnight federal funds transactions among
members of the Federal Reserve System, as determined by Agent in its sole
discretion, which determination shall be final, binding and conclusive (absent
manifest error).
          “Federal Reserve Board” means the Board of Governors of the Federal
Reserve System.
          “Fees” means any and all fees payable to Agent or any Lender pursuant
to the Agreement or any of the other Loan Documents.
          “Financial Covenants” means the financial covenants set forth in Annex
F.
          “Financial Statements” means the consolidated and consolidating income
statements, statements of cash flows and balance sheets of Borrower delivered in
accordance with Section 3.4 and Annex D.
          “First Lien Agent” means General Electric Capital Corporation, a
Delaware corporation, as agent under the First Lien Credit Agreement.
          “First Lien Credit Agreement” means the Fourth Amended and Restated
Credit Agreement, dated as of the date hereof, by and among Borrower, General
Electric Capital Corporation, as agent for the lenders thereunder, and the
lenders from time to time party thereto, as amended, restated, supplemented or
otherwise modified in a manner permitted by the Intercreditor Agreement.
          “First Lien Credit Facility” means the revolving credit facility made
available to Borrower pursuant to the First Lien Credit Agreement.
          “Fiscal Month” means any of the monthly accounting periods of
Borrower.
          “Fiscal Quarter” means any of the quarterly accounting periods of
Borrower, ending on March 31, June 30, September 30, and December 31 of each
year.
          “Fiscal Year” means any of the annual accounting periods of Borrower
ending on March 31 of each year.

Annex A-10

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

 

          “Fixed Charge Coverage Ratio” has the meaning ascribed to it in clause
(b) of Annex F.
          “Fixtures” means all “fixtures” as such term is defined in the Code,
now owned or hereafter acquired by any Credit Party.
          “Funded Debt” means, with respect to any Person, without duplication,
all Indebtedness for borrowed money evidenced by notes, bonds, debentures, or
similar evidences of Indebtedness and that by its terms matures more than one
year from, or is directly or indirectly renewable or extendible at such Person’s
option under a revolving credit or similar agreement obligating the lender or
lenders to extend credit over a period of more than one year from the date of
creation thereof, and specifically including Capital Lease Obligations, current
maturities of long-term debt, revolving credit and short-term debt extendible
beyond one year at the option of the debtor, and also including, in the case of
Borrower, the Obligations and, without duplication, Guaranteed Indebtedness
consisting of guaranties of Funded Debt of other Persons.
          “FUNimation Acquisition” means the acquisition by Navarre CP, Navarre
CLP and Navarre CS of all of the partnership interests in the FUNimation
Companies pursuant to and in accordance with the FUNimation Acquisition
Documents.
          “FUNimation Acquisition Documents” means the FUNimation Purchase
Agreement and all other agreements, documents, opinions, certificates and other
instruments executed or delivered pursuant thereto or in connection therewith,
each as in effect on the date hereof.
          “FUNimation Channel” means FUNimation Channel, Inc., a Minnesota
corporation.
          “FUNimation Companies” means, collectively, FUNimation Productions and
animeOnline.
          “FUNimation Purchase Agreement” means that certain Partnership
Interest Purchase Agreement, dated as of January 10, 2005, by and among the
Sellers (as defined therein), the Seller Representative (as defined therein),
the FUNimation Companies, Navarre CP, Navarre CLP, Navarre CS and the Borrower
(including all schedules, exhibits, amendments, supplements, modifications
and/or assignments delivered pursuant thereto or in connection therewith), as in
effect on the date hereof.
          “FUNimation Productions” means FUNimation Productions Ltd., a Texas
limited partnership.
          “GAAP” means generally accepted accounting principles in the United
States of America, consistently applied, as such term is further defined in
Annex F to the Agreement.
          “General Intangibles” means “general intangibles,” as such term is
defined in the Code, now owned or hereafter acquired by any Credit Party,
including all right, title and interest that such Credit Party may now or
hereafter have in or under any Contract, all payment intangibles, customer
lists, Licenses, Copyrights, Trademarks, Patents, and all applications

Annex A-11

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

 

therefor and reissues, extensions or renewals thereof, rights in Intellectual
Property, interests in partnerships, joint ventures and other business
associations, licenses, permits, copyrights, trade secrets, proprietary or
confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, experience, processes, models, drawings,
materials and records, goodwill (including the goodwill associated with any
Trademark or Trademark License), all rights and claims in or under insurance
policies (including insurance for fire, damage, loss and casualty, whether
covering personal property, real property, tangible rights or intangible rights,
all liability, life, key man and business interruption insurance, and all
unearned premiums), uncertificated securities, chooses in action, deposit,
checking and other bank accounts, rights to receive tax refunds and other
payments, rights to receive dividends, distributions, cash, Instruments and
other property in respect of or in exchange for pledged Stock and Investment
Property, rights of indemnification, all books and records, correspondence,
credit files, invoices and other papers, including without limitation all tapes,
cards, computer runs and other papers and documents in the possession or under
the control of such Credit Party or any computer bureau or service company from
time to time acting for such Credit Party.
          “Goods” means any “goods” as defined in the Code, now owned or
hereafter acquired by any Credit Party, wherever located, including embedded
software to the extent included in “goods” as defined in the Code, manufactured
homes, standing timber that is cut and removed for sale and unborn young of
animals.
          “Governmental Authority” means any nation or government, any state or
other political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
          “Guaranteed Indebtedness” means, as to any Person, any obligation of
such Person guaranteeing, providing comfort or otherwise supporting any
Indebtedness, lease, dividend, or other obligation (“primary obligation”) of any
other Person (the “primary obligor”) in any manner, including any obligation or
arrangement of such Person to (a) purchase or repurchase any such primary
obligation, (b) advance or supply funds (i) for the purchase or payment of any
such primary obligation or (ii) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet condition of the primary obligor, (c) purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, (d) protect the beneficiary of such arrangement from
loss (other than product warranties given in the ordinary course of business) or
(e) indemnify the owner of such primary obligation against loss in respect
thereof. The amount of any Guaranteed Indebtedness at any time shall be deemed
to be an amount equal to the lesser at such time of (x) the stated or
determinable amount of the primary obligation in respect of which such
Guaranteed Indebtedness is incurred and (y) the maximum amount for which such
Person may be liable pursuant to the terms of the instrument embodying such
Guaranteed Indebtedness, or, if not stated or determinable, the maximum
reasonably anticipated liability (assuming full performance) in respect thereof.
          “Guaranties” means the Guaranty dated as of the Closing Date by and
among the Credit Parties signatory thereto and Agent, on behalf of itself and
Lenders, together with each

Annex A-12

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

 

joinder agreement thereto by any New Credit Party, and each other guaranty
executed by any Guarantor in favor of Agent and Lenders in respect of the
Obligations.
          “Guarantors” means each Subsidiary of Borrower and each other Person,
if any, that executes a guaranty or other similar agreement in favor of Agent,
for itself and the ratable benefit of Lenders, in connection with the
transactions contemplated by the Agreement and the other Loan Documents.
          “Hazardous Material” means any substance, material or waste that is
regulated by, or forms the basis of liability now or hereafter under, any
Environmental Laws, including any material or substance that is (a) defined as a
“solid waste,” “hazardous waste,” “hazardous material,” “hazardous substance,”
“extremely hazardous waste,” “restricted hazardous waste,” “pollutant,”
“contaminant,” “hazardous constituent,” “special waste,” “toxic substance” or
other similar term or phrase under any Environmental Laws, or (b) petroleum or
any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB’s),
or any radioactive substance.
          “Indebtedness” means, with respect to any Person, without duplication
(a) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property payment for which is deferred 6 months or more, but
excluding obligations to trade creditors incurred in the ordinary course of
business that are unsecured and not overdue by more than 6 months unless being
contested in good faith, (b) all reimbursement and other obligations with
respect to letters of credit, bankers’ acceptances and surety bonds, whether or
not matured, (c) all obligations evidenced by notes, bonds, debentures or
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all Capital Lease Obligations and the present
value (discounted at the Index Rate as in effect on the Closing Date) of future
rental payments under all synthetic leases, (f) all obligations of such Person
under commodity purchase or option agreements or other commodity price hedging
arrangements, in each case whether contingent or matured, (g) all obligations of
such Person under any foreign exchange contract, currency swap agreement,
interest rate swap, cap or collar agreement or other similar agreement or
arrangement designed to alter the risks of that Person arising from fluctuations
in currency values or interest rates, in each case whether contingent or
matured, (h) all Indebtedness referred to above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property or other assets (including accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness, (i) “earnouts”
and similar payment obligations excluding bonus, phantom stock or other similar
compensation payments owed to employees, or officers and incurred in the
ordinary course of business, and (j) the Obligations.
          “Indemnified Liabilities” has the meaning ascribed to it in
Section 1.13.
          “Indemnified Person” has the meaning ascribed to it in Section 1.13.
          “Index Rate” means, for any day, a floating rate equal to the higher
of (i) the rate publicly quoted from time to time by The Wall Street Journal as
the “base rate on corporate loans

Annex A-13

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

 

posted by at least 75% of the nation’s 30 largest banks” (or, if The Wall Street
Journal ceases quoting a base rate of the type described, the highest per annum
rate of interest published by the Federal Reserve Board in Federal Reserve
statistical release H.15 (519) entitled “Selected Interest Rates” as the Bank
prime loan rate or its equivalent), and (ii) the Federal Funds Rate plus 50
basis points per annum. Each change in any interest rate provided for in the
Agreement based upon the Index Rate shall take effect at the time of such change
in the Index Rate.
          “Index Rate Loans” means Loans bearing interest at a rate per annum
equal to the Index Rate plus 5.25%.
          “Instruments” means all “instruments,” as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located,
and, in any event, including all certificated securities, all certificates of
deposit, and all promissory notes and other evidences of indebtedness, other
than instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
          “Intellectual Property” means any and all Licenses, Patents,
Copyrights, Trademarks, and the goodwill associated with such Trademarks.
          “Intercompany Note” has the meaning ascribed to it in Section 6.3(a).
          “Intercreditor Agreement” means the Intercreditor Agreement, dated as
of the date hereof by and among the Borrower, the Guarantors, the Agent and the
First Lien Agent, as amended, restated, supplemented and otherwise modified from
time to time.
          “Interest Expense” means, with respect to any Person for any fiscal
period, interest expense (whether cash or non-cash) of such Person determined in
accordance with GAAP for the relevant period ended on such date, including
interest expense with respect to any Funded Debt of such Person and interest
expense for the relevant period that has been capitalized on the balance sheet
of such Person.
          “Interest Payment Date” means (a) as to any LIBOR Loan, the last day
of the applicable LIBOR Period, and (b) as to any Index Rate Loan, the first
Business Day of each month to occur while such Loan is outstanding; provided,
that, in addition to the foregoing, each of (x) the date upon which the Term
Loan has been paid in full and (y) the Termination Date shall be deemed to be an
“Interest Payment Date” with respect to any interest that has then accrued under
the Agreement.
          “Interest Rate Agreement” means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or similar agreement
or arrangement (i) designed to protect Borrower against fluctuations in interest
rates hereunder or under the First Lien Credit Agreement, (ii) entered into
between Borrower and one or more Lenders (or any Affiliates thereof) and
(iii) which the Agent has acknowledged in writing constitutes an “Interest Rate
Agreement” for the purposes of this Agreement.
          “Inventory” means any “inventory,” as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, wherever located, and
in any event including inventory, merchandise, goods and other personal property
that are held by or on behalf of any

Annex A-14

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

 

Credit Party for sale or lease or are furnished or are to be furnished under a
contract of service, or that constitute raw materials, work in process, finished
goods, returned goods, supplies or materials of any kind, nature or description
used or consumed or to be used or consumed in such Credit Party’s business or in
the processing, production, packaging, promotion, delivery or shipping of the
same, including all supplies and embedded software.
          “Investment Property” means all “investment property” as such term is
defined in the Code now owned or hereafter acquired by any Credit Party,
wherever located, including (i) all securities, whether certificated or
uncertificated, including stocks, bonds, interests in limited liability
companies, partnership interests, treasuries, certificates of deposit, and
mutual fund shares; (ii) all securities entitlements of any Credit Party,
including the rights of such Credit Party to any securities account and the
financial assets held by a securities intermediary in such securities account
and any free credit balance or other money owing by any securities intermediary
with respect to that account; (iii) all securities accounts of any Credit Party;
(iv) all commodity contracts of any Credit Party; and (v) all commodity accounts
held by any Credit Party.
          “IRC” means the Internal Revenue Code of 1986, as amended, and all
regulations promulgated thereunder.
          “IRS” means the Internal Revenue Service.
          “Lenders” means Monroe Capital, the other Lenders named on the
signature pages of the Agreement, (and, if any such Person shall decide to
assign all or any portion of the Obligations, such term shall include any
assignee of such Person); provided, that for the purposes of (i) the definitions
of “Interest Rate Agreement”, and “Obligations”, (ii) Sections 9.2, 9.3, 9.4,
9.5 and 9.7 of this Agreement and (iii) the granting and perfection of security
interests, liens, mortgages and other encumbrances under or pursuant to one or
more Loan Documents, each Qualified Counterparty shall be deemed to be a Lender
(it being agreed that no such Qualified Counterparty shall have the right to
vote on or consent to any matter requiring a vote or consent of one or more
Lenders).
          “Leverage Ratio” means, as of any date, the ratio of (i) the sum of
(x) the average principal amount of Revolving Loans (as defined in the First
Lien Credit Agreement) outstanding for the immediately preceding 30 day period
ending on such date plus (y) the aggregate amount of all other Indebtedness of
the Borrower (including, without limitation, Indebtedness outstanding under this
Agreement) and its Subsidiaries on a consolidated basis in accordance with GAAP
as of such date to (ii) EBITDA for the four Fiscal Quarter period ending on such
date.
          “LIBOR Business Day” means a Business Day on which banks in the City
of London are generally open for interbank or foreign exchange transactions.
          “LIBOR Loan” means a Loan or any portion thereof bearing interest by
reference to the LIBOR Rate.
          “LIBOR Period” means, with respect to any LIBOR Loan, each period
commencing on a LIBOR Business Day (the first of which shall be the Closing
Date) and ending

Annex A-15

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

 

one month thereafter; provided, that the foregoing provision relating to LIBOR
Periods is subject to the following:
     (a) if any LIBOR Period would otherwise end on a day that is not a LIBOR
Business Day, such LIBOR Period shall be extended to the next succeeding LIBOR
Business Day unless the result of such extension would be to carry such LIBOR
Period into another calendar month in which event such LIBOR Period shall end on
the immediately preceding LIBOR Business Day;
     (b) any LIBOR Period that would otherwise extend beyond the Termination
Date shall end 2 LIBOR Business Days prior to such date;
     (c) any LIBOR Period that begins on the last LIBOR Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such LIBOR Period) shall end on the last
LIBOR Business Day of a calendar month;
     (d) Borrower shall select LIBOR Periods so as not to require a payment or
prepayment of any LIBOR Loan during a LIBOR Period for such Loan; and
     (e) Borrower shall select LIBOR Periods so that there shall be no more than
5 separate LIBOR Loans in existence at any one time.
          “LIBOR Rate” means for each LIBOR Period, a rate of interest
determined by Agent equal to LIBOR as reported by The Wall Street Journal as in
effect from time to time.
          If such interest rates shall cease to be available from The Wall
Street Journal, the LIBOR Rate shall be determined from such financial reporting
service or other information as shall be mutually acceptable to Agent and
Borrower.
          “License” means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by any Credit Party.
          “Lien” means any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any lease
or title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement perfecting a security interest under the Code or
comparable law of any jurisdiction).
          “Litigation” has the meaning ascribed to it in Section 3.13.
          “Loan Account” has the meaning ascribed to it in Section 1.12.
          “Loan Documents” means the Agreement, the Notes, the Collateral
Documents, each Interest Rate Agreement and all other agreements, instruments,
documents and certificates identified in the Closing Checklist executed and
delivered to, or in favor of, Agent or any

Annex A-16

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

 

Lenders and including all other pledges, powers of attorney, consents,
assignments, contracts, notices, and all other written matter whether
heretofore, now or hereafter executed by or on behalf of any Credit Party, or
any employee of any Credit Party, and delivered to Agent or any Lender in
connection with the Agreement or the transactions contemplated thereby. Any
reference in the Agreement or any other Loan Document to a Loan Document shall
include all appendices, exhibits or schedules thereto, and all amendments,
restatements, supplements or other modifications thereto, and shall refer to the
Agreement or such Loan Document as the same may be in effect at any and all
times such reference becomes operative.
          “Loans” means the aggregate amounts of the Term Loan advanced by each
Lender.
          “Lock Boxes” has the meaning ascribed to it in Annex B.
          “Margin Stock” has the meaning ascribed to it in Section 3.10.
          “Material Adverse Effect” means a material adverse effect on (a) the
business, assets, operations, prospects or financial or other condition of any
Credit Party, (b) Borrower’s ability to pay any of the Loans or any of the other
Obligations in accordance with the terms of the Agreement, (c) the Collateral or
Agent’s Liens, on behalf of itself and Lenders, on the Collateral or the
priority of such Liens, or (d) Agent’s or any Lender’s rights and remedies under
the Agreement and the other Loan Documents. Without limiting the generality of
the foregoing, any event or occurrence adverse to one or more Credit Parties
which results or could reasonably be expected to result in costs and/or
liabilities or loss of revenues, individually, or in the aggregate, to any
Credit Party in any 30-day period in excess of the lesser of $2,000,000 and 10%
of Borrowing Availability (as defined in the First Lien Credit Agreement) as of
any date of determination or 10% of the lesser of the Maximum Amount (as defined
in the First Lien Credit Agreement) or the Borrowing Base (as defined in the
First Lien Credit Agreement) at any date of determination shall constitute a
Material Adverse Effect.
          “Minnesota Real Estate” means the Real Estate owned by Borrower
located in the County of Hennepin and the State of Minnesota and as further
described on Exhibit A hereto.
          “Minnesota Sale-Leaseback Documents” means that certain Sale, Purchase
and Build to Suit Agreement, dated effective as of August 14, 2003 between
Borrower, as seller and NL Ventures IV, L.P., as buyer, as further amended by
the First Amendment to Sale, Purchase and Build to Suit Agreement dated as of
October 9, 2003 among the parties thereto, and all other agreements,
instruments, documents and certificates executed and delivered in connection
therewith, as in effect as of October 9, 2003 and as amended or otherwise
modified in a manner permitted hereunder.
          “Monroe Capital” means Monroe Capital Advisors, LLC, a Delaware
limited liability company.
          “Monroe Capital Fee Letter” means the fee letter, dated as of the
Closing Date, between Monroe Capital and Borrower with respect to certain Fees
to be paid from time to time by Borrower to Monroe Capital.

Annex A-17

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

 

          “Mortgages” means each of the mortgages, deeds of trust, leasehold
mortgages, leasehold deeds of trust, collateral assignments of leases or other
real estate security documents delivered by any Credit Party to Agent on behalf
of itself and Lenders with respect to the Real Property owned by a Credit Party,
all in form and substance reasonably satisfactory to Agent.
          “Multiemployer Plan” means a “multiemployer plan” as defined in
Section 4001(a)(3) of ERISA, and to which any Credit Party or ERISA Affiliate is
making, is obligated to make or has made or been obligated to make,
contributions on behalf of participants who are or were employed by any of them.
          “Navarre CP” means Navarre CP, LLC, a Minnesota limited liability
company, which is a wholly owned Subsidiary of Borrower.
          “Navarre CLP” means Navarre CLP, LLC, a Minnesota limited liability
company, which is a wholly owned Subsidiary of Borrower.
          “Navarre CS” means Navarre CS, LLC, a Minnesota limited liability
company, which is a wholly owned Subsidiary of Borrower.
          “Navarre Digital” means Navarre Digital Services, Inc., a Minnesota
corporation.
          “Navarre Distribution” means Navarre Distribution Services, Inc., a
Minnesota corporation.
          “Navarre Entertainment” means Navarre Entertainment Media, Inc. a
Minnesota corporation.
          “Navarre Logistical” means Navarre Logistical Services, Inc., a
Minnesota corporation.
          “Navarre Online” means Navarre Online Fulfillment Services, Inc., a
Minnesota corporation.
          “Net Vendor Advances” for any period means the positive difference, if
any, between (i) the aggregate amount of Vendor Advances made during such period
minus (ii) the aggregate amount of repayments made by Vendors in respect of
Vendor Advances made to such Vendors.
          “New Credit Party” has the meaning ascribed to it in Section 6.1.
          “Non-Funding Lender” has the meaning ascribed to it in
Section 9.9(a)(ii).
          “Notes” means the Term Notes.
          “Obligations” means all loans, advances, debts, liabilities and
obligations, for the performance of covenants, tasks or duties or for payment of
monetary amounts (whether or not such performance is then required or
contingent, or such amounts are liquidated or determinable) owing by any Credit
Party to Agent or any Lender, and all covenants and duties regarding such

Annex A-18

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

 

amounts, of any kind or nature, present or future, whether or not evidenced by
any note, agreement or other instrument, arising under the Agreement or any of
the other Loan Documents. This term includes all principal, interest (including
all interest that accrues after the commencement of any case or proceeding by or
against any Credit Party in bankruptcy, whether or not allowed in such case or
proceeding), obligations under Interest Rate Agreements, Fees, Charges,
expenses, attorneys’ fees and any other sum chargeable to any Credit Party under
the Agreement or any of the other Loan Documents.
          “Patent License” means rights under any written agreement now owned or
hereafter acquired by any Credit Party granting any right with respect to any
invention on which a Patent is in existence.
          “Patent Security Agreements” means the Patent Security Agreements made
in favor of Agent, on behalf of itself and Lenders, by each applicable Credit
Party.
          “Patents” means all of the following in which any Credit Party now
holds or hereafter acquires any interest: (a) all letters patent of the United
States or any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or of any other country,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State or any other country, and (b) all reissues, continuations,
continuations-in-part or extensions thereof.
          “PBGC” means the Pension Benefit Guaranty Corporation.
          “Pension Plan” means a Plan described in Section 3(2) of ERISA.
          “Permitted Cash Equivalents” means (i) marketable direct obligations
issued or unconditionally guaranteed by the United States of America or any
agency thereof maturing within one year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor’s Ratings Group or Moody’s Investors Service, Inc., (iii) certificates of
deposit maturing no more than one year from the date of creation thereof issued
by (A) the Business Bank, a Minnesota corporation, or (B) commercial banks
incorporated under the laws of the United States of America, each having
combined capital, surplus and undivided profits of not less than $300,000,000
and having a senior unsecured rating of “A” or better by a nationally recognized
rating agency (an “A Rated Bank”), (iv) time deposits maturing no more than
30 days from the date of creation thereof with A Rated Banks and (v) mutual
funds that invest solely in one or more of the investments described in clauses
(i) through (iv) above.
          “Permitted Encumbrances” means the following encumbrances: (a) Liens
for taxes or assessments or other governmental Charges not yet due and payable
or which are being contested in accordance with Section 5.2(b); (b) pledges or
deposits of money securing statutory obligations under workmen’s compensation,
unemployment insurance, social security or public liability laws or similar
legislation (excluding Liens under ERISA); (c) pledges or deposits of money
securing bids, tenders, contracts (other than contracts for the payment of
money) or leases to which any Credit Party is a party as lessee made in the
ordinary course of business; (d) inchoate and unperfected workers’, mechanics’
or similar liens arising in the ordinary course of

Annex A-19

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

 

business, so long as such Liens attach only to Equipment, Fixtures and/or Real
Estate; (e) carriers’, warehousemen’s, suppliers’ or other similar possessory
liens arising in the ordinary course of business and securing liabilities in an
outstanding aggregate amount not in excess of $100,000 at any time, so long as
such Liens attach only to Inventory; (f) deposits securing, or in lieu of,
surety, appeal or customs bonds in proceedings to which any Credit Party is a
party; (g) any attachment or judgment lien not constituting an Event of Default
under Section 8.1(j); (h) zoning restrictions, easements, licenses, or other
restrictions on the use of any Real Estate or other minor irregularities in
title (including leasehold title) thereto, so long as the same do not materially
impair the use, value, or marketability of such Real Estate; (i) presently
existing or hereafter created Liens in favor of Agent, on behalf of Lenders; and
(j) Liens expressly permitted under clauses (b) and (c) of Section 6.7 of the
Agreement.
          “Person” means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, institution, public benefit corporation, other entity or
government (whether federal, state, county, city, municipal, local, foreign, or
otherwise, including any instrumentality, division, agency, body or department
thereof).
          “Plan” means, at any time, an “employee benefit plan,” as defined in
Section 3(3) of ERISA, that any Credit Party or ERISA Affiliate maintains,
contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any Credit Party.
          “Pledge Agreements” means each pledge agreement entered into by any
Credit Party in favor of the Agent and/or the Lenders.
          “Pro Forma” means the unaudited consolidated and consolidating
financial statements of Borrower and its Subsidiaries as of November 30, 2006
after giving pro forma effect to the Related Transactions.
          “Pro Rata Share” means with respect to all matters relating to any
Lender, the percentage obtained by dividing (i) the aggregate Commitments of
that Lender by (ii) the aggregate Commitments of all Lenders.
          “Proceeds” means “proceeds,” as such term is defined in the Code,
including (a) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to any Credit Party from time to time with respect to any of
the Collateral, (b) any and all payments (in any form whatsoever) made or due
and payable to any Credit Party from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any Governmental Authority (or any Person acting under
color of governmental authority), (c) any claim of any Credit Party against
third parties (i) for past, present or future infringement of any Patent or
Patent License, or (ii) for past, present or future infringement or dilution of
any Copyright, Copyright License, Trademark or Trademark License, or for injury
to the goodwill associated with any Trademark or Trademark License, (d) any
recoveries by any Credit Party against third parties with respect to any
litigation or dispute concerning any of the Collateral including claims arising
out of the loss or nonconformity of, interference with the use of, defects in,
or infringement of rights in, or damage to, Collateral, (e) all amounts
collected on, or distributed on account of, other Collateral, including
dividends, interest, distributions and

Annex A-20

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

 

Instruments with respect to Investment Property and pledged Stock, and (f) any
and all other amounts, rights to payment or other property acquired upon the
sale, lease, license, exchange or other disposition of Collateral and all rights
arising out of Collateral.
          “Projections” means Borrower’s forecasted consolidated and
consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow
statements; and (d) capitalization statements, all prepared on a Subsidiary by
Subsidiary or division-by-division basis, if applicable, and otherwise
consistent with the historical Financial Statements of Borrower, together with
appropriate supporting details and a statement of underlying assumptions, and
incorporating the principal, interest and scheduled amortization terms of this
Agreement and including a monthly projection of the borrowing base under the
First Lien Credit Agreement.
          “Publishing Business” means any businesses of Encore Software, BCI
Eclipse and the FUNimation Companies as presently conducted as of the Closing
Date and any similar businesses of any other Credit Party that may be conducted
in the future.
          “Qualified Assignee” means any Lender, any Affiliate of any Lender
and, with respect to any Lender an Approved Fund.
          “Qualified Counterparty” means a Person which (i) is an Affiliate of a
Lender and (ii) has entered into an agreement, in form and substance to the
Agent, pursuant to which such Person has, among other things, appointed the
Agent as its agent and agreed to be bound by certain provisions of the Loan
Documents.
          “Qualified Plan” means a Pension Plan that is intended to be
tax-qualified under Section 401(a) of the IRC.
          “Real Estate” has the meaning ascribed to it in Section 3.6.
          “Related Person” means, with respect to any Person, each Affiliate of
such Person and each director, officer, employee, agent, trustee,
representative, attorney, accountant and each insurance, environmental, legal,
financial and other advisor (including those retained in connection with the
satisfaction or attempted satisfaction of any condition set forth in Section 2)
and other consultants and agents of or to such Person or any of its Affiliates,
together with, if such Person is the Agent, each other Person or individual
designated, nominated or otherwise mandated by or helping the Agent pursuant to
the provisions of any Loan Document.
          “Related Transactions” means the borrowing on the Closing Date under
the Term Loan and the First Lien Credit Facility, and the payment of all fees,
costs and expenses associated with all of the foregoing and the execution and
delivery of all of the Related Transactions Documents.
          “Related Transactions Documents” means the Loan Documents, the First
Lien Credit Agreement, and all other agreements, documents, opinions,
certificates and other instruments executed or delivered pursuant to, or in
connection with, the Related Transactions.
          “Release” means any release, threatened release, spill, emission,
leaking, pumping, pouring, emitting, emptying, escape, injection, deposit,
disposal, discharge, dispersal, dumping,

Annex A-21

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

 

leaching or migration of Hazardous Material in the indoor or outdoor
environment, including the movement of Hazardous Material through or in the air,
soil, surface water, ground water or property.
          “Requisite Lenders” means Lenders having more than 66 2/3% of the
Commitments (or, with respect to any facility for which the Commitment has been
terminated, the outstanding principal amount of the applicable Loans) of all
Lenders.
          “Restricted Payment” means, with respect to any Credit Party (a) the
declaration or payment of any dividend or the incurrence of any liability to
make any other payment or distribution of cash or other property or assets in
respect of Stock; (b) any payment on account of the purchase, redemption,
defeasance, sinking fund or other retirement of such Credit Party’s Stock or any
other payment or distribution made in respect thereof, either directly or
indirectly; (c) any payment or prepayment of principal of, premium, if any, or
interest, fees or other charges on or with respect to, and any redemption,
purchase, retirement, defeasance, sinking fund or similar payment and any claim
for rescission with respect to, any Subordinated Debt; (d) any payment made to
redeem, purchase, repurchase or retire, or to obtain the surrender of, any
outstanding warrants, options or other rights to acquire Stock of such Credit
Party now or hereafter outstanding; (e) any payment of a claim for the
rescission of the purchase or sale of, or for material damages arising from the
purchase or sale of, any shares of such Credit Party’s Stock or of a claim for
reimbursement, indemnification or contribution arising out of or related to any
such claim for damages or rescission; (f) any payment, loan, contribution, or
other transfer of funds or other property to any Stockholder of such Credit
Party other than payment of compensation in the ordinary course of business to
Stockholders who are employees of such Credit Party; (g) any payment of
management fees (or other fees of a similar nature) by such Credit Party to any
Stockholder of such Credit Party or its Affiliates, (h) any payment of any
Earnout Amount (as defined in the BCI Eclipse Purchase Agreement) or similar
payment pursuant to the BCI Eclipse Purchase Agreement, and (i) any payment of
any Performance Payments (as defined in the FUNimation Purchase Agreement) or
similar payment pursuant to the FUNimation Purchase Agreement.
          “Retiree Welfare Plan” means, at any time, a Welfare Plan that
provides for continuing coverage or benefits for any participant or any
beneficiary of a participant after such participant’s termination of employment,
other than continuation coverage provided pursuant to Section 4980B of the IRC
and at the sole expense of the participant or the beneficiary of the
participant.
          “Security Agreements” means that certain Security Agreement dated as
of the Closing Date by and among the Credit Parties signatory thereto and Agent,
on behalf of itself and Lenders together with each joinder agreement thereto by
any New Credit Party, and each other Security Agreement to be entered into by
and among Agent, on behalf of itself and Lenders, and any other Credit Party.
          “Software” means all “software” as such term is defined in the Code,
now owned or hereafter acquired by any Credit Party, other than software
embedded in any category of Goods, including all computer programs and all
supporting information provided in connection with a transaction related to any
program.

Annex A-22

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

 

          “Solvent” means, with respect to any Person on a particular date, that
on such date (a) the fair value of the property of such Person is greater than
the total amount of liabilities, including contingent liabilities, of such
Person; (b) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured; (c) such Person does
not intend to, and does not believe that it will, incur debts or liabilities
beyond such Person’s ability to pay as such debts and liabilities mature; and
(d) such Person is not engaged in a business or transaction, and is not about to
engage in a business or transaction, for which such Person’s property would
constitute an unreasonably small capital. The amount of contingent liabilities
(such as litigation, guaranties and pension plan liabilities) at any time shall
be computed as the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can be reasonably be expected
to become an actual or matured liability.
          “SPV” means any special purpose funding vehicle identified as such in
a writing by any Lender to the Agent.
          “Stock” means all shares, options, warrants, general or limited
partnership interests, membership interests or other equivalents (regardless of
how designated) of or in a corporation, partnership, limited liability company
or equivalent entity whether voting or nonvoting, including common stock,
preferred stock or any other “equity security” (as such term is defined in Rule
3a11-1 of the General Rules and Regulations promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934).
          “Stockholder” means, with respect to any Person, each holder of Stock
of such Person.
          “Subordinated Debt” means debt which is subordinated to any or all of
the Obligations.”
          “Subsidiary” means, with respect to any Person, (a) any corporation of
which an aggregate of more than 50% of the outstanding Stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, Stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of 50% or more of such Stock whether by proxy, agreement,
operation of law or otherwise, and (b) any partnership or limited liability
company in which such Person and/or one or more Subsidiaries of such Person
shall have an interest (whether in the form of voting or participation in
profits or capital contribution) of more than 50% or of which any such Person is
a general partner or may exercise the powers of a general partner. Unless the
context otherwise requires, each reference to a Subsidiary shall be a reference
to a Subsidiary of the Borrower.
          “Supporting Obligations” means all “supporting obligations” as such
term is defined in the Code, including letters of credit and guaranties issued
in support of Accounts, Chattel Paper, Documents, General Intangibles,
Instruments, or Investment Property.

Annex A-23

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

 

          “Taxes” means taxes, levies, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto, excluding taxes imposed
on or measured by the net income of Agent or a Lender by the jurisdictions under
the laws of which Agent and Lenders are organized or conduct business or any
political subdivision thereof.
          “Term Loan” has the meaning ascribed to it in Section 1.1.
          “Term Note” has the meaning ascribed to it in Section 1.1(a)(ii).
          “Termination Date” means earliest of (a) March ___, 2011, (b) the date
on which the Term Loan has been indefeasibly repaid in full, and (c) the date on
which all other Obligations under the Agreement and the other Loan Documents
have been completely discharged.
          “Texas Real Estate Sale Transaction” has the meaning assigned to it in
Section 6.8.
          “Title IV Plan” means a Pension Plan (other than a Multiemployer
Plan), that is covered by Title IV of ERISA, and that any Credit Party or ERISA
Affiliate maintains, contributes to or has an obligation to contribute to on
behalf of participants who are or were employed by any of them.
          “Trademark License” means rights under any written agreement now owned
or hereafter acquired by any Credit Party granting any right to use any
Trademark.
          “Trademark Security Agreements” means the Trademark Security
Agreements made in favor of Agent, on behalf of Lenders, by each applicable
Credit Party.
          “Trademarks” means all of the following now owned or hereafter adopted
or acquired by any Credit Party: (a) all trademarks, trade names, corporate
names, business names, trade styles, service marks, logos, other source or
business identifiers, prints and labels on which any of the foregoing have
appeared or appear, designs and general intangibles of like nature (whether
registered or unregistered), all registrations and recordings thereof, and all
applications in connection therewith, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state or territory thereof, or any
other country or any political subdivision thereof; (b) all reissues, extensions
or renewals thereof; and (c) all goodwill associated with or symbolized by any
of the foregoing.
          “Unfunded Pension Liability” means, at any time, the aggregate amount,
if any, of the sum of (a) the amount by which the present value of all accrued
benefits under each Title IV Plan exceeds the fair market value of all assets of
such Title IV Plan allocable to such benefits in accordance with Title IV of
ERISA, all determined as of the most recent valuation date for each such Title
IV Plan using the actuarial assumptions for funding purposes in effect under
such Title IV Plan, and (b) for a period of 5 years following a transaction
which might reasonably be expected to be covered by Section 4069 of ERISA, the
liabilities (whether or not accrued) that could be avoided by any Credit Party
or any ERISA Affiliate as a result of such transaction.

Annex A-24

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

 

          “Vendor” means a Person who (i) supplies goods to any Credit Party
which become Inventory of such Credit Party or (ii) provides a license to permit
a Credit Party to sell specific goods or for specified use of intellectual
property.
          “Vendor Advance Expense” shall mean any expense including write-offs,
recoupments, amortization or similar recognition of expenses relating to a
reduction in any Vendor Advance.
          “Vendor Advances” shall mean all prepayments, advances, licensing fees
or royalties (i) paid by one or more Credit Parties to one or more Vendors in
respect of goods or Intellectual Property not yet then provided to a Credit
Party and (ii) which are intended to be repaid or earned in the future upon the
sale by a Credit Party of the applicable goods or specified use of intellectual
property.
          “Welfare Plan” means a Plan described in Section 3(i) of ERISA.
          Rules of construction with respect to accounting terms used in the
Agreement or the other Loan Documents shall be as set forth in Annex F. All
other undefined terms contained in any of the Loan Documents shall, unless the
context indicates otherwise, have the meanings provided for by the Code to the
extent the same are used or defined therein; in the event that any term is
defined differently in different Articles or Divisions of the Code, the
definition contained in Article or Division 9 shall control. Unless otherwise
specified, references in the Agreement or any of the Appendices to a Section,
subsection or clause refer to such Section, subsection or clause as contained in
the Agreement. The words “herein,” “hereof” and “hereunder” and other words of
similar import refer to the Agreement as a whole, including all Annexes,
Exhibits and Schedules, as the same may from time to time be amended, restated,
modified or supplemented, and not to any particular section, subsection or
clause contained in the Agreement or any such Annex, Exhibit or Schedule.
          Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter genders. The words “including”, “includes” and
“include” shall be deemed to be followed by the words “without limitation”; the
word “or” is not exclusive; references to Persons include their respective
successors and assigns (to the extent and only to the extent permitted by the
Loan Documents) or, in the case of governmental Persons, Persons succeeding to
the relevant functions of such Persons; and all references to statutes and
related regulations shall include any amendments of the same and any successor
statutes and regulations. Whenever any provision in any Loan Document refers to
the knowledge (or an analogous phrase) of any Credit Party, such words are
intended to signify that such Credit Party has actual knowledge or awareness of
a particular fact or circumstance or that such Credit Party, if it had exercised
reasonable diligence, would have known or been aware of such fact or
circumstance.

Annex A-25

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

 

ANNEX B (Section 1.8)
to
CREDIT AGREEMENT
CASH MANAGEMENT SYSTEM
          Borrower shall, and shall cause its Subsidiaries to, establish and
maintain the Cash Management Systems described below:
          (a) On or before the Closing Date and until the Termination Date,
Borrower shall (i) establish lock boxes (“Lock Boxes”) or, at Agent’s
discretion, blocked accounts (“Blocked Accounts”) at one or more of the banks
set forth in Disclosure Schedule (3.19), and shall request in writing and
otherwise take such reasonable steps to ensure that all Account Debtors forward
payment directly to such Lock Boxes, and (ii) deposit and cause its Subsidiaries
to deposit or cause to be deposited promptly, and in any event no later than the
first Business Day after the date of receipt thereof, all cash, checks, drafts
or other similar items of payment relating to or constituting payments made in
respect of any and all Collateral (whether or not otherwise delivered to a Lock
Box) into one or more Blocked Accounts in Borrower’s name or any such
Subsidiary’s name and at a bank identified in Disclosure Schedule (3.19) (each,
a “Relationship Bank”). On or before the Closing Date, Borrower shall have
established a concentration account in its name (the “Concentration Account”)
(which account may be the same as one of the Blocked Accounts) at the bank that
shall be designated as the Concentration Account bank for Borrower in Disclosure
Schedule (3.19) (the “Concentration Account Bank”) (which bank may be one of the
Relationship Banks) which bank shall be reasonably satisfactory to Agent.
          (b) Borrower may maintain, in its name, an account (each a
“Disbursement Account” and collectively, the “Disbursement Accounts”) at a bank
acceptable to Agent into which First Lien Agent shall, from time to time,
deposit proceeds of loans made to Borrower pursuant to First Lien Credit
Agreement.
          (c) On or before the Closing Date (or such later date as Agent shall
consent to in writing), the Concentration Account Bank, each bank where a
Disbursement Account is maintained and all other Relationship Banks, shall have
entered into tri-party blocked account agreements with Agent, for the benefit of
itself and Lenders, and Borrower and Subsidiaries thereof, as applicable, in
form and substance reasonably acceptable to Agent, which shall become operative
on or prior to the Closing Date. Each such blocked account agreement shall
provide, among other things, that (i) all items of payment deposited in such
account and proceeds thereof deposited in the Concentration Account are held by
such bank as agent or bailee-in-possession for Agent, on behalf of itself and
Lenders, (ii) the bank executing such agreement has no rights of setoff or
recoupment or any other claim against such account, as the case may be, other
than for payment of its service fees and other charges directly related to the
administration of such account and for returned checks or other items of
payment, and (iii) from and after the Closing Date (A) with respect to banks at
which a Blocked Account is maintained, if such Blocked Account is not also the
Concentration Account, such bank agrees to forward immediately all amounts in
each Blocked Account to the Concentration Account Bank and to commence the
process of daily sweeps from such Blocked Account into the Concentration

Annex B-1

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

 

Account and (B) with respect to the Concentration Account Bank, such bank agrees
to immediately forward all amounts received in the Concentration Account to the
Collection Account through daily sweeps from such Concentration Account into the
Collection Account. Borrower shall not, and shall not cause or permit any
Subsidiary thereof to, accumulate or maintain cash in Disbursement Accounts or
payroll accounts as of any date of determination in excess of checks outstanding
against such accounts as of that date and amounts necessary to meet minimum
balance requirements.
          (d) So long as no Default or Event of Default has occurred and is
continuing, Borrower may amend Disclosure Schedule (3.19) to add or replace a
Relationship Bank, Lock Box or Blocked Account or to replace any Concentration
Account or any Disbursement Account; provided, that (i) Agent shall have
consented in writing in advance to the opening of such account or Lock Box with
the relevant bank and (ii) prior to the time of the opening of such account or
Lock Box, Borrower or its Subsidiaries, as applicable, and such bank shall have
executed and delivered to Agent a tri-party blocked account agreement, in form
and substance reasonably satisfactory to Agent. Borrower shall close any of its
accounts (and establish replacement accounts in accordance with the foregoing
sentence) promptly and in any event within 30 days following notice from Agent
that the creditworthiness of any bank holding an account is no longer acceptable
in Agent’s reasonable judgment, or as promptly as practicable and in any event
within 60 days following notice from Agent that the operating performance, funds
transfer or availability procedures or performance with respect to accounts or
Lock Boxes of the bank holding such accounts or Agent’s liability under any
tri-party blocked account agreement with such bank is no longer acceptable in
Agent’s reasonable judgment.
          (e) The Lock Boxes, Blocked Accounts, Disbursement Accounts and the
Concentration Account shall be cash collateral accounts, with all cash, checks
and other similar items of payment in such accounts securing payment of the
Loans and all other Obligations, and in which Borrower and each Subsidiary
thereof shall have granted a Lien to Agent, on behalf of itself and Lenders,
pursuant to the Security Agreement.
          (f) All amounts deposited in the Collection Account shall be deemed
received by Agent in accordance with Section 1.10 and shall be applied (and
allocated) by Agent in accordance with Section 1.11. In no event shall any
amount be so applied unless and until such amount shall have been credited in
immediately available funds to the Collection Account.
          (g) Borrower shall and shall cause its Related Persons to (i) hold in
trust for Agent, for the benefit of itself and Lenders, all checks, cash and
other items of payment received by Borrower or any such Related Person, and
(ii) within 1 Business Day after receipt by Borrower or any such Related Person
of any checks, cash or other items of payment, deposit the same into a Blocked
Account. Borrower and each Related Person thereof acknowledges and agrees that
all cash, checks or other items of payment constituting proceeds of Collateral
are part of the Collateral. All proceeds of the sale or other disposition of any
Collateral, shall be deposited directly into Blocked Accounts.

Annex B-2

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

 

ANNEX C (Section 2.1(a))
to
CREDIT AGREEMENT
CLOSING CHECKLIST
Attached.

Annex C-1

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

 

ANNEX D (Section 4.1(a))
to
CREDIT AGREEMENT
FINANCIAL STATEMENTS AND PROJECTIONS — REPORTING
          Borrower shall deliver or cause to be delivered to Agent or to Agent
and Lenders, as indicated, the following:
          (a) Monthly Financials. To Agent and Lenders, within 30 days after the
end of each Fiscal Month (45 days after the end of each Fiscal Month ending on
or about March 31, June 30, September 30 or December 31; provided, however, that
with respect to such Fiscal Months, the Borrower shall deliver to the Agent and
the Lenders drafts of the financial statements otherwise required by this
sentence within 30 days after the end of each such Fiscal Month), financial
information regarding Borrower and its Subsidiaries, certified by the Chief
Financial Officer of Borrower, consisting of consolidated and consolidating
(i) unaudited balance sheets as of the close of such Fiscal Month and the
related statements of income and cash flows for that portion of the Fiscal Year
ending as of the close of such Fiscal Month and (ii) unaudited statements of
income and cash flows for such Fiscal Month, setting forth in comparative form
the figures for the corresponding period in the prior year and the figures
contained in the Projections for such Fiscal Year, all prepared in accordance
with GAAP (subject to normal year-end adjustments). Such financial information
shall be accompanied by (A) if such month is the last month of a Fiscal Quarter,
a statement in reasonable detail (each, a “Compliance Certificate”) showing the
calculations used in determining compliance with each Financial Covenant that is
tested for a period ending on the last day of such Fiscal Quarter and (B) the
certification of the Chief Financial Officer of Borrower that (i) such financial
information presents fairly in accordance with GAAP (subject to normal year-end
adjustments) the financial position and results of operations of Borrower and
its Subsidiaries, on a consolidated and consolidating basis, in each case as at
the end of such Fiscal Month and for that portion of the Fiscal Year then ended
and (ii) any other information presented is true, correct and complete in all
material respects and that there was no Default or Event of Default in existence
as of such time or, if a Default or Event of Default shall have occurred and be
continuing, describing the nature thereof and all efforts undertaken to cure
such Default or Event of Default.
          (b) Operating Plan. To Agent and Lenders, as soon as available, but
not later than 30 days before the end of each Fiscal Year, an annual proposed
operating plan for Borrower for the following Fiscal Year (and when available,
any subsequent updates thereto approved by the Board of Directors of Borrower),
which for the following Fiscal Year, (i) includes a statement of all of the
material assumptions on which such plan is based, (ii) includes monthly balance
sheets and a monthly budget for the following year and (iii) integrates sales,
gross profits, operating expenses, operating profit, cash flow projections and
Borrowing Availability (as defined in the First Lien Credit Agreement)
projections, all prepared on the same basis and in similar detail as that on
which operating results are reported (and in the case of cash flow projections,
representing management’s good faith estimates of future financial performance
based on historical performance), and including plans for personnel, Capital
Expenditures and facilities.

Annex D-1

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

 

          (c) Annual Audited Financials. To Agent and Lenders, within 75 days
after the end of each Fiscal Year, audited Financial Statements for Borrower and
its Subsidiaries on a consolidated and (unaudited) consolidating basis,
consisting of balance sheets and statements of income and retained earnings and
cash flows, setting forth in comparative form in each case the figures for the
previous Fiscal Year, which Financial Statements shall be prepared in accordance
with GAAP and certified without qualification, by an independent certified
public accounting firm of national standing or otherwise acceptable to Agent.
Such Financial Statements shall be accompanied by (i) a statement prepared in
reasonable detail showing the calculations used in determining compliance with
each of the Financial Covenants, and (ii) the certification of the Chief
Executive Officer or Chief Financial Officer of Borrower that all such Financial
Statements present fairly in accordance with GAAP the financial position,
results of operations and statements of cash flows of Borrower and its
Subsidiaries on a consolidated and consolidating basis, as at the end of such
Fiscal Year and for the period then ended, and that there was no Default or
Event of Default in existence as of such time or, if a Default or Event of
Default has occurred and is continuing, describing the nature thereof and all
efforts undertaken to cure such Default or Event of Default.
          (d) Management Letters. To Agent and Lenders, within 5 Business Days
after receipt thereof by any Credit Party, copies of all management letters,
exception reports or similar letters or reports received by such Credit Party
from its independent certified public accountants.
          (e) Default Notices. To Agent and Lenders, as soon as practicable, and
in any event within 5 Business Days after an executive officer of Borrower has
actual knowledge of the existence of any Default, Event of Default or other
event that has had a Material Adverse Effect, telephonic or telecopied notice
specifying the nature of such default or event of default or other event,
including the anticipated effect thereof, which notice, if given telephonically,
shall be promptly confirmed in writing on the next Business Day.
          (f) SEC Filings and Press Releases. To Agent and Lenders, promptly
upon their becoming available, copies of: (i) all Financial Statements, reports,
notices and proxy statements made publicly available by any Credit Party to its
security holders; (ii) all regular and periodic reports and all registration
statements and prospectuses, if any, filed by any Credit Party with any
securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority; and (iii) all press releases and
other statements made available by any Credit Party to the public concerning
material changes or developments in the business of any such Person.
          (g) Equity Notices. To Agent, as soon as practicable, copies of all
material written notices given or received by any Credit Party with respect to
any Stock of such Person.
          (h) Supplemental Schedules. To Agent, supplemental disclosures, if
any, required by Section 5.6.
          (i) Litigation. To Agent in writing, promptly upon learning thereof,
notice of any Litigation commenced or threatened against any Credit Party that
(i) seeks damages in excess of $100,000, (ii) seeks injunctive relief, (iii) is
asserted or instituted against any Plan, its fiduciaries or its assets or
against any Credit Party or ERISA Affiliate in connection with any

Annex D-2

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

 

Plan, (iv) alleges criminal misconduct by any Credit Party, (v) alleges the
violation of any law regarding, or seeks remedies in connection with, any
Environmental Liabilities; or (vi) involves any product recall. In addition,
within 15 days after the end of each Fiscal Quarter, the Borrower shall provide
the Agent with a summary of all litigation set forth on Disclosure Schedule 3.13
or for which the Agent is otherwise to be notified pursuant to this clause (i).
          (j) Insurance Notices. To Agent, disclosure of losses or casualties
required by Section 5.4.
          (k) Lease Default Notices. To Agent, within 2 Business Days after
receipt thereof, copies of (i) any and all default notices received under or
with respect to any leased location or public warehouse where Collateral is
located, and (ii) such other notices or documents as Agent may reasonably
request.
          (l) Lease Amendments. To Agent, within 2 Business Days after receipt
thereof, copies of all material amendments to real estate leases.
          (m) Vendor Advances Disclosure Schedule. To Agent, not later than
forty five (45) days after the end of each Fiscal Quarter a schedule, in form
and with such detail as is satisfactory to the Agent listing (i) all new Vendor
Advances made by Credit Parties, reductions to any Vendor Advances, write-off
payments made with respect to any Vendor Advances and net monthly closing
balances of Vendor Advances by each Vendor and in the aggregate, in each case,
on a month-by-month basis during such Fiscal Quarter and (ii) all outstanding
Vendor Advances made by Credit Parties as of the end of such Fiscal Quarter.
          (n) Agreements relating to Vendor Advances, Supply Agreements,
Purchase Agreements and Customer Agreements. To Agent, within 10 Business Days
after receipt thereof, copies of (i) all amendments to any material agreements
relating to Vendor Advances, material supply agreements, material purchase
agreements and material customer agreements (ii) any new material agreement
relating to Vendor Advances, material supply agreement, material purchase
agreement and material customer agreement.
          (o) First Lien Notices. To Agent, as soon as practicable, copies of
all written notices provided or received by a Credit Party under or with respect
to the First Lien Credit Agreement and related documents.
          (p) Other Documents. To Agent and Lenders, such other financial and
other information respecting any Credit Party’s business or financial condition
as Agent or any Lender shall, from time to time, reasonably request.

Annex D-3

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

 

ANNEX E (Section 4.1(b))
to
CREDIT AGREEMENT
COLLATERAL REPORTS
          Borrower shall deliver or cause to be delivered the following:
          (a) To Agent, upon its request, and in any event no less frequently
than five (5) Business Days after the end of each Fiscal Month (together with a
copy of all or any part of the following reports requested by any Lender in
writing after the Closing Date), each of the following reports, each of which
shall be prepared by the Borrower as of the last day of the immediately
preceding Fiscal Month or the date two (2) days prior to the date of any such
request:
     (i) any borrowing base certificate and supporting detail and documentation
as delivered to First Lien Agent pursuant to the terms of the First Lien Credit
Agreement;
     (ii) with respect to Borrower, a summary of Inventory and a perpetual
Inventory report, in each case by location and type in each case accompanied by
such supporting detail and documentation as shall be requested by Agent in its
reasonable discretion;
     (iii) with respect to Borrower, a monthly trial balance showing Accounts
outstanding aged from invoice date as follows: 1 to 30 days, 31 to 60 days, 61
to 90 days and 91 days or more, accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable discretion; and
     (iv) an aging of accounts payable;
          (b) To Agent, at the time of delivery of each of the monthly Financial
Statements delivered pursuant to Annex D:
     (i) a reconciliation of the most recent Borrowing Base (as defined in the
First Lien Credit Agreement), general ledger and month-end Accounts and
Inventory reports of Borrower to Borrower’s general ledger and monthly Financial
Statements delivered pursuant to such Annex D, in each case accompanied by such
supporting detail and documentation as shall be requested by Agent in its
reasonable discretion;
     (ii) a reconciliation of the perpetual inventory by location to Borrower’s
most recent borrowing base certificate delivered to the First Lien Agent
pursuant to the First Lien Credit Agreement, general ledger and monthly
Financial Statements delivered pursuant to Annex D, in each case accompanied by
such supporting detail and documentation as shall be requested by Agent in its
reasonable discretion;
     (iii) an aging of accounts payable and a reconciliation of that accounts
payable aging to Borrower’s general ledger and monthly Financial Statements
delivered pursuant

Annex E-1

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

 

to Annex D, in each case accompanied by such supporting detail and documentation
as shall be requested by Agent in its reasonable discretion; and
     (iv) a reconciliation of the outstanding Loans as set forth in the monthly
Loan Account statement provided by Agent to Borrower’s general ledger and
monthly Financial Statements delivered pursuant to Annex D, in each case
accompanied by such supporting detail and documentation as shall be requested by
Agent in its reasonable discretion;
     (v) a “roll forward” report with respect to Accounts in form satisfactory
to Agent;
     (vi) a reconciliation of Vendor Advances to Borrower’s general ledger and
monthly Financial Statements delivered pursuant to Annex D, in each case
accompanied by such supporting detail and documentation as shall be requested by
Agent in its reasonable discretion;
     (vii) copies of the regular monthly bank statements provided to Borrower
with respect to the Eligible Investment Account;
          (c) To Agent, at the time of delivery of each of the annual Financial
Statements delivered pursuant to Annex D, (i) a listing of government contracts
of Borrower subject to the Federal Assignment of Claims Act of 1940; and (ii) a
list of any applications for the registration of any Patent, Trademark or
Copyright filed by any Credit Party with the United States Patent and Trademark
Office, the United States Copyright Office or any similar office or agency in
the prior Fiscal Quarter;
          (d) Borrower, at its own expense, shall deliver to Agent the results
of each physical verification, if any, that Borrower or any of its Subsidiaries
may in their discretion have made, or caused any other Person to have made on
their behalf, of all or any portion of their Inventory (and, if a Default or an
Event of Default has occurred and be continuing, Borrower shall, upon the
request of Agent, conduct, and deliver the results of, such physical
verifications as Agent may require);
          (e) Borrower, at its own expense shall deliver to Agent all appraisals
of the Inventory of Credit Parties, and all appraisals of the assets of the
Credit Parties delivered to the First Lien Agent, both before and at any time
after the occurrence and during the continuance of an Event of Default, which
appraisals shall provide, without limitation, a net liquidation value of
Inventory determined on a categorical and seasonal basis net of all expenses of
the Credit Parties; and
          (f) Such other reports, statements and reconciliations with respect to
the Collateral or Obligations of any or all Credit Parties as Agent shall from
time to time request in its reasonable discretion.

Annex E-2

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

 

ANNEX F (Section 6.10)
to
CREDIT AGREEMENT
FINANCIAL COVENANTS
          Borrower shall not breach or fail to comply with any of the following
financial covenants, each of which shall be calculated in accordance with GAAP
consistently applied:
          (a) Maximum Capital Expenditures. Borrower and its Subsidiaries on a
consolidated basis shall not make Capital Expenditures during the following
periods that exceed in the aggregate the amounts set forth opposite each of such
periods:

          Period   Maximum Capital Expenditures per Period
 
       
Fiscal Year ending on or about March 31, 2007
  $ 7,900,000  
 
       
Fiscal Year ending on or about March 31, 2008
  $ 9,500,000  
 
       
Fiscal Year ending on or about March 31, 2009
       
and each Fiscal Year ending thereafter
  $ 3,000,000  

          (b) Minimum Fixed Charge Coverage Ratio. Borrower and its Subsidiaries
shall have on a consolidated basis, as of the last day of the Fiscal Quarter
ending on June 30, 2007 and as of the last day of each Fiscal Quarter
thereafter, for the 12 month period then ended, a ratio (the “Fixed Charge
Coverage Ratio”) of (A) the sum of (i) EBITDA plus (ii) the aggregate of all
Vendor Advance Expenses for such period, plus (iii) interest income received
during such period minus (iii) Capital Expenditures during such period (other
than Capital Expenditures financed other than with the proceeds of Loans), minus
(iv) income taxes paid in cash during such period, minus (v) the aggregate of
all Vendor Advances made during such period to (B) the sum of, without
duplication, (i) the aggregate of all Interest Expense paid or accrued during
such period, plus (ii) scheduled payments of principal with respect to
Indebtedness (other than with respect to the Term Loan B (as defined in the
Existing First Lien Credit Agreement)) during such period, plus, (iii) all
Restricted Payments made by a Credit Party during such period (other than
Restricted Payments (a) made to another Credit Party or (b) which have caused
EBITDA to be reduced for such period) of at least the ratio set forth below
opposite such Fiscal Quarter:

          Fiscal Quarter Ending   Ratio
 
       
June 30, 2007
    0.90:1  
September 30, 2007
    0.90:1  
December 31, 2007
    0.90:1  
March 31, 2008
    1.10:1  
June 30, 2008 and each Fiscal Quarter ending thereafter
    1.50:1  

Annex F-1

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

 

          (c) Indebtedness to EBITDA. Borrower and its Subsidiaries shall have
on a consolidated basis, as of the last day of each Fiscal Quarter, for the
12 month period then ended, a Leverage Ratio of not greater than the ratio set
forth below opposite such Fiscal Quarter:

          Fiscal Quarter Ending   Ratio
 
       
June 30, 2007
    3.25:1  
September 30, 2007
    3.00:1  
December 31, 2007
    3.00:1  
March 31, 2008
    2.75:1  
June 30, 2008
    2.75:1  
September 30, 2008
    2.50:1  
December 31, 2008
    2.50:1  
March 31, 2009 and each Fiscal Quarter ending thereafter
    2.25:1  

          (d) Minimum EBITDA. Borrower and its Subsidiaries shall have on a
consolidated basis, as of the last day of each Fiscal Quarter ending on June 30,
2007 and as of the last day of each Fiscal Quarter thereafter, for the 12 month
period then ended, EBITDA of at least the amount set forth below opposite such
Fiscal Quarter:

          Fiscal Quarter Ending   EBITDA
 
       
June 30, 2007
  $ 32,000,000  
September 30, 2007
  $ 32,000,000  
December 31, 2007
  $ 34,000,000  
March 31, 2008
  $ 34,000,000  
June 30, 2008
  $ 35,000,000  
September 30, 2008
  $ 35,000,000  
December 31, 2008
  $ 36,000,000  
March 31, 2009
  $ 36,000,000  
June 30, 2009
  $ 37,000,000  
September 30, 2009
  $ 37,000,000  
December 31, 2009 and each Fiscal Quarter ending thereafter
  $ 38,000,000  

          Unless otherwise specifically provided herein, any accounting term
used in the Agreement shall have the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be computed
in accordance with GAAP consistently applied. That certain items or computations
are explicitly modified by the phrase “in accordance with GAAP” shall in no way
be construed to limit the foregoing. If any “Accounting Changes” (as defined
below) occur and such changes result in a change in the calculation of the
financial covenants, standards or terms used in the Agreement or any other Loan
Document, then Borrower, Agent and Lenders agree to enter into negotiations in
order to amend such provisions of the Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating
Borrower’s and its Subsidiaries’ financial condition shall be the same

Annex F-2

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

 

after such Accounting Changes as if such Accounting Changes had not been made;
provided, however, that the agreement of Requisite Lenders to any required
amendments of such provisions shall be sufficient to bind all Lenders.
“Accounting Changes” means (i) changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public
Accountants (or successor thereto or any agency with similar functions), (ii)
changes in accounting principles concurred in by Borrower’s certified public
accountants; (iii) purchase accounting adjustments under A.P.B. 16 or 17 and
EITF 88-16, and the application of the accounting principles set forth in FASB
109, including the establishment of reserves pursuant thereto and any subsequent
reversal (in whole or in part) of such reserves; and (iv) the reversal of any
reserves established as a result of purchase accounting adjustments. If Agent,
Borrower and Requisite Lenders agree upon the required amendments, then after
appropriate amendments have been executed and the underlying Accounting Change
with respect thereto has been implemented, any reference to GAAP contained in
the Agreement or in any other Loan Document shall, only to the extent of such
Accounting Change, refer to GAAP, consistently applied after giving effect to
the implementation of such Accounting Change. If Agent, Borrower and Requisite
Lenders cannot agree upon the required amendments within 30 days following the
date of implementation of any Accounting Change, then all Financial Statements
delivered and all calculations of financial covenants and other standards and
terms in accordance with the Agreement and the other Loan Documents shall be
prepared, delivered and made without regard to the underlying Accounting Change.
For purposes of Section 8.1, a breach of a Financial Covenant contained in this
Annex F shall be deemed to have occurred as of any date of determination by
Agent or as of the last day of any specified measurement period, regardless of
when the Financial Statements reflecting such breach are delivered to Agent.

Annex F-3

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

 

ANNEX G (Section 9.9(a))
to
CREDIT AGREEMENT
LENDERS’ WIRE TRANSFER INFORMATION

         
Name:
  Monroe Capital Advisors, LLC
Bank:
  LaSalle Bank NA
 
       
ABA #:
  071000505  
Account #:
  5800969056  
Account Name:
  Monroe Capital Advisors Funding Account
Reference:
       

Annex G-1

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

 

ANNEX H (Section 11.10)
to
CREDIT AGREEMENT
NOTICE ADDRESSES

     
(A)
  If to Agent or Monroe Capital, at
 
  Monroe Capital Advisors, LLC
 
  311 South Wacker Drive
 
  Suite 6400
 
  Chicago, Illinois 60606
 
  Attention:
 
  Telecopier No.:
 
  Telephone No.:
 
   
 
  with copies to:
 
   
 
  Jones Day
 
  77 West Wacker Drive
 
  Suite 3500
 
  Chicago, Illinois 60601
 
  Attention: Robert J. Graves
 
  Telecopier No.: 312-782-8585
 
  Telephone No.: 312-782-3939
 
   
(B)
  If to Borrower or any Credit Party, at
 
  Navarre Corporation
 
  7400 49th Avenue North
 
  New Hope, MN 55428
 
  Attention: CFO
 
  Telecopier No.: 763-504-1107
 
  Telephone No.: 763-450-2406

Annex H-1

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

 

ANNEX I (from Annex A — Commitments definition)
to
CREDIT AGREEMENT
Lenders:
Monroe Capital Advisors, LLC:
Commitment
$15,000,000

Annex I-1