Exhibit 10.1

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THIRD AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of June 1, 2005

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

GENERAL ELECTRIC CAPITAL CORPORATION,

as Administrative Agent, Agent and Lender

GECC CAPITAL MARKETS GROUP, INC.

as Lead Arranger

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TABLE OF CONTENTS

                                      Page 1.   AMOUNT AND TERMS OF CREDIT     2
 
 
                   

    1.1     Credit Facilities.     2  

    1.2     Letters of Credit     6  

    1.3     Prepayments.     6  

    1.4     Use of Proceeds     9  

    1.5     Interest and Applicable Margins     9  

    1.6     [Intentionally Deleted]     12  

    1.7     [Intentionally Deleted]     12  

    1.8     Cash Management Systems     12  

    1.9     Fees     12  

    1.10     Receipt of Payments     12  

    1.11     Application and Allocation of Payments     12  

    1.12     Loan Account and Accounting     13  

    1.13     Indemnity     14  

    1.14     Access     15  

    1.15     Taxes     15  

    1.16     Capital Adequacy; Increased Costs; Illegality     16  

    1.17     Single Loan     17  

    1.18     Addition of Second Lien Loan     17  
 
                    2.   CONDITIONS PRECEDENT     18  
 
                   

    2.1     Conditions to the Initial Loans     18  

    2.2     Further Conditions to Each Loan     19  
 
                    3.   REPRESENTATIONS AND WARRANTIES     20  
 
                   

    3.1     Corporate Existence; Compliance with Law     20  

    3.2     Executive Offices, Collateral Locations, FEIN     20  

    3.3     Corporate Power, Authorization, Enforceable Obligations     20  

    3.4     Financial Statements and Projections     21  

    3.5     Material Adverse Effect     22  

    3.6     Ownership of Property; Liens     22  

    3.7     Labor Matters     22  

    3.8     Ventures, Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness     23  

    3.9     Government Regulation     23  

    3.10     Margin Regulations     23  

    3.11     Taxes     24  

    3.12     ERISA     24  

    3.13     No Litigation     25  

    3.14     Brokers     25  

    3.15     Intellectual Property     25  

    3.16     Full Disclosure     26  

    3.17     Environmental Matters     26  
 
                   
i

 

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                                      Page

    3.18     Insurance     27  

    3.19     Deposit and Disbursement Accounts     27  

    3.20     Government Contracts     27  

    3.21     Customer and Trade Relations     27  

    3.22     Agreements and Other Documents     27  

    3.23     Solvency     27  

    3.24     [Intentionally Deleted]     28  

    3.25     Status of Navarre CP, Navarre CLP and Navarre CS     28  

    3.26     FUNimation Acquisition Agreement     28  

    3.27     Vendor Advances     28  
 
                    4.   FINANCIAL STATEMENTS AND INFORMATION     28  
 
                   

    4.1     Reports and Notices     28  

    4.2     Communication with Accountants     29  
 
                    5.   AFFIRMATIVE COVENANTS     29  
 
                   

    5.1     Maintenance of Existence and Conduct of Business     29  

    5.2     Payment of Charges     29  

    5.3     Books and Records     30  

    5.4     Insurance; Damage to or Destruction of Collateral     30  

    5.5     Compliance with Laws     31  

    5.6     Supplemental Disclosure     32  

    5.7     Intellectual Property     32  

    5.8     Environmental Matters     32  

    5.9     Landlords’ Agreements     33  

    5.10     Clean Down     33  

    5.11     Interest Rate Agreements     33  

    5.12     Further Assurances     34  

    5.13     Second Lien Loan     34  
 
                    6.   NEGATIVE COVENANTS     34  
 
                   

    6.1     Mergers, Subsidiaries, Etc     34  

    6.2     Investments; Loans and Advances     34  

    6.3     Indebtedness     36  

    6.4     Employee Loans and Affiliate Transactions     37  

    6.5     Capital Structure and Business     37  

    6.6     Guaranteed Indebtedness     38  

    6.7     Liens and Related Matters     38  

    6.8     Sale of Stock and Assets     39  

    6.9     ERISA     39  

    6.10     Financial Covenants     39  

    6.11     Hazardous Materials     39  

    6.12     Sale-Leasebacks     39  

    6.13     Cancellation of Indebtedness     39  

    6.14     Restricted Payments     39  

    6.15     Change of Corporate Name or Location; Change of Fiscal Year     40
 

    6.16     No Impairment of Intercompany Transfers     40  
 
                   
ii

 

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                                      Page

    6.17     No Speculative Transactions     40  

    6.18     Leases; Real Estate Purchases     41  

    6.19     Amendments     41  

    6.20     Navarre CP, Navarre CLP and Navarre CS     41  

    6.21     Second Lien Credit Agreement     41  
 
                    7.   TERM     41  
 
                   

    7.1     Termination     41  

    7.2     Survival of Obligations Upon Termination of Financing Arrangements  
  41  
 
                    8.   EVENTS OF DEFAULT; RIGHTS AND REMEDIES     41  
 
                   

    8.1     Events of Default     41  

    8.2     Remedies     43  

    8.3     Waivers by Credit Parties     44  
 
                    9.   ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT    
44  
 
                   

    9.1     Assignment and Participations     44  

    9.2     Appointment of Agent     47  

    9.3     Agent’s Reliance, Etc.     47  

    9.4     GE Capital and Affiliates     48  

    9.5     Lender Credit Decision     48  

    9.6     Indemnification     48  

    9.7     Successor Agent     49  

    9.8     Setoff and Sharing of Payments     49  

    9.9     Advances; Payments; Non-Funding Lenders; Information; Actions in
Concert     50  

    9.10     Intercreditor Agreement     52  
 
                    10.   SUCCESSORS AND ASSIGNS     52  
 
                   

    10.1     Successors and Assigns     52  
 
                    11.   MISCELLANEOUS     53  
 
                   

    11.1     Complete Agreement; Modification of Agreement     53  

    11.2     Amendments and Waivers     53  

    11.3     Fees and Expenses     54  

    11.4     No Waiver     56  

    11.5     Remedies     56  

    11.6     Severability     56  

    11.7     Conflict of Terms     56  

    11.8     Confidentiality     56  

    11.9     GOVERNING LAW     57  

    11.10     Notices     58  

    11.11     Section Titles     58  

    11.12     Counterparts     58  

    11.13     WAIVER OF JURY TRIAL     58  

    11.14     Press Releases and Related Matters     59  

    11.15     Reinstatement     59  
 
                   
iii

 

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                                      Page

    11.16     Advice of Counsel     59  

    11.17     No Strict Construction     59  

    11.18     Compliance with Federal Law     59  

    11.19     Customer Identification – USA Patriot Act Notice     60  
 
                    12.   AMENDMENT AND RESTATEMENT     60  
 
                   

    12.1     Interrelationship with the Existing Credit Agreement     60  

    12.2     Confirmation of Existing Obligations     60  

iv

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INDEX OF APPENDICES

         
Annex A (Recitals)
  -   Definitions
Annex B (Section 1.2)
  -   Letters of Credit
Annex C (Section 1.8)
  -   Cash Management System
Annex D (Section 2.1(a))
  -   Closing Checklist
Annex E (Section 4.1(a))
  -   Financial Statements and Projections – Reporting
Annex F (Section 4.1(b))
  -   Collateral Reports
Annex G (Section 6.10)
  -   Financial Covenants
Annex H (Section 9.9(a))
  -   Lenders’ Wire Transfer Information
Annex I (Section 11.10)
  -   Notice Addresses
Annex J (from Annex A-
Commitments definition)
  -   Commitments as of Closing Date
 
       
Exhibit 1.1(a)(i)
  -   Form of Notice of Revolving Credit Advance
Exhibit 1.1(a)(ii)
  -   Form of Revolving Note
Exhibit 1.1(b)(ii)
  -   Form of Swing Line Note
Exhibit 1.1(c)(i)
  -   Form of Term B Note
Exhibit 1.1(d)(i)
  -   Form of Term C Note
Exhibit 1.5(e)
  -   Form of Notice of Conversion/Continuation
Exhibit 9.1(a)
  -   Form of Assignment Agreement
Exhibit B-1
  -   Application for Standby Letter of Credit
Schedule 1.1
  -   Agent’s Representatives
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
 
       
v

 

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Disclosure Schedule 6.7
  -   Existing Liens
 
       
vi

 

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     This THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this “Agreement”), dated
as of June 1, 2005, by and among NAVARRE CORPORATION, a Minnesota corporation
(“Borrower”), the Credit Parties signatory hereto, GENERAL ELECTRIC CAPITAL
CORPORATION, a Delaware corporation (in its individual capacity, “GE Capital”),
for itself, as Lender, and as Agent for Lenders, and the other Lenders signatory
hereto from time to time.

RECITALS

     WHEREAS, Borrower, the other Credit Parties signatory thereto, Agent and
the Lenders signatory thereto are parties to that certain Second Amended and
Restated Credit Agreement dated as of May 11, 2005 (as amended or otherwise
modified prior to the date hereof, the “Existing Credit Agreement”);

     WHEREAS, Borrower has requested that Lenders extend a revolving credit
facility and a term credit facility to Borrower of up to One Hundred Sixty Five
Million Dollars ($165,000,000) in the aggregate for the purposes of (a) funding
the FUNimation Acquisition pursuant to Section 2.1(g) hereof, (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 to amend and restate the Existing Credit Agreement in its
entirety as set forth herein:

 

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1. AMOUNT AND TERMS OF CREDIT

     1.1 Credit Facilities.

     (a) Revolving Credit Facility.

          (i) Subject to the terms and conditions hereof, each Revolving Lender
agrees to make available to Borrower from time to time until the Commitment
Termination Date its Pro Rata Share of advances (each, a “Revolving Credit
Advance”). The Pro Rata Share of the Revolving Loan of any Revolving Lender
shall not at any time exceed its separate Revolving Loan Commitment. The
obligations of each Revolving Lender hereunder shall be several and not joint.
Until the Commitment Termination Date, Borrower may from time to time borrow,
repay and reborrow under this Section 1.1(a); provided, that the amount of any
Revolving Credit Advance to be made at any time shall not exceed Borrowing
Availability at such time. Borrowing Availability may be further reduced by
Reserves imposed by Agent in its reasonable credit judgment for reasons relating
to any Credit Party, any Credit Party’s business or industry and/or the Agent’s
ability to collect or realize the full value of any Collateral. Each Revolving
Credit Advance shall be made on notice by Borrower to one of the representatives
of Agent identified in Schedule 1.1 at the address specified therein. Any such
notice must be given no later than (1) 11:00 a.m. (Chicago time) on the Business
Day of the proposed Revolving Credit Advance, in the case of an Index Rate Loan,
or (2) 11:00 a.m. (Chicago time) on the date which is 3 Business Days prior to
the proposed Revolving Credit Advance, in the case of a LIBOR Loan. Each such
notice (a “Notice of Revolving Credit Advance”) must be given in writing (by
telecopy or overnight courier) substantially in the form of Exhibit 1.1(a)(i),
and shall include the information required in such Exhibit and such other
information as may be required by Agent. If Borrower desires to have the
Revolving Credit Advances bear interest by reference to a LIBOR Rate, it must
comply with Section 1.5(e).

          (ii) Except as provided in Section 1.12, Borrower shall execute and
deliver to each Revolving Lender a note to evidence the Revolving Loan
Commitment of that Revolving Lender. Each note shall be in the principal amount
of the Revolving Loan Commitment of the applicable Revolving Lender, dated the
Closing Date and substantially in the form of Exhibit 1.1(a)(ii) (each a
“Revolving Note” and, collectively, the “Revolving Notes”). Each Revolving Note
shall represent the obligation of Borrower to pay the amount of Revolving
Lender’s Revolving Loan Commitment or, if less, such Revolving Lender’s Pro Rata
Share of the aggregate unpaid principal amount of all Revolving Credit Advances
to Borrower together with interest thereon as prescribed in Section 1.5. The
entire unpaid balance of the Revolving Loan and all other non-contingent
Obligations shall be immediately due and payable in full in immediately
available funds on the Commitment Termination Date.

     (b) Swing Line Facility.

          (i) Agent shall notify the Swing Line Lender upon Agent’s receipt of
any Notice of Revolving Credit Advance. Subject to the terms and conditions

2

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hereof, the Swing Line Lender may, in its discretion, make available from time
to time until the Commitment Termination Date advances (each, a “Swing Line
Advance”) in accordance with any such notice. The provisions of this
Section 1.1(b) shall not relieve Revolving Lenders of their obligations to make
Revolving Credit Advances under Section 1.1(a); provided that if the Swing Line
Lender makes a Swing Line Advance pursuant to any such notice, such Swing Line
Advance shall be in lieu of any Revolving Credit Advance that otherwise may be
made by Revolving Credit Lenders pursuant to such notice. The aggregate amount
of Swing Line Advances outstanding shall not exceed at any time the lesser of
(A) the Swing Line Commitment and (B) Borrowing Availability (“Swing Line
Availability”). Until the Commitment Termination Date, Borrower may from time to
time borrow, repay and reborrow under this Section 1.1(b). Each Swing Line
Advance shall be made pursuant to a Notice of Revolving Credit advance delivered
by Borrower to Agent in accordance with Section 1.1(a). Any such notice must be
given no later than 11:00 a.m. (Chicago time) on the Business Day of the
proposed Swing Line Advance. Unless the Swing Line Lender has received at least
one Business Day’s prior written notice from Requisite Lenders instructing it
not to make a Swing Line Advance, the Swing Line Lender shall, notwithstanding
the failure of any condition precedent set forth in Sections 2.2, be entitled to
fund that Swing Line Advance, and to have such Revolving Lender make Revolving
Credit Advances in accordance with Section 1.1(b)(iii) or purchase participating
interests in accordance with Section 1.1(b)(iv). Notwithstanding any other
provision of this Agreement or the other Loan Documents, the Swing Line Loan
shall constitute an Index Rate Loan. Borrower shall repay the aggregate
outstanding principal amount of the Swing Line Loan upon demand therefor by
Agent.

          (ii) Borrower shall execute and deliver to the Swing Line Lender a
promissory note to evidence the Swing Line Commitment. Such note shall be in the
principal amount of the Swing Line Commitment of the Swing Line Lender, dated
the Closing Date and substantially in the form of Exhibit 1.1(b)(ii) (the “Swing
Line Note”). The Swing Line Note shall represent the obligation of Borrower to
pay the amount of the Swing Line Commitment or, if less, the aggregate unpaid
principal amount of all Swing Line Advances made to Borrower together with
interest thereon as prescribed in Section 1.5. The entire unpaid balance of the
Swing Line Loan and all other noncontingent Obligations shall be immediately due
and payable in full in immediately available funds on the Commitment Termination
Date if not sooner paid in full.

          (iii) The Swing Line Lender, at any time and from time to time in its
sole and absolute discretion but at least once per week, may on behalf of
Borrower (and Borrower hereby irrevocably authorizes the Swing Line Lender to so
act on its behalf) request each Revolving Lender (including the Swing Line
Lender) to make a Revolving Credit Advance to Borrower (which shall be an Index
Rate Loan) in an amount equal to that Revolving Lender’s Pro Rata Share of the
principal amount of the Swing Line Loan (the “Refunded Swing Line Loan”)
outstanding on the date such notice is given. Unless any of the events described
in Sections 8.1(h) or 8.1(i) has occurred (in which event the procedures of
Section 1.1(b)(iv) shall apply) and regardless of whether the conditions
precedent set forth in this Agreement to the making of a Revolving Credit

3

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Advance are then satisfied, each Revolving Lender shall disburse directly to
Agent, its Pro Rata Share of a Revolving Credit Advance on behalf of the Swing
Line Lender, prior to 2:00 p.m. (Chicago time), in immediately available funds
on the Business Day next succeeding the date that notice is given. The proceeds
of those Revolving Credit Advances shall be immediately paid to the Swing Line
Lender and applied to repay the Refunded Swing Line Loan.

          (iv) If, prior to refunding a Swing Line Loan with a Revolving Credit
Advance pursuant to Section 1.1(b)(iii), one of the events described in
Sections 8.1(h) or 8.1(i) has occurred, then, subject to the provisions of
Section 1.1(b)(v) below, each Revolving Lender shall, on the date such Revolving
Credit Advance was to have been made for the benefit of Borrower, purchase from
the Swing Line Lender an undivided participation interest in the Swing Line Loan
in an amount equal to its Pro Rata Share of such Swing Line Loan. Upon request,
each Revolving Lender shall, prior to 2:00 p.m. (Chicago time) in immediately
available funds on the Business Day next succeeding the date such request is
made, promptly transfer to the Swing Line Lender, in immediately available
funds, the amount of its participation interest.

          (v) Each Revolving Lender’s obligation to make Revolving Credit
Advances in accordance with Section 1.1(b)(iii) and to purchase participation
interests in accordance with Section 1.1(b)(iv) shall be absolute and
unconditional and shall not be affected by any circumstance, including (A) any
setoff, counterclaim, recoupment, defense or other right that such Revolving
Lender may have against the Swing Line Lender, Borrower or any other Person for
any reason whatsoever; (B) the occurrence or continuance of any Default or Event
of Default; (C) any inability of Borrower to satisfy the conditions precedent to
borrowing set forth in this Agreement at any time or (D) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
If any Revolving Lender does not make available to Agent or the Swing Line
Lender, as applicable, the amount required pursuant to Sections 1.1(b)(iii) or
1.1(b)(iv), as the case may be, the Swing Line Lender shall be entitled to
recover such amount on demand from such Revolving Lender, together with interest
thereon for each day from the date of non-payment until such amount is paid in
full at the Federal Funds Rate for the first two Business Days and at the Index
Rate thereafter.

     (c) Term Loan B.

          (i) Each Term B Lender previously made a term loan (collectively, the
“Term Loan B”) on the Prior Closing Date to Borrower in the amount of such Term
B Lender’s Term Loan B Commitment at such time. On the Closing Date, all the
proceeds of the Term Loan C shall be used to repay a portion of the Term Loan B
then outstanding (to be applied against amounts otherwise required to be repaid
on May 11, 2011). Each Term Loan B then remaining outstanding is evidenced by a
promissory note substantially in the form of Exhibit 1.1(c)(i) (each a “Term B
Note” and collectively the “Term B Notes”), and, except as provided in
Section 1.12, Borrower shall execute and deliver a Term B Note to each
applicable Term B Lender. Each Term B Note shall represent the obligation of
Borrower to pay the amount loaned by each Term B Lender pursuant to such Term B
Lender’s Term Loan B Commitment, together

4

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with interest thereon as prescribed in Section 1.5. Amounts repaid on Term Loan
B may not be reborrowed.

          (ii) Borrower shall repay the Term Loan B in twenty four
(24) consecutive quarterly installments on the first day of each Fiscal Quarter
set forth below:

          Payment   Installment     Dates   Amounts  
July 1, 2005
  $ 1,250,000  
October 1, 2005
  $ 1,250,000  
January 1, 2006
  $ 1,250,000  
April 1, 2006
  $ 1,250,000  
 
       
July 1, 2006
  $ 1,250,000  
October 1, 2006
  $ 1,250,000  
January 1, 2007
  $ 1,250,000  
April 1, 2007
  $ 1,250,000  
 
       
July 1, 2007
  $ 1,250,000  
October 1, 2007
  $ 1,250,000  
January 1, 2008
  $ 1,250,000  
April 1, 2008
  $ 1,250,000  
 
       
July 1, 2008
  $ 1,250,000  
October 1, 2008
  $ 1,250,000  
January 1, 2009
  $ 1,250,000  
April 1, 2009
  $ 1,250,000  
 
       
July 1, 2009
  $ 1,250,000  
October 1, 2009
  $ 1,250,000  
January 1, 2010
  $ 1,250,000  
April 1, 2010
  $ 1,250,000  
 
       
July 1, 2010
  $ 1,250,000  
October 1, 2010
  $ 1,250,000  
January 1, 2011
  $ 1,250,000  
April 1, 2011
  $ 1,250,000  

          The then remaining unpaid principal balance of Term Loan B shall be
due on May 11, 2011.

          (iii) Notwithstanding Section 1.1(c)(ii), the aggregate outstanding
principal balance of the Term Loan B shall be due and payable in full in
immediately available funds on the Commitment Termination Date, if not sooner
paid in full.

5

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          (iv) Each payment of principal with respect to the Term Loan B shall
be paid to Agent for the ratable benefit of each Term B Lender making a Term
Loan B, ratably in proportion to each such Term B Lender’s respective Term Loan
B Commitment.

     (d) Term Loan C.

          (i) Subject to the terms and conditions hereof, each Term C Lender
agrees to make a term loan (collectively, the “Term Loan C” and together with
the Term Loan B, the “Term Loans”) on the Closing Date to Borrower in the amount
of such Term C Lender’s Term Loan C Commitment. The obligations of each Term C
Lender hereunder shall be several and not joint. Each such Term Loan C shall be
evidenced by a promissory note substantially in the form of Exhibit 1.1(d)(i)
(each a “Term C Note” and collectively the “Term C Notes”), and, except as
provided in Section 1.12, Borrower shall execute and deliver a Term C Note to
each applicable Term C Lender. Each Term C Note shall represent the obligation
of Borrower to pay the amount loaned by each Term C Lender pursuant to such Term
C Lender’s Term Loan C Commitment, together with interest thereon as prescribed
in Section 1.5. Amounts repaid on Term Loan C may not be reborrowed.

          (ii) Borrower shall repay the principal amount of the Term Loan in a
single installment on November 11, 2011, if not sooner paid in full.

          (iii) Notwithstanding Section 1.1(c)(ii), the aggregate outstanding
principal balance of the Term Loan C shall be due and payable in full in
immediately available funds on the Commitment Termination Date, if not sooner
paid in full.

          (iv) Each payment of principal with respect to the Term Loan C shall
be paid to Agent for the ratable benefit of each Term C Lender making a Term
Loan C, ratably in proportion to each such Term C Lender’s respective Term Loan
C Commitment.

     (e) Reliance on Notices. Agent shall be entitled to rely upon, and shall be
fully protected in relying upon, any Notice of Revolving Credit Advance, Notice
of Conversion/Continuation or similar notice believed by Agent to be genuine.
Agent may assume that each Person executing and delivering any notice in
accordance herewith was duly authorized, unless the responsible individual
acting thereon for Agent has actual knowledge to the contrary.

     1.2 Letters of Credit. Subject to and in accordance with the terms and
conditions contained herein and in Annex B, Borrower shall have the right to
request, and Revolving Lenders agree to incur, or purchase participations in,
Letter of Credit Obligations in respect of Borrower.

     1.3 Prepayments.

     (a) Voluntary Prepayments; Reductions in Revolving Loan Commitments.
Borrower may at any time on at least five (5) days’ prior written notice to
Agent voluntarily prepay all or part of the Term Loan B; provided that any such
prepayments shall be in a minimum amount of $5,000,000 and integral multiples of
$250,000 in excess of such amount. Borrower shall not voluntarily prepay the
Term Loan C until the Revolving Loans and the Term

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Loan B have been repaid in full, all commitments to make Revolving Loans
hereunder have terminated and all then outstanding Letters of Credit have been
cash collateralized or otherwise satisfied in accordance with Annex B hereunder.
In addition, Borrower may at any time on at least 5 days’ prior written notice
to Agent permanently reduce (but not terminate) the Revolving Loan Commitment;
provided that (A) any such reductions shall be in a minimum amount of $3,000,000
and integral multiples of $250,000 in excess of such amount, (B) the Revolving
Loan Commitment shall not be reduced to an amount less than the amount of the
Revolving Loan outstanding, and (C) after giving effect to such reductions,
Borrower shall comply with Section 1.3(b)(i). Borrower may at any time on at
least ten 10 days’ prior written notice to Agent terminate the Revolving Loan
Commitment; provided that upon such termination all Loans and other Obligations
shall be immediately due and payable in full and all Letter of Credit
Obligations shall be cash collateralized or otherwise satisfied in accordance
with Annex B hereto. Any voluntary prepayment of any Term Loan and voluntary
prepayment and any reduction or termination of the Revolving Loan Commitment
must be accompanied by the payment of any LIBOR funding breakage costs in
accordance with Section 1.13(b). Upon any such reduction or termination of the
Revolving Loan Commitment, Borrower’s right to request Revolving Credit
Advances, or request that Letter of Credit Obligations be incurred on its
behalf, or request Swing Line Advances, shall simultaneously be permanently
reduced or terminated, as the case may be; provided that a permanent reduction
of the Revolving Loan Commitment shall require a corresponding pro rata
reduction in the L/C Sublimit. Each notice of partial prepayment shall designate
the Loan or other Obligations to which such prepayment is to be applied;
provided that any partial prepayments of any Term Loan made by Borrower shall be
applied to prepay the scheduled installments of the applicable Term Loans in
inverse order of maturity.

     (b) Mandatory Prepayments.

          (i) If at any time the outstanding balances of the Revolving Loan and
the Swing Line Loan exceed the Maximum Amount, Borrower shall immediately repay
the aggregate outstanding Revolving Credit Advances to the extent required to
eliminate such excess. If any such excess remains after repayment in full of the
aggregate outstanding Revolving Credit Advances, Borrower shall provide cash
collateral for the Letter of Credit Obligations in the manner set forth in Annex
B to the extent required to eliminate such excess.

          (ii) Immediately upon receipt by any Credit Party of any proceeds of
any asset disposition (excluding proceeds of asset dispositions permitted by
Section 6.8(a), but including any sale of Stock of any Subsidiary of any Credit
Party, Borrower shall 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 (but excluding, in
any event, Liens securing obligations under the Second Lien Credit Agreement)),
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(c).

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          (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 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 proceeds thereof, Borrower shall prepay the Loans in
an amount equal fifty percent (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(c).

          (iv) Borrower shall prepay the Obligations on the date that is ten
(10) days after the earlier of (A) the date on which Borrower’s annual audited
Financial Statements for the immediately preceding Fiscal Year (commencing with
the Fiscal Year ending on or about March 31, 2006) are delivered pursuant to
Annex E or (B) the date on which such annual audited Financial Statements were
required to be delivered pursuant to Annex E, in an amount equal to seventy-five
percent (75%) of Excess Cash Flow for the immediately preceding Fiscal Year;
provided, however, that if the Leverage Ratio as of the last day of any Fiscal
Year is less than 2.00:1, the percentage set forth above shall be reduced to
fifty percent (50%) of the Excess Cash Flow from such Fiscal Year. Any
prepayments from Excess Cash Flow paid pursuant to this clause (iv) shall be
applied in accordance with Section 1.3(c). Each such prepayment shall be
accompanied by a certificate signed by Borrower’s chief financial officer
certifying the manner in which Excess Cash Flow and the resulting prepayment
were calculated, which certificate shall be in form and substance satisfactory
to Agent.

          (v) Any and all proceeds of “key man” life insurance (whether such
proceeds arise by reason of death benefit, at maturity, surrendering the policy
and receiving the surrender value thereof or otherwise) shall be immediately
used to prepay the Obligations in an amount equal to such proceeds (which shall
be applied in accordance with Section 1.3(c)).

          (vi) If Borrower incurs any Indebtedness permitted by
Section 6.3(a)(xii) hereof, the Borrower shall cause the lenders thereof to send
the proceeds thereof directly to the Agent and, notwithstanding anything
contained herein or otherwise that would require (i) an application of such
proceeds to any other amounts owing or outstanding hereunder or under any other
Loan Document or (ii) a pro rata application of such proceeds to any amounts
outstanding hereunder, such proceeds shall be used to prepay the Term Loan C.

     (c) Application of Certain Mandatory Prepayments. Any prepayments made by
Borrower pursuant to Sections 1.3(b)(ii), (b)(iii), (b)(iv) or (b)(v) above
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 B; third, to prepay the scheduled
principal installments of the Term Loan B in inverse order of maturity, until
the Term Loan B has been prepaid in full; fourth, to interest then due and
payable on the Swing Line Loan; fifth, to the principal balance of the Swing
Line Loan until the same has been

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repaid in full; sixth, to interest then due and payable on the Revolving Credit
Advances; seventh, to the outstanding principal balance of Revolving Credit
Advances until the same has been paid in full; eighth, to any Letter of Credit
Obligations, to provide cash collateral therefor in the manner set forth in
Annex B, until all such Letter of Credit Obligations have been fully cash
collateralized in the manner set forth in Annex B; ninth, to Obligations under
Interest Rate Agreements which the Agent has agreed in writing relate to Term
Loan B (pro rata, based upon the amount thereof); tenth, to accrued and unpaid
interest with respect to Term Loan C; eleventh, to the principal amount of Term
Loan C until the Term Loan C has been prepaid in full; twelfth, to Obligations
under Interest Rate Agreements (pro rata, based upon the amount thereof); and
thirteenth, pro rata to all other Obligations then due and owing. None of the
Revolving Loan Commitment or the Swing Line Commitment shall be permanently
reduced by the amount of any such prepayments.

     (d) Application of Prepayments from Insurance Proceeds and Condemnation
Proceeds. Prepayments from insurance or condemnation proceeds in accordance with
Section 5.4(c), shall be applied as follows: insurance proceeds from casualties
or losses to cash or Inventory shall be applied first, to the Swing Line Loans
and second, to the Revolving Credit Advances and insurance or condemnation
proceeds from casualties or losses to Equipment, Fixtures and Real Estate shall
be applied as set forth in Section 1.3(c). Neither the Revolving Loan Commitment
nor the Swing Line Loan Commitment shall be permanently reduced by the amount of
any such prepayments.

     (e) 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.

     Under the Existing Credit Agreement, Borrower was permitted to use proceeds
of the Term Loan B on the Prior Closing Date to fund the FUNimation Acquisition
and to pay fees, costs and expenses associated with the Related Transactions in
an aggregate amount not to exceed $4,500,000. On and after the Closing Date,
Borrower shall utilize the proceeds of the Term Loan B solely for the financing
of Borrower’s ordinary working capital, Capital Expenditures as permitted
hereunder, and for other general corporate purposes. Borrower shall utilize the
proceeds of the (i) Term Loan C solely to repay a portion of Term Loan B and
(ii) Revolving Loan and the Swing Line Loan solely for the financing of
Borrower’s ordinary working capital, Capital Expenditures as permitted
hereunder, and for other general corporate purposes.

     1.5 Interest and Applicable Margins.

     (a) Borrower shall pay interest to Agent, for the ratable benefit of
Lenders in accordance with the various Loans being made by each Lender, in
arrears on each applicable Interest Payment Date, at the following rates:
(i) with respect to the Revolving Credit Advances, the Index Rate plus the
Applicable Revolver Index Margin per annum or, at the election of Borrower, the
applicable LIBOR Rate plus the Applicable Revolver LIBOR Margin per annum, based
on the aggregate Revolving Credit Advances outstanding from time to time;
(ii) with

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respect to the Term Loan B, the Index Rate plus the Applicable Term Loan B Index
Margin per annum or, at the election of Borrower, the applicable LIBOR Rate plus
the Applicable Term Loan B LIBOR Margin per annum, (iii) with respect to the
Term Loan C, the Index Rate plus the Applicable Term Loan C Index Margin per
annum or, at the election of Borrower, the applicable LIBOR Rate plus the
Applicable Term Loan C LIBOR Margin per annum and (iv) with respect to the Swing
Line Loan, the Index Rate plus the Applicable Revolver Index Margin per annum.

     The Applicable Margins are as follows:

         
Applicable Revolver Index Margin
    2.25 %
 
       
Applicable Revolver LIBOR Margin
    3.50 %
 
       
Applicable Term Loan B Index Margin
    2.50 %
 
       
Applicable Term Loan B LIBOR Margin
    3.75 %
 
       
Applicable Term Loan C Index Margin
    4.50 %
 
       
Applicable Term Loan C LIBOR Margin
    5.75 %
 
       
Applicable L/C Margin
    3.50 %

     (b) If any payment on any 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. The Index Rate is a floating rate determined for each day. 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 an Event of Default has occurred and is continuing under
Section 8.1(a), (h) or (i), or so long as any other 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 Loans and the Letter of Credit
Fees shall be increased by two percentage points (2%) per annum above the rates
of interest or the rate of such Fees otherwise applicable hereunder (“Default
Rate”), and all outstanding Obligations shall bear interest at the Default Rate
applicable to such Obligations. Interest and Letter of Credit Fees 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.

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     (e) Subject to the conditions precedent set forth in Section 2.2, Borrower
shall have the option to (i) request that any Revolving Credit Advance be made
as a LIBOR Loan, (ii) convert at any time all or any part of outstanding Loans
(other than the Swing Line Loan) from Index Rate Loans to LIBOR Loans,
(iii) convert any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR
breakage costs in accordance with Section 1.13(b) if such conversion is made
prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue
all or any portion of any Loan (other than the Swing Line Loan) as a LIBOR Loan
upon the expiration of the applicable LIBOR Period and the succeeding LIBOR
Period of that continued Loan shall commence on the first day after the last day
of the LIBOR Period of the Loan to be continued. Any Loan or group of Loans
having the same proposed LIBOR Period to be made or continued as, or converted
into, a LIBOR Loan must be in a minimum amount of $1,000,000 and integral
multiples of $500,000 in excess of such amount. Any such election must be made
by 11:00 a.m. (Chicago time) on the 3rd Business Day prior to (1) the date of
any proposed Advance which is to bear interest at the LIBOR Rate, (2) the end of
each LIBOR Period with respect to any LIBOR Loans to be continued as such, or
(3) the date on which Borrower wishes to convert any Index Rate Loan to a LIBOR
Loan for a LIBOR Period designated by Borrower in such election. If no election
is received with respect to a LIBOR Loan by 11:00 a.m. (Chicago time) on the 3rd
Business Day prior to the end of the LIBOR Period with respect thereto (or if a
Default or an Event of Default has occurred and is continuing or the additional
conditions precedent set forth in Section 2.2 shall not have been satisfied),
that LIBOR Loan shall be converted to an Index Rate Loan at the end of its LIBOR
Period. Borrower must make such election by notice to Agent in writing, by
telecopy or overnight courier. In the case of any conversion or continuation,
such election must be made pursuant to a written notice (a “Notice of
Conversion/Continuation”) in the form of Exhibit 1.5(e). Notwithstanding
anything to the contrary contained herein or otherwise, unless otherwise agreed
by the Agent, until the earlier of (i) such time as (a) the primary syndication
relating to the Credit Agreement has been completed (as determined by the Agent)
and (b) the Borrower has entered into the Interest Rate Agreements required,
pursuant to Section 5.11, to be entered into on or prior to the date which is 90
days after the Prior Closing Date or (ii) June 30, 2005, no Loan may be made as,
or converted to, a LIBOR Loan.

     (f) 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 (e),
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(f), 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

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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 Deleted]

     1.7 [Intentionally Deleted]

     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 C (the “Cash Management Systems”).

     1.9 Fees.

     (a) Borrower shall pay to GE Capital, individually, the Fees specified in
the GE Capital Fee Letter, at the times specified for payment therein.

     (b) As additional compensation for the Revolving Lenders, Borrower shall
pay to Agent, for the ratable benefit of such Lenders, in arrears, on the first
Business Day of each month prior to the Commitment Termination Date and on the
Commitment Termination Date, a Fee for Borrower’s non-use of available funds in
an amount equal to one half of one percent (0.5%) per annum (calculated on the
basis of a 360 day year for actual days elapsed) multiplied by the difference
between (x) the Maximum Amount (as it may be reduced from time to time) and
(y) the average for the period of the daily closing balances of the Revolving
Loan and the Swing Line Loan outstanding during the period for which the such
Fee is due.

     (c) Borrower shall pay to Agent, for the ratable benefit of Revolving
Lenders, the Letter of Credit Fee as provided in Annex B.

     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 and
determining Borrowing Availability 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.

     (a) So long as no Event of Default has occurred and is continuing,
(i) payments consisting of proceeds of Accounts received in the ordinary course
of business shall be applied, first, to the Swing Line Loan and, second, to the
Revolving Loan; (ii) payments matching specific scheduled payments then due
shall be applied to those scheduled payments; (iii) voluntary prepayments shall
be applied as determined by Borrower, subject to the provisions of
Section 1.3(a); and (iv) mandatory prepayments shall be applied as set forth in
Sections 1.3(c) and 1.3(d). All payments and prepayments applied to a particular
Loan shall be applied ratably

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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 or Default
has occurred and is continuing or following the Commitment 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 (and Agent and each Lender agrees with the Agent and each
other Lender that notwithstanding anything to the contrary contained herein or
otherwise, each payment made (i) when an Event or Default has occurred and is
continuing and the maturity of all or any portion of the Obligations has been
accelerated or (ii) following the Commitment Termination Date, 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 accrued and unpaid
interest with respect to the Loans (other than Term Loan C) (pro rata, based
upon the amount thereof); third, to the principal amount of the Obligations
outstanding (other than Term Loan C or Obligations under one or more Interest
Rate Agreements) and to cash collateralize outstanding Letters of Credit (pro
rata among all such Obligations, based upon the principal amount thereof or the
outstanding face amount of such Letters of Credit, as applicable) (and with
respect to amounts applied to Term Loan B, to the scheduled installments thereof
in inverse order of maturity), fourth, to Obligations under Interest Rate
Agreements which the Agent has agreed in writing relate to Term Loan B (pro
rata, based upon the amount thereof); fifth, to accrued and unpaid interest with
respect to Term Loan C; sixth, to the principal amount of Term Loan C; seventh,
to Obligations under Interest Rate Agreements (pro rata, based upon the amount
thereof); and eighth, to any other Obligations then due and owing (pro rata,
based upon the amount thereof).

     (b) Agent is authorized to, and at its sole election may, charge to the
Revolving Loan balance on behalf of Borrower and cause to be paid all Fees,
expenses, Charges, costs (including insurance premiums in accordance with
Section 5.4(a)) and interest and principal, other than principal of the
Revolving Loan, owing by Borrower under this Agreement or any of the other Loan
Documents if and to the extent Borrower fails to pay promptly any such amounts
as and when due, even if the amount of such charges would exceed Borrowing
Availability at such time. At Agent’s option and to the extent permitted by law,
any charges so made shall constitute part of the Revolving Loan hereunder.

     1.12 Loan Account and Accounting. Agent shall maintain a loan account (the
“Loan Account”) on its books to record: all Advances and the Term Loans, all
payments made by Borrower, and all other debits and credits as provided in this
Agreement with respect to the Loans 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 Loans 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,

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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 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 option on the terms
provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to
the last day of any applicable 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, conversion into or continuation 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

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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 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

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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.

     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

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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) Borrower shall forthwith
prepay in full all outstanding LIBOR Loans owing to such Lender, together with
interest accrued thereon, unless Borrower, within 5 Business Days after the
delivery of such notice and demand, converts all LIBOR Loans 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 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.

     1.18 Addition of Second Lien Loan. Borrower shall, if requested by Agent,
and to the extent consistent with that certain letter agreement dated as of the
Closing Date

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between Borrower and GE Capital, enter into the Second Lien Credit Agreement
(and such other documents as are requested with respect thereto) and utilize
commercially reasonable efforts with respect thereto.

2. CONDITIONS PRECEDENT

     2.1 Conditions to the Initial Loans. No Lender shall be obligated to make
any Loan or incur any Letter of Credit Obligations 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 D, 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
(including the Fees specified in the GE Capital Fee Letter), and shall have
reimbursed Agent for all fees, costs and expenses of closing presented as of the
Closing Date.

     (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) Consummation of Related Transactions. Agent shall have received fully
executed copies of the FUNimation Acquisition Documents and final and complete
copies of each of the other Related Transactions Documents, each of which shall
be in full force and effect in form and substance reasonably satisfactory to
Agent. The FUNimation Acquisition and the other Related Transactions shall have
been consummated in accordance with the terms of the FUNimation Acquisition
Documents and the other Related Transactions Documents, the purchase price for
the FUNimation Acquisition shall not exceed (i) $100,400,000 cash, (ii) shares
of Borrower common Stock not to be less than 1,495,216 or greater than 1,827,486
and (iii) $17,000,000 earnout payments (subject to post-closing purchase price
adjustments in

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accordance with the terms of Section 1.4 of the FUNimation Purchase Agreement in
an aggregate amount not to exceed $5,000,000).

     (g) Total Indebtedness. After giving effect to the Loans and the Related
Transactions and the payment of all fees and expenses in connection therewith,
the aggregate Indebtedness (other than deferred obligations owing in respect of
the FUNimation Acquisition) of Borrower and its Subsidiaries on a consolidated
basis shall not exceed $140,505,000.

     (h) Cash and/or Cash Equivalents. After giving effect to the Loans and the
Related Transactions and the payment of all fees and expenses in connection
therewith (on a pro forma basis, with no Revolving Advances outstanding, trade
payables being paid currently, expenses and liabilities being paid in the
ordinary course of business, without acceleration of sales and without
deterioration of working capital), Borrower and its Subsidiaries on a
consolidated basis shall have unrestricted cash and/or Cash Equivalents on hand
or on deposit at a bank or financial institution acceptable to Agent of at least
$35,000,000 in the aggregate.

     2.2 Further Conditions to Each Loan. Except as otherwise expressly provided
herein, no Lender shall be obligated to fund any Advance, convert or continue
any Loan as a LIBOR Loan or incur any Letter of Credit Obligation, if, as of the
date thereof:

     (a) any representation or warranty by any Credit Party contained herein or
in any other Loan Document is untrue or incorrect as of such date, except to the
extent that such representation or warranty expressly relates to an earlier date
and except for changes therein expressly permitted or expressly contemplated by
this Agreement, and Agent or Requisite Lenders have determined not to make such
Advance, convert or continue any Loan as LIBOR Loan or incur such Letter of
Credit Obligation as a result of the fact that such warranty or representation
is untrue or incorrect;

     (b) any event or circumstance having a Material Adverse Effect has occurred
since the date hereof as determined by the Requisite Lenders, and Agent or
Requisite Lenders have determined not to make such Advance, convert or continue
any Loan as a LIBOR Loan or incur such Letter of Credit Obligation as a result
of the fact that such event or circumstance has occurred;

     (c) any Default or Event of Default has occurred and is continuing or would
result after giving effect to any Advance (or the incurrence of any Letter of
Credit Obligation), and Agent or Requisite Lenders shall have determined not to
make any Advance, convert or continue any Loan as a LIBOR Loan or incur any
Letter of Credit Obligation as a result of that Default or Event of Default;

     (d) after giving effect to any Advance (or the incurrence of any Letter of
Credit Obligations), the outstanding principal amount of the Revolving Loan
would exceed the Maximum Amount less the then outstanding principal amount of
the Swing Line Loan; or

     (e) Borrower shall have paid all Fees owing and payable to GE Capital,
Agent and Lenders as of such date under this Agreement and the GE Capital Fee
Letter.

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The request and acceptance by Borrower of the proceeds of any Advance, the
incurrence of any Letter of Credit Obligations or the conversion or continuation
of any Loan into, or as, a LIBOR Loan shall be deemed to constitute, as of the
date thereof, (i) a representation and warranty by Borrower that the conditions
in this Section 2.2 have been satisfied and (ii) a reaffirmation by Borrower of
the granting and continuance of Agent’s Liens, on behalf of itself and Lenders,
pursuant to the Collateral Documents.

3. REPRESENTATIONS AND WARRANTIES

     To induce Lenders to make the Loans and to incur Letter of Credit
Obligations, 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 respective
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.

     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

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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(c), 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, 2004 and the related statements of income and cash flows of Borrower
and its Subsidiaries for the Fiscal 2004 then ended, certified by Ernst & Young,
LLP.

          (ii) The unaudited balance sheet(s) at March 31, 2005 and the related
statement(s) of income and cash flows of Borrower and its Subsidiaries for the
twelve 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 five
year period beginning on April 1, 2005 on a month-by-month basis for the first
year 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 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

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of Borrower and its Subsidiaries dated March 31, 2005 and of the unaudited
balance sheets of the FUNimation Companies dated December 31, 2004, 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, 2004 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, 2004 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.

     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

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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 Public Utility Holding
Company Act of 1935, 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 Loans by Lenders to Borrower, the
incurrence of the Letter of Credit Obligations on behalf of 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 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

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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 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.

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     (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 (other than the litigation between Borrower and ValueVision Media, Inc.
that has been previously publicly disclosed by Borrower (“ValueVision
Litigation”). 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 $100,000 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 in Disclosure Schedule (3.15), no Credit
Party is aware of any infringement claim by any other Person with respect to any
Intellectual Property.

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     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.

     (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

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(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 $2,000,000 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 and
Letter of Credit Obligations to be made or incurred on the Closing Date or such
other date as Loans and Letter of Credit Obligations requested hereunder are
made or incurred, (b) the disbursement of the proceeds of such Loans pursuant to
the instructions of Borrower, (c) the FUNimation Acquisition and the
consummation of the other Related Transactions, and (d) the

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payment and accrual of all transaction costs in connection with the foregoing,
each Credit Party is and will be Solvent.

     3.24 [Intentionally Deleted].

     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 FUNimation Acquisition Agreement. As of the Closing Date, Borrower has
delivered to Agent a complete and correct copy of the FUNimation Purchase
Agreement and all other FUNimation Acquisition Documents. No Credit Party and no
other Person party thereto is in default in the performance or compliance with
any provisions thereof. The FUNimation Acquisition Documents comply with, and
the FUNimation Acquisition has been consummated in accordance with, all
applicable laws. The FUNimation Acquisition Documents are in full force and
effect as of the Closing Date and has not been terminated, rescinded or
withdrawn. All requisite approvals by Governmental Authorities having
jurisdiction over Sellers (as defined in the FUNimation Purchase Agreement), any
Credit Party and other Persons referenced therein, with respect to the
transactions contemplated by the FUNimation Purchase Agreement, have been
obtained, and no such approvals impose any conditions to the consummation of the
transactions contemplated by the FUNimation Purchase Agreement or to the conduct
by any Credit Party of its business thereafter. To the best of each Credit
Party’s knowledge, none of the Seller’s representations or warranties in the
FUNimation Acquisition Documents contain any untrue statement of a material fact
or omit any fact necessary to make the statements therein not misleading. Each
of the representations and warranties given by each applicable Credit Party in
the FUNimation Acquisition Documents is true and correct in all material
respects. Notwithstanding anything contained in the FUNimation Acquisition
Documents to the contrary, such representations and warranties of the Credit
Parties are incorporated into this Agreement by this Section 3.26 and shall,
solely for purposes of this Agreement and the benefit of Agent and Lenders,
survive the consummation of the FUNimation Acquisition.

     3.27 Vendor Advances. As of 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 E.

     (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

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Lenders, as required, the various Collateral Reports at the times, to the
Persons and in the manner set forth in Annex F.

     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 instruct
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 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

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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
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 naming Agent, on behalf of itself and Lenders, as loss
payee, and (ii) all general liability and other liability policies naming Agent,
on behalf of itself and Lenders, as additional insured. 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 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

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such “All Risk” policies of insurance, endorsing the name of Borrower on any
check or other item of payment for the proceeds of such “All Risk” policies of
insurance and for making all determinations and decisions with respect to such
“All Risk” policies of insurance. 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(d), 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 property; provided that if Borrower has not
completed or entered into binding agreements to complete such replacement,
restoration, repair or rebuilding within 180 days of such casualty, Agent may
apply such insurance proceeds to the Obligations in accordance with Section
1.3(d). All insurance proceeds that are to be made available to Borrower to
replace, repair, restore or rebuild the Collateral shall be applied by Agent to
reduce the outstanding principal balance of the Revolving Loan (which
application shall not result in a permanent reduction of the Revolving Loan
Commitment) and upon such application, Agent shall establish a Reserve against
the Borrowing Availability in an amount equal to the amount of such proceeds so
applied. All insurance proceeds made available to any Credit Party that is not a
Borrower to replace, repair, restore or rebuild Collateral shall be deposited in
a cash collateral account. Thereafter, such funds shall be made available to
Borrower to provide funds to replace, repair, restore or rebuild the Collateral
as follows: (i) Borrower shall request a Revolving Credit Advance be made to
Borrower in the amount requested to be released; (ii) so long as the conditions
set forth in Section 2.2 have been met, Revolving Lenders shall make such
Revolving Credit Advance or Agent shall release funds from the cash collateral
account; and (iii) in the case of insurance proceeds applied against the
Revolving Loan, the Reserve established with respect to such insurance proceeds
shall be reduced by the amount of such Revolving Credit Advance. 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(d).

     (d) On or prior to the date which is 90 days after the Closing Date, the
Borrower shall obtain a “key man” life insurance policy on Gen Fukunaga in an
amount of not less than $5,000,000. The Borrower shall cause “key man” insurance
on Eric Paulson in an amount not less than $1,000,000 and the “key man” policy
on Gen Fukunaga required pursuant to the preceding sentence to (i) be maintained
at all times until the Termination Date, (ii) be in form and substance, and
issued by an insurance company, satisfactory to the Agent, (iii) name the Agent
as the beneficiary thereof and (iv) be collaterally assigned to the Agent
pursuant to documentation satisfactory to the Agent.

     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

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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 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

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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 first 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.

     5.10 Clean Down The Borrower shall cause the aggregate outstanding
principal amount of Revolving Credit Advances to be zero at all times for at
least one consecutive thirty day period from and including April 1 until and
including June 30 of each year.

     5.11 Interest Rate Agreements. On or prior to the date which is 90 days
after the Prior Closing Date, Borrower shall enter into, and shall at all times
thereafter until the Termination Date maintain, Interest Rate Agreements
providing for interest rate protection (1) for an aggregate amount of 50% of the
principal amount of the outstanding Term Loans (and if the Second Lien Credit
Agreement has been executed and delivered at the time Interest Rate Agreements
we entered into, the principal amount owing thereunder), (2) for a maximum
interest rate reasonably satisfactory to the Agent, (3) for a term expiring no
earlier than two (2) years after the Prior Closing Date and (4) with other terms
and conditions reasonably satisfactory to Agent.

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     5.12 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.

     5.13 Second Lien Loan. Promptly upon execution thereof, Borrower shall
deliver to Agent a complete and correct copy of the Second 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).

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.

     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) Borrower, Encore Software,
BCI Eclipse, FUNimation Productions and FUNimation Store may hold investments
comprised of notes payable, or stock or other securities issued by Account
Debtors to Borrower, Encore Software, BCI Eclipse, FUNimation Productions and
FUNimation Store, as applicable pursuant to negotiated agreements with respect
to settlement of such Account Debtor’s Accounts in the ordinary course of
business, so long as the aggregate amount of such Accounts so settled by
Borrower, Encore Software, BCI Eclipse, FUNimation Productions and FUNimation
Store does not exceed $500,000 in the aggregate outstanding at any time (in the
aggregate for Borrower, Encore Software, BCI Eclipse, FUNimation Productions and
FUNimation Store 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 is continuing and there is no outstanding Revolving
Loan 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 (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,

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(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; (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 (i) 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) (1) loans from the Borrower to Encore outstanding on
the Closing Date in an aggregate principal amount not to exceed $7,900,000 may
exist and (2) the Borrower may make additional loans to Encore Software in an
aggregate outstanding principal amount not to exceed, at any time, $15,000,000;
(h) (1) loans from the Borrower to BCI Eclipse outstanding on the Closing Date
in an aggregate principal amount not to exceed $12,330,000 may exist and (2) the
Borrower may make additional loans to BCI Eclipse in an aggregate outstanding
principal amount not to exceed, at any time, $10,000,000; (i) the Borrower may
(i) make one or more loans (each a “Mix & Burn Loan”) to Mix & Burn, Inc., a
Minnesota corporation (“Mix & Burn”) pursuant to that certain Amended and
Restated Discretionary Revolving Loan Agreement and that certain Second
Discretionary Revolving Loan Agreement, each dated as of June 29, 2004, between
the Borrower and Mix & Burn and those certain Amended and Restated Promissory
Note, Promissory Note, each dated as of June 29, 2004, Promissory Note, dated on
or about October 18, 2004, by Mix & Burn in favor of Borrower, and any
additional promissory notes executed from time to time by Mix & Burn in favor of
Borrower (each a “Mix & Burn Promissory Note”), as long as (a) the aggregate
principal amount of all such Mix & Burn Loans does not exceed $3,500,000,
(b) the Mix & Burn Loans are fully secured by fully perfected first priority
Liens in and to all or substantially all of the assets of Mix & Burn pursuant to
that certain Amended and Restated Security Agreement dated as of June 29, 2004
between the Borrower and Mix & Burn (the “Mix & Burn Security Agreement”), and
(c) Borrower has granted to Agent, for itself and the benefit of Lenders, fully
perfected first priority Liens, pursuant to documentation in form and substance
satisfactory to Agent, in and to the Mix & Burn Promissory Notes, the Liens
granted to Borrower under the Mix & Burn Security Agreement, all of the Stock
owned by Borrower from time to time in Mix & Burn whether (1) Borrower has
acquired such Stock as a result of the conversion of the Mix & Burn Promissory
Notes into equity, (2) consisting of warrants issued by Mix & Burn in favor of
the Borrower in connection with the Mix & Burn Loans or (3) Borrower has
acquired such Stock in any other manner, (ii) own Stock in Mix & Burn issued to
Borrower for no additional consideration in connection with the Mix & Burn
Loans, (iii) convert the obligations relating to

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the Mix & Burn Loans into Stock of Mix & Burn and own such Stock on terms and
subject to conditions satisfactory to Agent; (j) the Borrower may make loans or
advances to FUNimation Productions in an aggregate outstanding principal amount
not to exceed, at any time, $15,000,000; (k) the Borrower may make loans or
advances to FUNimation Store in an aggregate outstanding principal amount not to
exceed, at any time, $1,500,000; (l) the Borrower may make (and permit to exist)
capital contributions to Navarre CP, Navarre CLP and Navarre CS (i) on the Prior
Closing Date, as long as each of such Persons used all of the proceeds thereof
on the Prior Closing Date to pay the cash portion of the Purchase Price (as
defined in the FUNimation Purchase Agreement) due on the Prior Closing Date and
(ii) thereafter, 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); (m) a Subsidiary of the
Borrower may make loans to the Borrower pursuant to cash management procedures
consistent with the Borrower’s cash management procedures in existence on the
Closing Date; (n) 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 (o) the Credit Parties may make other investments not
exceeding $100,000 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 permitted
pursuant to Section 6.2(i) hereof, (vi) Indebtedness of Encore Software to the
Borrower, as long as (a) the related loans to Encore from the Borrower are
permitted pursuant to Section 6.2(g) and (b) such Indebtedness is evidenced by
an intercompany note, in form and substance satisfactory to Agent, and such
intercompany note has been delivered and endorsed to Agent, (vii) Indebtedness
of BCI Eclipse to the Borrower, as long as (a) the related loans to BCI Eclipse
from the Borrower are permitted pursuant to Section 6.2(h), and (b) such
Indebtedness is evidenced by an intercompany note, in form and substance
satisfactory to Agent, and such intercompany note has been delivered and
endorsed to Agent, (viii) Indebtedness of FUNimation Productions to the
Borrower, as long as (a) the related loans to FUNimation Productions from the
Borrower are permitted pursuant to Section 6.2(j), and (b) such Indebtedness is
evidenced by an intercompany note, in form and substance satisfactory to Agent,
and such intercompany note has been delivered and endorsed to Agent,
(ix) Indebtedness of FUNimation Store to the Borrower, as long as (a) the
related loans to FUNimation Store from the Borrower are permitted pursuant to
Section 6.2(k), and (b) such Indebtedness is evidenced by an intercompany note,
in form and substance satisfactory to Agent, and such intercompany note has been
delivered and endorsed to Agent, (x) Indebtedness of a Subsidiary of the
Borrower to the Borrower as long as (a) the related loans are permitted pursuant
to Section 6.2(m) and (b) such Indebtedness is evidenced by

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an intercompany note, in form and substance satisfactory to Agent, and such
intercompany note has been delivered and endorsed to Agent, (xi) 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 and (xii) Indebtedness under the Second Lien
Credit Agreement in an aggregate principal amount not to exceed $25,000,000, as
long as the proceeds thereof are used to prepay the Term Loan C in accordance
with Section 1.3(b)(vi) hereof.

     (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 Second 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 Second 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 Loans 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) 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

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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, (b) for Guaranteed Indebtedness incurred for the benefit of any other
Credit Party if the primary obligation is expressly permitted by this Agreement,
(c) for Guaranteed Indebtedness incurred by Borrower pursuant to that certain
Limited Guaranty, dated as of July 22, 2004, by Borrower in favor of BMG Music,
a New York general partnership guaranteeing certain Indebtedness of Mix & Burn
as set forth is such Limited Guaranty as in effect as of the date thereof.

     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 Second 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 Second 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 Second 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)

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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, and (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. With respect to any disposition of assets
or other properties permitted pursuant to clause (b) 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.

     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)

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after giving effect to such repurchase, the Borrowing Availability 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) after giving effect to such payment, the
Borrowing Availability shall be at least $20,000,000, (iii) the Borrower has
demonstrated to the Agent’s reasonable satisfaction that the average daily
Borrowing Availability for the 30-day period preceding such payment was at least
$20,000,000 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 G to the
Credit Agreement as of the end of such Fiscal Quarter, and (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.

     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 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.

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     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.

     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 FUNimation Store) or incur any
Indebtedness or Guaranteed Indebtedness (other than the Obligations).

     6.21 Second Lien Credit Agreement. The Borrower shall not enter into the
Second Lien Credit Agreement unless the Second Lien Intercreditor Agreement is
simultaneously executed and delivered. The Borrower shall not amend, supplement
or otherwise modify the Second Lien Credit Agreement or the related documents in
a manner which would violate the Second Lien Intercreditor Agreement.

7. TERM

     7.1 Termination. The financing arrangements contemplated hereby shall be in
effect until the Commitment 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 Commitment 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.

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:

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     (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 C or G, 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 E or F,
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 45 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) The liabilities arising from the ValueVision Litigation (excluding
interest payable with respect thereto and litigation costs relating to the
ValueVision Litigation (but including attorney’s fees)) exceed $3,000,000 in the
aggregate.

     (g) Assets of any Credit Party with a fair market value of $100,000 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 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

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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
$100,000 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 event occurs, whether or not insured or insurable, as a result of
which revenue-producing activities cease or are substantially curtailed at any
facility of Borrower generating more than 10% of Borrower’s revenues for the
Fiscal Year preceding such event and such cessation or curtailment continues for
more than 30 days.

     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, suspend the Revolving Loan facility with respect to additional Advances
and/or the incurrence of additional Letter of Credit Obligations, whereupon any
additional Advances and additional Letter of Credit Obligations shall be made or
incurred in Agent’s sole discretion (or in the sole discretion of the Requisite
Lenders, if such suspension occurred at their direction) so long as such Default
or Event of Default is continuing. If any Default or Event of Default has
occurred and is continuing, Agent may (and at the written request of Requisite
Lenders shall), without notice except as otherwise expressly provided herein,
increase the rate of interest applicable to the Loans and the Letter of Credit
Fees to the Default Rate.

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     (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) terminate the Revolving Loan facility with respect to further Advances or
the incurrence of further Letter of Credit Obligations; (ii) declare all or any
portion of the Obligations, including all or any portion of any Loan to be
forthwith due and payable, and require that the Letter of Credit Obligations be
cash collateralized as provided in Annex B, all without presentment, demand,
protest or further notice of any kind, all of which are expressly waived by
Borrower and each other Credit Party; or (iii) 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), the Commitments shall be
immediately terminated and all of the Obligations, including the Revolving 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, Loans, Letter of Credit Obligations and any
Commitment or any portion thereof or interest therein, 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

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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 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 Loans,
Revolving Loans and Letters of Credit) 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

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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 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

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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.

     9.2 Appointment of Agent. GE 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 GE 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

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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
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 GE Capital and Affiliates. With respect to its Commitments and Loans
hereunder, GE 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 GE Capital in its individual capacity. GE
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 GE Capital were not Agent and without any duty to
account therefor to Lenders. GE 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. GE
Capital and its affiliates may also make Loans under the Second Lien Credit
Agreement and/or act as agent thereunder. Each Lender acknowledges and waives
the potential conflict of interest between GE Capital as a Lender holding
interests in the Loans and GE Capital as Agent and GE Capital as lender and/or
agent under the Second 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 Aggregate Pro Rata Shares,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or

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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, 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

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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 Aggregate Pro Rata 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 Aggregate 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 Aggregate Pro Rata Shares, (other than offset
rights exercised by any Lender with respect to Sections 1.13, 1.15 or 1.16).
Each Lender’s obligation under this Section 9.8 shall be in addition to and not
in limitation of its obligations to purchase a participation in an amount equal
to its Pro Rata Share of the Swing Line Loans under Section 1.1. 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
Aggregate 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) Revolving Lenders shall refund or participate in the Swing Line
Loan in accordance with clauses (iii) and (iv) of Section 1.1(b). If the Swing
Line Lender declines to make a Swing Line Loan or if Swing Line Availability is
zero, Agent shall notify Revolving Lenders, promptly after receipt of a Notice
of Revolving Advance and in any event prior to 1:00 p.m. (Chicago time) on the
date such Notice of Revolving Advance is received, by telecopy, telephone or
other similar form of transmission. Each Revolving Lender shall make the amount
of such Lender’s Pro Rata Share of such Revolving Credit Advance available to
Agent in same day funds by wire transfer to Agent’s account as set forth in
Annex H not later than 3:00 p.m. (Chicago time) on the requested funding date,
in the case of an Index Rate Loan and not later than 11:00 a.m. (Chicago time)
on the requested funding date in the case of a LIBOR Loan. 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
Revolving Credit Advance to Borrower. All payments by each Revolving 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
each applicable Loan. Provided that each

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Lender has funded all payments and Advances required to be made by it and
purchased all participations required to be purchased by it under this Agreement
and the other Loan Documents 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 Advances 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 H or the applicable
Assignment Agreement) not later than 1:00 p.m. (Chicago time) on the next
Business Day following each Settlement Date.

     (b) Availability of Lender‘s Pro Rata Share. Agent may assume that each
Revolving Lender will make its Pro Rata Share of each Revolving Credit Advance
available to Agent on each funding date. If such Pro Rata Share is not, in fact,
paid to Agent by such Revolving Lender when due, Agent will be entitled to
recover such amount on demand from such Revolving Lender without setoff,
counterclaim or deduction of any kind. If any Revolving Lender fails to pay the
amount of its Pro Rata Share forthwith upon Agent’s demand, Agent shall promptly
notify Borrower and Borrower shall immediately repay such amount to Agent.
Nothing in this Section 9.9(b) or elsewhere in this Agreement or the other Loan
Documents shall be deemed to require Agent to advance funds on behalf of any
Revolving Lender to relieve any Revolving Lender from its obligation to fulfill
its Commitments hereunder or to prejudice any rights that Borrower may have
against any Revolving Lender as a result of any default by such Revolving Lender
hereunder. To the extent that Agent advances funds to Borrower on behalf of any
Revolving Lender and is not reimbursed therefor on the same Business Day as such
Advance is made, Agent shall be entitled to retain for its account all interest
accrued on such Advance until reimbursed by the applicable Revolving Lender.

     (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) Non-Funding Lenders. The failure of any Non-Funding Lender to make any
Revolving Credit Advance or any payment required by it hereunder, or to purchase
any participation in any Swing Line Loan to be made or purchased by it on the
date specified therefor

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shall not relieve any other Lender (each such other Revolving Lender, an “Other
Lender”) of its obligations to make such Advance or purchase such participation
on such date, but neither any Other Lender nor Agent shall be responsible for
the failure of any Non-Funding Lender to make an Advance, purchase a
participation or make any other payment required hereunder. Notwithstanding
anything set forth herein to the contrary, a Non-Funding Lender shall not have
any voting or consent rights under or with respect to any Loan Document or
constitute a “Lender”, or a “Revolving Lender” (or be included in the
calculation of “Requisite Lenders” hereunder) for any voting or consent rights
under or with respect to any Loan Document. At Borrower’s request, Agent or a
Person 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 any
Non-Funding Lender, and each Non-Funding Lender agrees that it shall, at Agent’s
request, sell and assign to Agent or such Person, all of the Commitments of that
Non-Funding Lender for an amount equal to the principal balance of all Loans
held by such Non-Funding Lender 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.

     (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 Second Lien Intercreditor Agreement with the initial lenders and/or agent
under the Second 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,

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benefits, 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 GE 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) No amendment, modification, termination or waiver of or consent with
respect to any provision of this Agreement that waives compliance with the
conditions precedent set forth in Section 2.2 to the making of any Loan or the
incurrence of any Letter of Credit Obligations shall be effective unless the
same shall be in writing and signed by Agent, Requisite Lenders and Borrower.
Notwithstanding anything contained in this Agreement to the contrary, no waiver
or consent with respect to any Default or any Event of Default shall be
effective for purposes of the conditions precedent to the making of Loans or the
incurrence of Letter of Credit Obligations set forth in Section 2.2 unless the
same shall be in writing and signed by Agent, Requisite Lenders and Borrower.

     (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 any Loan or Letter of Credit
Obligations of any affected Lender; (iii) extend any scheduled payment date
(other than payment dates of mandatory prepayments under Section 1.3(b)(ii)-(iv)
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

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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 $1,000,000 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 or L/C Issuer under this Agreement or any other Loan
Document shall be effective unless in writing and signed by Agent or L/C Issuer,
as the case may be, 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”) requiring the consent of all affected Lenders,
the consent of more than 50% of the affected 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 sentence below being
referred to as a “Non-Consenting Lender”), 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
Commitments 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.

     (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, 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

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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 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

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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 Section 11.8 (and any such bona fide assignee or participant or potential
assignee or participant

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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

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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. Except as otherwise provided herein, whenever it is provided
herein that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by any
other parties, or whenever any of the parties desires to give or serve upon any
other parties any communication with respect to this Agreement, each such
notice, demand, request, consent, approval, declaration or other communication
shall be in writing and shall be deemed to have been validly served, given or
delivered (a) upon the earlier of actual receipt and 3 Business Days after
deposit in the United States Mail, registered or certified mail, return receipt
requested, with proper postage prepaid, (b) upon transmission, when sent by
telecopy or other similar facsimile transmission (with such telecopy or
facsimile promptly confirmed by delivery of a copy by personal delivery or
United States Mail as otherwise provided in this Section 11.10); (c) 1 Business
Day after deposit with a reputable overnight courier with all charges prepaid or
(d) when delivered, if hand-delivered by messenger, all of which shall be
addressed to the party to be notified and sent to the address or facsimile
number indicated in Annex I or to such other address (or facsimile number) as
may be substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. 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 I to receive copies shall in
no way adversely affect the effectiveness of such notice, demand, request,
consent, approval, declaration or other communication.

     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 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

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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 GE 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
GE Capital and without the prior written consent of GE 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 GE
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 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

59

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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.

12. AMENDMENT AND RESTATEMENT

     12.1 Interrelationship with the Existing Credit Agreement. As stated in the
preamble hereof, this Agreement is intended to amend and restate the provisions
of the Existing Credit Agreement and, except as expressly modified herein,
(x) all of the terms and provisions of the Existing Credit Agreement shall
continue to apply for the period prior to the Closing Date, including any
determinations of payment dates, interest rates, Events of Default or any amount
that may be payable to Agent or the Lenders, (y) the Obligations under the
Existing Credit Agreement shall continue to be paid or prepaid on or prior to
the Closing Date, and shall from and after the Closing Date continue to be owing
and be subject to the terms of this Agreement and (z) this Agreement shall not
be deemed to evidence or result in a novation or repayment of the Revolving
Loans under the Existing Credit Agreement and reborrowing hereunder, but
Obligations under the Existing Credit Agreement and Liens securing payment and
performance thereof shall in all respects be continuing as Obligations under
this Agreement and Liens securing payment and performance thereof. All
references in the other Loan Documents and the Loan Documents executed in
connection with the Existing Credit Agreement to (i) the Existing Credit
Agreement or the “Credit Agreement” shall be deemed to include references to
this Agreement and (ii) the “Lenders” or a “Lender” or to the “Agent” shall mean
such terms as defined in this Agreement. All Obligations of the Borrower under
the Existing Credit Agreement shall be governed by this Agreement from and after
the Closing Date. The Loan Documents delivered in connection with this Agreement
shall supersede the corresponding Loan Documents delivered in connection with
the Existing Credit Agreement. The Loan Documents executed in connection with
the Existing Credit Agreement that are not superseded by corresponding Loan
Documents executed and delivered in connection with this Agreement shall remain
in full force and effect. All references to the Existing Credit Agreement in the
Loan Documents executed in connection with the Existing Credit Agreement that
are not expressly superseded by deliveries of such new Loan Documents shall be
deemed to refer to this Agreement.

     12.2 Confirmation of Existing Obligations. Borrower acknowledges and agrees
that as of close of business on May 31, 2005, the outstanding principal balance
of (i) the Revolving Credit Advances outstanding under the Existing Credit
Agreement was $0 and (ii)

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the Term Loan B outstanding under the Existing Credit Agreement was
$140,000,000, and that in each case Borrower has no defense, counterclaim or
setoff with respect to the payment thereof.

[Signature Pages Follow]

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

              NAVARRE CORPORATION, as Borrower
 
       

  By:    

       

  Name:    

       

  Title:    

       
 
            GENERAL ELECTRIC CAPITAL     CORPORATION, as Agent and Lender
 
       

  By:    

       

      Duly Authorized Signatory

[Signature Page to Third Amended and Restated 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:    

       

              FUNIMATION STORE LTD., as Credit Party
 
       

  By:   Navarre CS, LLC, its General Partner
 
       

  By:    

       

  Name:    

       

  Title:    

       

              NAVARRE CP, LLC, as Credit Party
 
       

  By:    

       

  Name:    

       

  Title:    

       

              NAVARRE CLP, LLC, as Credit Party
 
       

  By:    

       

  Name:    

       

  Title:    

       

[Signature Page to Third Amended and Restated Credit Agreement]

S-2

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

 

              NAVARRE CS, LLC, as Credit Party
 
       

  By:    

       

  Name:    

       

  Title:    

       

[Signature Page to Third Amended and Restated Credit Agreement]

S-3

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

 

              GMAC COMMERCIAL FINANCE LLC, as Lender
 
       

  By:    

       

  Name:    

       

  Title:    

       

[Signature Page to Third Amended and Restated 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 G.

          “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.

          “Advance” means any Revolving Credit Advance or Swing Line Advance, as
the context may require.

          “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

Annex A-1

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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 GE Capital in its capacity as Agent for Lenders or its
successor appointed pursuant to Section 9.7.

          “Agreement” means the Third Amended and Restated Credit Agreement
dated as of the Closing Date by and among Borrower, the other Credit Parties
party thereto, GE 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.

          “Aggregate Pro Rata Share” means, as to any Lender, the percentage
obtained by dividing (i) the aggregate Commitments (or, with respect to any
Commitment which has terminated, the outstanding principal balance of the
applicable Loans) of such Lender by (ii) the aggregate Commitments (or, with
respect to any Commitment which has terminated, the outstanding principal
balance of the applicable Loans) of all Lenders.

          “Appendices” has the meaning ascribed to it in the recitals to the
Agreement.

          “Applicable L/C Margin” means the per annum fee, from time to time in
effect, payable with respect to outstanding Letter of Credit Obligations as
determined by reference to Section 1.5(a).

          “Applicable Margins” means collectively the Applicable L/C Margin, the
Applicable Revolver Index Margin, the Applicable Term Loan B Index Margin, the
Applicable Term Loan C Index Margin, the Applicable Revolver LIBOR Margin, the
Applicable Term Loan B LIBOR Margin and the Applicable Term Loan C LIBOR Margin.

          “Applicable Revolver Index Margin” means the per annum interest rate
margin from time to time in effect and payable in addition to the Index Rate
applicable to the Revolving Loan, as determined by reference to Section 1.5(a).

          “Applicable Revolver LIBOR Margin” means the per annum interest rate
from time to time in effect and payable in addition to the LIBOR Rate applicable
to the Revolving Loan, as determined by reference to Section 1.5(a).

          “Applicable Term Loan B Index Margin” means the per annum interest
rate from time to time in effect and payable in addition to the Index Rate
applicable to the Term Loan B, as determined by reference to Section 1.5(a).

          “Applicable Term Loan B LIBOR Margin” means the per annum interest
rate from time to time in effect and payable in addition to the LIBOR Rate
applicable to the Term Loan B, as determined by reference to Section 1.5(a).

          “Applicable Term Loan C Index Margin” means the per annum interest
rate from time to time in effect and payable in addition to the Index Rate
applicable to the Term Loan C, as determined by reference to Section 1.5(a).

Annex A-2

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          “Applicable Term Loan C LIBOR Margin” means the per annum interest
rate from time to time in effect and payable in addition to the LIBOR Rate
applicable to the Term Loan C, as determined by reference to Section 1.5(a).

          “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.

          “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 C.

          “Borrower” has the meaning ascribed thereto in the preamble to the
Agreement.

          “Borrowing Availability” means as of any date of determination the
Maximum Amount, less the sum of the Revolving Loan and Swing Line Loan then
outstanding.

          “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.

          “Canadian Dollars” means the lawful currency of Canada.

          “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,

Annex A-3

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

 

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 Collateral Account” has the meaning ascribed to it Annex B.

          “Cash Equivalents” has the meaning ascribed to it in Annex B.

          “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 the Agreement, the other Loan Documents and the
transactions contemplated thereunder, substantially in the form attached hereto
as Annex D.

          “Closing Date” means June 1, 2005.

Annex A-4

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          “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 F.

          “Collection Account” means that certain account of Agent, account
number 502-328-54 in the name of Agent at Deutsche Bank Trust Company Americas
in New York, New York ABA No. 021 001 033, or such other account as may be
specified in writing by Agent as the “Collection Account.”

          “Commitment Termination Date” means the earliest of (a) May 11, 2010,
(b) the date of termination of Lenders’ obligations to make Advances and to
incur Letter of Credit Obligations or permit existing Loans to remain
outstanding pursuant to Section 8.2(b), and (c) the date of indefeasible
prepayment in full by Borrower of the Loans and the cancellation and return (or
stand-by guarantee) of all Letters of Credit or the cash collateralization of
all Letter of Credit Obligations pursuant to Annex B, and the permanent
reduction of the Commitments to zero dollars ($0).

          “Commitments” shall collectively mean the Revolving Loan Commitment,
the Term Loan B Commitment and the Term Loan C Commitment.

          “Compliance Certificate” has the meaning ascribed to it in Annex E.

          “Concentration Account” has the meaning ascribed to it in Annex C.

Annex A-5

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          “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 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.

Annex A-6

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          “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 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.

          “Currency Exchange Convention” shall mean a procedure as specified
from time to time by Agent to value in Dollars the obligations or assets of the
Borrower or its Affiliates that are originally measured in Canadian Dollars by
using the spot price for Canadian Dollars as determined by Agent in its sole
discretion for the preceding business day.

          “Current Assets” means, with respect to any Person, all current assets
of such Person as of any date of determination calculated in accordance with
GAAP, but excluding cash, Cash Equivalents and debts due from Affiliates.

          “Current Liabilities” means, with respect to any Person, all
liabilities that should, in accordance with GAAP, be classified as current
liabilities, and in any event shall include all Indebtedness payable on demand
or within one year from any date of determination without any option on the part
of the obligor to extend or renew beyond such year, all accruals for federal or
other taxes based on or measured by income and payable within such year, but
excluding the current portion of long-term debt required to be paid within one
year and the aggregate outstanding principal balances of the Revolving Loan and
the Swing Line Loan.

          “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 C.

          “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.

          “Dollar Amount” means, in respect of any amount, the sum of (a) such
portion, if any, of such amount denominated in Dollars; and (b) to the extent
that a portion of such amount is denominated in Canadian Dollars, the amount in
Dollars calculated by Lender using the Currency Exchange Convention in effect on
the Business Day of determination (and calculated based upon 97% of the
applicable amount of Canadian Dollars).

Annex A-7

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          “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), and (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, 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,
(v) amortized debt discount for such period, and (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, 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
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.

          “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.

          “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

Annex A-8

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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 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-9

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          “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.

          “Event of Default” has the meaning ascribed to it in Section 8.1.

          “Excess Cash Flow” means, without duplication, with respect to any
period of Borrower and its Subsidiaries, consolidated net income for such period
plus (a) depreciation, amortization, Interest Expense and writeoffs relating to
Vendor Advances, in each case to the extent deducted in determining consolidated
net income for such period, minus (b) Capital Expenditures during such period
(excluding the financed portion thereof) minus (c) Interest Expense paid or
accrued (excluding any original issue discount, interest paid in kind or
amortized debt discount, to the extent included in determining Interest Expense)
and scheduled and voluntary principal payments paid in respect of Funded Debt
for such period, plus or minus (as the case may be), (d) extraordinary gains or
losses which are cash items not included in the calculation of net income for
such period, plus (e) taxes deducted in determining consolidated net income to
the extent not paid for in cash for such period, minus (f) the aggregate amount
of Restricted Payments made during such period to the extent permitted solely
pursuant to Section 6.14(c), Section 6.14(d) or Section 6.14(e), in each case to
the extent not deducted in determining consolidated net income for such period
plus (g) decreases in Working Capital of the Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP during such period, minus
(h) increases in Working Capital of the Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP during such period minus (i) Net
Vendor Advances for such period (it being agreed that for the purposes of
clauses (h) and (i) of this definition for the calculation of Excess Cash Flow
for the Fiscal Year ending March 31, 2006, the starting amount of Working
Capital of the Borrower and its Subsidiaries on a consolidated basis for such
period shall be the

Annex A-10

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amount of Working Capital of the Borrower and its Subsidiaries on a consolidated
basis as of the Prior Closing Date immediately after giving effect to the
consummation of the Related Transactions).

          “Existing Credit Agreement” has the meaning ascribed to it in the
recitals to the Agreement.

          “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
G.

          “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 E.

          “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.

          “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.

Annex A-11

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          “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 Companies” means, collectively, FUNimation Productions and
FUNimation Store.

          “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.

          “FUNimation Store” means The FUNimation Store 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 G to the Agreement.

          “GE Capital” means General Electric Capital Corporation, a Delaware
corporation.

          “GE Capital Fee Letter” means that certain second amended and restated
letter, dated as of the Prior Closing Date, between GE Capital and Borrower with
respect to certain Fees to be paid from time to time by Borrower to GE Capital.

          “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 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),

Annex A-12

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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, that certain Amended and Restated Guaranty dated
as of the Prior Closing Date by and among the Credit Parties signatory thereto
and Agent, on behalf of itself and Lenders, 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.

Annex A-13

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          “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 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.

Annex A-14

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          “Index Rate Loan” means a Loan or portion thereof bearing interest by
reference to the Index Rate.

          “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.

          “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 Index Rate Loan, the first
Business Day of each month to occur while such Loan is outstanding, and (b) as
to any LIBOR Loan, the last day of the applicable LIBOR Period; provided, that
in the case of any LIBOR Period greater than three months in duration, interest
shall be payable at three month intervals and on the last day of such LIBOR
Period; and provided further that, in addition to the foregoing, each of (x) the
date upon which all of the Commitments have been terminated and the Loans have
been paid in full and (y) the Commitment 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 Second Lien Credit Agreement, (ii) entered into
between Borrower and one or more Lenders 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 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

Annex A-15

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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.

          “L/C Issuer” has the meaning ascribed to it in Annex B.

          “L/C Sublimit” has the meaning ascribed to in it Annex B.

          “Lenders” means GE 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).

          “Letter of Credit Fee” has the meaning ascribed to it in Annex B.

          “Letter of Credit Obligations” means all outstanding obligations
incurred by Agent and Lenders at the request of Borrower, whether direct or
indirect, contingent or otherwise, due or not due, in connection with the
issuance of Letters of Credit by Agent or another L/C Issuer or the purchase of
a participation as set forth in Annex B with respect to any Letter of Credit.
The amount of such Letter of Credit Obligations shall equal the maximum amount
that may be payable by Agent or Lenders thereupon or pursuant thereto.

          “Letter of Credit Rights” means “letter-of-credit rights” as such term
is defined in the Code, now owned or hereafter acquired by any Credit Party,
including rights to payment or performance under a letter of credit, whether or
not such Credit Party, as beneficiary, has demanded or is entitled to demand
payment or performance.

          “Letters of Credit” means documentary or standby letters of credit
issued for the account of Borrower by any L/C Issuer, and bankers’ acceptances
issued by Borrower, for which Agent and Lenders have incurred Letter of Credit
Obligations.

          “Leverage Ratio” means, as of any date, the ratio of (i) the sum of
(x) the average amount of Revolving Loans for the then immediately preceding
30 day period ending on such date plus (y) the aggregate amount of all other
Indebtedness of the Borrower and its Subsidiaries

Annex A-16

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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 selected by Borrower pursuant to the
Agreement and ending one, two or three months thereafter, as selected by
Borrower’s irrevocable notice to Agent as set forth in Section 1.5(e); 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 Commitment
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:

     (a) the offered rate for deposits in United States Dollars for the
applicable LIBOR Period that appears on Telerate Page 3750 as of 11:00 a.m.
(London time), on the second full LIBOR Business Day next preceding the first
day of such LIBOR Period (unless such date is not a Business Day, in which event
the next succeeding Business Day will be used); divided by

     (b) a number equal to 1.0 minus the aggregate (but without duplication) of
the rates (expressed as a decimal fraction) of reserve requirements in effect on
the day that is 2 LIBOR Business Days prior to the beginning of such LIBOR
Period (including basic, supplemental, marginal and emergency reserves under any
regulations of the Federal

Annex A-17

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Reserve Board or other Governmental Authority having jurisdiction with respect
thereto, as now and from time to time in effect) for Eurocurrency funding
(currently referred to as “Eurocurrency Liabilities” in Regulation D of the
Federal Reserve Board that are required to be maintained by a member bank of the
Federal Reserve System.

     If such interest rates shall cease to be available from Telerate News
Service, 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, the Master Standby Agreement, 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
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 Revolving Loan, the Swing Line Loan and the Term
Loans.

          “Lock Boxes” has the meaning ascribed to it in Annex C.

          “Margin Stock” has the meaning ascribed to it in Section 3.10.

          “Master Standby Agreement” means the Master Agreement for Standby
Letters of Credit dated as of October 3, 2001 between Borrower, as Applicant,
and GE Capital, as Issuer.

          “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

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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 $ $1,000,000 and 10% of Borrowing Availability
as of any date of determination or 10% of the Maximum Amount at any date of
determination shall constitute a Material Adverse Effect.

          “Maximum Amount” means, as of any date of determination, an amount
equal to the Revolving Loan Commitment of all Lenders as of that date.

          “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.

          “Mix & Burn” has the meaning ascribed to it in Section 6.2 hereof.

          “Mix & Burn Loan” has the meaning ascribed to it in Section 6.2
hereof.

          “Mix & Burn Promissory Note” has the meaning ascribed to it in
Section 6.2 hereof.

          “Mix & Burn Security Agreement” has the meaning ascribed to it in
Section 6.2 hereof.

          “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.

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          “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.

          “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 (whether made in cash or a
reduction an amount otherwise payable by a Credit Party to the applicable
Vendor) made by Vendors (excluding amounts that are written down or written off)
in respect of Vendor Advances made to such Vendors.

          “Non-Funding Lender” has the meaning ascribed to it in
Section 9.9(a)(ii).

          “Notes” means, collectively, the Revolving Notes, the Term B Note, the
Term C Note and the Swing Line Note.

          “Notice of Conversion/Continuation” has the meaning ascribed to it in
Section 1.5(e).

          “Notice of Revolving Credit Advance” has the meaning ascribed to it in
Section 1.1(a).

          “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
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.

Annex A-20

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          “PBGC” means the Pension Benefit Guaranty Corporation.

          “Pension Plan” means a Plan described in Section 3(2) of ERISA.

          “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 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.

          “Prior Closing Date” means May 11, 2005.

          “Pro Forma” means the unaudited consolidated and consolidating
financial statements of Borrower and its Subsidiaries as of March 31, 2005 after
giving pro forma effect to the Related Transactions.

          “Pro Rata Share” means with respect to all matters relating to any
Lender, (a) with respect to the Revolving Loan, the percentage obtained by
dividing (i) the Revolving Loan Commitment of that Lender by (ii) the aggregate
Revolving Loan Commitments of all Lenders, (b) with respect to the Term Loan B,
the percentage obtained by dividing (i) the Term Loan B Commitment of that
Lender by (ii) the aggregate Term Loan B Commitments of all Lenders, as

Annex A-21

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any such percentages may be adjusted by assignments permitted pursuant to
Section 9.1, (c) with respect to the Term Loan C, the percentage obtained by
dividing (i) the Term Loan C Commitment of that Lender by (ii) the aggregate
Term Loan C Commitments of all Lenders, as any such percentages may be adjusted
by assignments permitted pursuant to Section 9.1 (d) with respect to all Loans,
the percentage obtained by dividing (i) the aggregate Commitments of that Lender
by (ii) the aggregate Commitments of all Lenders, and (e) with respect to all
Loans on and after the Commitment Termination Date, the percentage obtained by
dividing (i) the aggregate outstanding principal balance of the Loans held by
that Lender, by (ii) the outstanding principal balance of the Loans held by 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 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.

          “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.

Annex A-22

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          “Refunded Swing Line Loan” has the meaning ascribed to it in Section
1.1(b)(iii).

          “Related Transactions” means (i) the funding of the Term Loan C on the
Closing Date, (ii) the borrowing under the Revolving Loan and the Term Loan B on
the Prior Closing Date and (iii) the FUNimation Acquisition, 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
FUNimation Acquisition Documents, 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, 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 50% 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.

          “Reserves” means, with respect to the Borrowing Availability of
Borrower (a) reserves established pursuant to Section 5.4(c), and (b) such other
reserves against Borrowing Availability of Borrower that Agent may, in its
reasonable credit judgment for reasons relating to any Credit Party, any Credit
Party’s business or industry and/or the Agent’s ability to collect or realize
the full value of any Collateral, establish from time to time. Without limiting
the generality of the foregoing, Reserves established to ensure the payment of
accrued Interest Expenses shall be deemed to be a reasonable exercise of Agent’s
credit judgment.

          “Restricted Payment” mean, 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

Annex A-23

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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.

          “Revolving Credit Advance” has the meaning ascribed to it in Section
1.1(a)(i).

          “Revolving Lenders” means, as of any date of determination, Lenders
having a Revolving Loan Commitment.

          “Revolving Loan” means, at any time, the sum of (i) the aggregate
amount of Revolving Credit Advances outstanding to Borrower plus (ii) the
aggregate Letter of Credit Obligations incurred on behalf of Borrower. Unless
the context otherwise requires, references to the outstanding principal balance
of the Revolving Loan shall include the outstanding balance of Letter of Credit
Obligations.

          “Revolving Loan Commitment” means (a) as to any Revolving Lender, the
aggregate commitment of such Revolving Lender to make Revolving Credit Advances
or incur Letter of Credit Obligations as set forth on Annex J to the Agreement
or in the most recent Assignment Agreement executed by such Revolving Lender and
(b) as to all Revolving Lenders, the aggregate commitment of all Revolving
Lenders to make Revolving Credit Advances or incur Letter of Credit Obligations,
which aggregate commitment shall be Twenty Five Million Dollars ($25,000,000) on
the Closing Date, as such amount may be adjusted, if at all, from time to time
in accordance with the Agreement.

          “Revolving Note” has the meaning ascribed to it in Section 1.1(a)(ii).

          “Second Lien Credit Agreement” means a credit agreement entered into
by the Borrower, which is, when entered into, in form and substance reasonably
satisfactory to the Agent and the Requisite Lenders, as amended, restated,
supplemented or otherwise modified in a manner permitted hereby, the proceeds of
which are used to prepay the Loans in accordance with Section 1.3(b)(vi).

          “Second Lien Intercreditor Agreement” means an intercreditor
agreement, in form and substance satisfactory to the Agent and the Requisite
Lenders, among the Credit Parties, the Agent and the lenders (and/or the agent)
under the Second Lien Credit Agreement, pursuant to which, among other things,
the Liens securing the obligations under the Second Lien Credit Agreement are
subordinated to the Liens securing the Obligations.

          “Security Agreements” means that certain Amended and Restated Security
Agreement dated as of the Prior Closing Date by and among the Credit Parties
signatory thereto

Annex A-24

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and Agent, on behalf of itself and Lenders, 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.

          “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

Annex A-25

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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.

          “Swing Line Advance” has the meaning ascribed to it in
Section 1.1(b)(i).

          “Swing Line Availability” has the meaning ascribed to it in
Section 1.1(b)(i).

          “Swing Line Commitment” means, as to the Swing Line Lender, the
commitment of the Swing Line Lender to make Swing Line Advances as set forth on
Annex J to the Agreement, which commitment constitutes a subfacility of the
Revolving Loan Commitment of the Swing Line Lender.

          “Swing Line Lender” means GE Capital.

          “Swing Line Loan” means at any time, the aggregate amount of Swing
Line Advances outstanding to Borrower.

          “Swing Line Note” has the meaning ascribed to it in
Section 1.1(b)(ii).

          “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 B Lenders” means those Lenders having Term Loan B Commitments.

          “Term C Lenders” means those Lenders having Term Loan C Commitments.

          “Term Loan B Commitment” means (a) as to any Term B Lender, the
commitment of such Term B Lender to make its Pro Rata Share of the Term Loan B
as set forth on Annex J to the Agreement or in the most recent Assignment
Agreement executed by such Lender, and (b) as to all Term B Lenders, the
aggregate commitment of all Term B Lenders to make the Term Loan B, which
aggregate commitment shall be One Hundred Fifteen Million Dollars ($115,000,000)
on the Closing Date. After advancing the Term Loan B, each reference to a Term B
Lender’s Term Loan B Commitment shall refer to that Term B Lender’s Pro Rata
Share of the outstanding Term Loan B.

          “Term Loan C Commitment” means (a) as to any Term C Lender, the
commitment of such Term C Lender to make its Pro Rata Share of the Term Loan C
as set forth on Annex J to the Agreement or in the most recent Assignment
Agreement executed by such Lender, and (b) as to all Term C Lenders, the
aggregate commitment of all Term C Lenders to make the Term Loan C, which
aggregate commitment shall be Twenty-Five Million Dollars ($25,000,000) on the
Closing Date. After advancing the Term Loan C, each reference to a Term

Annex A-26

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C Lender’s Term Loan C Commitment shall refer to that Term C Lender’s Pro Rata
Share of the outstanding Term Loan C.

          “Term B Note” has the meaning assigned to it in Section 1.1(c)(i).

          “Term C Note” has the meaning assigned to it in Section 1.1(d)(i).

          “Termination Date” means the date on which (a) the Loans have been
indefeasibly repaid in full, (b) all other Obligations under the Agreement and
the other Loan Documents have been completely discharged, (c) all Letter of
Credit Obligations have been cash collateralized, cancelled or backed by standby
letters of credit in accordance with Annex B, and (d) Borrower shall not have
any further right to borrow any monies under the Agreement.

          “Term Loan” has the meaning assigned to it in Section 1.1(d)(i).

          “Term Loan B” has the meaning assigned to it in Section 1.1(c)(i).

          “Term Loan C” has the meaning assigned to it in Section 1.1(d)(i).

          “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

Annex A-27

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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.

          “ValueVision Litigation” has the meaning assigned to it in
Section 3.13.

          “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 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 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.

          “Working Capital” means, with respect to any Person, the difference of
(i) the Current Assets of such Person minus (ii) the Current Liabilities of such
Person.

          Rules of construction with respect to accounting terms used in the
Agreement or the other Loan Documents shall be as set forth in Annex G. 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-28

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ANNEX B (Section 1.2)
to
CREDIT AGREEMENT

LETTERS OF CREDIT

          (a) Issuance. Subject to the terms and conditions of the Agreement,
Agent and Revolving Lenders agree to incur, from time to time prior to the
Commitment Termination Date, upon the request of Borrower and for Borrower’s
account, Letter of Credit Obligations by causing Letters of Credit to be issued
by GE Capital or a Subsidiary thereof or a bank or other legally authorized
Person selected by or acceptable to Agent in its sole discretion (each, an “L/C
Issuer”) for Borrower’s account and guaranteed by Agent; provided, that if the
L/C Issuer is a Revolving Lender, then such Letters of Credit shall not be
guaranteed by Agent but rather each Revolving Lender shall, subject to the terms
and conditions hereinafter set forth, purchase (or be deemed to have purchased)
risk participations in all such Letters of Credit issued with the written
consent of Agent, as more fully described in paragraph (b)(ii) below. The
aggregate amount of all such Letter of Credit Obligations shall not at any time
exceed the least of (i) Five Million Dollars ($5,000,000) (the “L/C Sublimit”),
and (ii) the Maximum Amount less the aggregate outstanding principal balance of
the Revolving Credit Advances and the Swing Line Loan. No such Letter of Credit
shall have an expiry date that is more than one year following the date of
issuance thereof, unless otherwise determined by Agent in its sole discretion,
and neither Agent nor Revolving Lenders shall be under any obligation to incur
Letter of Credit Obligations in respect of, or purchase risk participations in,
any Letter of Credit having an expiry date that is later than the Commitment
Termination Date.

          (b)(i) Advances Automatic; Participations. In the event that Agent or
any Revolving Lender shall make any payment on or pursuant to any Letter of
Credit Obligation, such payment shall then be deemed automatically to constitute
a Revolving Credit Advance under Section 1.1(a) of the Agreement regardless of
whether a Default or Event of Default has occurred and is continuing and
notwithstanding Borrower’s failure to satisfy the conditions precedent set forth
in Section 2, and each Revolving Lender shall be obligated to pay its Pro Rata
Share thereof in accordance with the Agreement. The failure of any Revolving
Lender to make available to Agent for Agent’s own account its Pro Rata Share of
any such Revolving Credit Advance or payment by Agent under or in respect of a
Letter of Credit shall not relieve any other Revolving Lender of its obligation
hereunder to make available to Agent its Pro Rata Share thereof, but no
Revolving Lender shall be responsible for the failure of any other Revolving
Lender to make available such other Revolving Lender’s Pro Rata Share of any
such payment.

               (ii) If it shall be illegal or unlawful for Borrower to incur
Revolving Credit Advances as contemplated by paragraph (b)(i) above because of
an Event of Default described in Sections 8.1(h) or (i) or otherwise or if it
shall be illegal or unlawful for any Revolving Lender to be deemed to have
assumed a ratable share of the reimbursement obligations owed to an L/C Issuer,
or if the L/C Issuer is a Revolving Lender, then (i) immediately and without
further action whatsoever, each Revolving Lender shall be deemed to have
irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the
case may be) an undivided interest and participation equal to such Revolving
Lender’s Pro Rata Share (based on the Revolving Loan Commitments) of the Letter
of Credit Obligations in respect of all

Annex B-1

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Letters of Credit then outstanding and (ii) thereafter, immediately upon
issuance of any Letter of Credit, each Revolving Lender shall be deemed to have
irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the
case may be) an undivided interest and participation in such Revolving Lender’s
Pro Rata Share (based on the Revolving Loan Commitments) of the Letter of Credit
Obligations with respect to such Letter of Credit on the date of such issuance.
Each Revolving Lender shall fund its participation in all payments or
disbursements made under the Letters of Credit in the same manner as provided in
the Agreement with respect to Revolving Credit Advances.

          (c) Cash Collateral. (i) If Borrower is required to provide cash
collateral for any Letter of Credit Obligations pursuant to the Agreement prior
to the Commitment Termination Date, Borrower will pay to Agent for the ratable
benefit of itself and Revolving Lenders cash or cash equivalents acceptable to
Agent (“Cash Equivalents”) in an amount equal to 110% of the maximum amount then
available to be drawn under each applicable Letter of Credit outstanding. Such
funds or Cash Equivalents shall be held by Agent in a cash collateral account
(the “Cash Collateral Account”) maintained at a bank or financial institution
acceptable to Agent. The Cash Collateral Account shall be in the name of
Borrower and shall be pledged to, and subject to the control of, Agent, for the
benefit of Agent and Lenders, in a manner satisfactory to Agent. Borrower hereby
pledges and grants to Agent, on behalf of itself and Lenders, a security
interest in all such funds and Cash Equivalents held in the Cash Collateral
Account from time to time and all proceeds thereof, as security for the payment
of all amounts due in respect of the Letter of Credit Obligations and other
Obligations, whether or not then due. The Agreement, including this Annex B,
shall constitute a security agreement under applicable law.

          (ii) If any Letter of Credit Obligations, whether or not then due and
payable, shall for any reason be outstanding on the Commitment Termination Date,
Borrower shall either (A) provide cash collateral therefor in the manner
described above, or (B) cause all such Letters of Credit and guaranties thereof,
if any, to be canceled and returned, or (C) deliver a stand-by letter (or
letters) of credit in guarantee of such Letter of Credit Obligations, which
stand-by letter (or letters) of credit shall be of like tenor and duration (plus
30 additional days) as, and in an amount equal to 110% of the aggregate maximum
amount then available to be drawn under, the Letters of Credit to which such
outstanding Letter of Credit Obligations relate and shall be issued by a Person,
and shall be subject to such terms and conditions, as are be satisfactory to
Agent in its sole discretion.

          (iii) From time to time after funds are deposited in the Cash
Collateral Account by Borrower, whether before or after the Commitment
Termination Date, Agent may apply such funds or Cash Equivalents then held in
the Cash Collateral Account to the payment of any amounts, and in such order as
Agent may elect, as shall be or shall become due and payable by Borrower to
Agent and Lenders with respect to such Letter of Credit Obligations of Borrower
and, upon the satisfaction in full of all Letter of Credit Obligations of
Borrower, to any other Obligations then due and payable.

          (iv) Neither Borrower nor any Person claiming on behalf of or through
Borrower shall have any right to withdraw any of the funds or Cash Equivalents
held in the Cash Collateral Account, except that upon the termination of all
Letter of Credit Obligations and the

Annex B-2

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payment of all amounts payable by Borrower to Agent and Lenders in respect
thereof, any funds remaining in the Cash Collateral Account shall be applied to
other Obligations then due and owing and upon payment in full of such
Obligations, any remaining amount shall be paid to Borrower or as otherwise
required by law. Interest earned on deposits in the Cash Collateral Account
shall be for the account of Agent.

          (d) Fees and Expenses. Borrower agrees to pay to Agent for the benefit
of Revolving Lenders, as compensation to such Lenders for Letter of Credit
Obligations incurred hereunder, (i) all costs and expenses incurred by Agent or
any Lender on account of such Letter of Credit Obligations, and (ii) for each
month during which any Letter of Credit Obligation shall remain outstanding, a
fee (the “Letter of Credit Fee”) in an amount equal to the Applicable L/C Margin
multiplied by the maximum amount available from time to time to be drawn under
the applicable Letter of Credit. Such fee shall be paid to Agent for the benefit
of the Revolving Lenders in arrears, on the first day of each month and on the
Commitment Termination Date. In addition, Borrower shall pay to any L/C Issuer,
on demand, such fees (including all per annum fees), charges and expenses of
such L/C Issuer in respect of the issuance, negotiation, acceptance, amendment,
transfer and payment of such Letter of Credit or otherwise payable pursuant to
the application and related documentation under which such Letter of Credit is
issued.

          (e) Request for Incurrence of Letter of Credit Obligations. Borrower
shall give Agent at least 2 Business Days’ prior written notice requesting the
incurrence of any Letter of Credit Obligation. The notice shall be accompanied
by the form of the Letter of Credit (which shall be acceptable to the L/C
Issuer) and a completed Application for Standby Letter of Credit or Application
for Documentary Letter of Credit as applicable in the form Exhibit B-1 or B-2
attached hereto. Notwithstanding anything contained herein to the contrary,
Letter of Credit applications by Borrower and approvals by Agent and the L/C
Issuer may be made and transmitted pursuant to electronic codes and security
measures mutually agreed upon and established by and among Borrower, Agent and
the L/C Issuer.

          (f) Obligation Absolute. The obligation of Borrower to reimburse Agent
and Revolving Lenders for payments made with respect to any Letter of Credit
Obligation shall be absolute, unconditional and irrevocable, without necessity
of presentment, demand, protest or other formalities, and the obligations of
each Revolving Lender to make payments to Agent with respect to Letters of
Credit shall be unconditional and irrevocable. Such obligations of Borrower and
Revolving Lenders shall be paid strictly in accordance with the terms hereof
under all circumstances including the following:

     (i) any lack of validity or enforceability of any Letter of Credit or the
Agreement or the other Loan Documents or any other agreement;

     (ii) the existence of any claim, setoff, defense or other right that
Borrower or any of its Affiliates or any Lender may at any time have against a
beneficiary or any transferee of any Letter of Credit (or any Persons or
entities for whom any such transferee may be acting), Agent, any Lender, or any
other Person, whether in connection with the Agreement, the Letter of Credit,
the transactions contemplated herein or therein

Annex B-3

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or any unrelated transaction (including any underlying transaction between
Borrower or any of its Affiliates and the beneficiary for which the Letter of
Credit was procured);

     (iii) any draft, demand, certificate or any other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;

     (iv) payment by Agent (except as otherwise expressly provided in paragraph
(g)(ii)(C) below) or any L/C Issuer under any Letter of Credit or guaranty
thereof against presentation of a demand, draft or certificate or other document
that does not comply with the terms of such Letter of Credit or such guaranty;

     (v) any other circumstance or event whatsoever, that is similar to any of
the foregoing; or

     (vi) the fact that a Default or an Event of Default has occurred and is
continuing.

          (g) Indemnification; Nature of Lenders’ Duties. (i) In addition to
amounts payable as elsewhere provided in the Agreement, Borrower hereby agrees
to pay and to protect, indemnify, and save harmless Agent and each Lender from
and against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys’ fees and allocated costs
of internal counsel) that Agent or any Lender may incur or be subject to as a
consequence, direct or indirect, of (A) the issuance of any Letter of Credit or
guaranty thereof, or (B) the failure of Agent or any Lender seeking
indemnification or of any L/C Issuer to honor a demand for payment under any
Letter of Credit or guaranty thereof as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government or
Governmental Authority, in each case other than to the extent solely as a result
of the gross negligence or willful misconduct of Agent or such Lender (as
finally determined by a court of competent jurisdiction).

          (ii) As between Agent and any Lender and Borrower, Borrower assumes
all risks of the acts and omissions of, or misuse of any Letter of Credit by
beneficiaries of any Letter of Credit. In furtherance and not in limitation of
the foregoing, to the fullest extent permitted by law neither Agent nor any
Lender shall be responsible for: (A) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document issued by any party in connection
with the application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (B) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, that may prove to be invalid or ineffective for any reason; (C) failure of
the beneficiary of any Letter of Credit to comply fully with conditions required
in order to demand payment under such Letter of Credit; provided, that in the
case of any payment by Agent under any Letter of Credit or guaranty thereof,
Agent shall be liable to the extent such payment was made solely as a result of
its gross negligence or willful misconduct (as finally determined by a court of
competent jurisdiction) in determining that the demand for payment under such
Letter of Credit or guaranty thereof complies on its face with any applicable
requirements for a demand for payment under such

Annex B-4

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Letter of Credit or guaranty thereof; (D) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they may be in cipher; (E) errors in
interpretation of technical terms; (F) any loss or delay in the transmission or
otherwise of any document required in order to make a payment under any Letter
of Credit or guaranty thereof or of the proceeds thereof; (G) the credit of the
proceeds of any drawing under any Letter of Credit or guaranty thereof; and
(H) any consequences arising from causes beyond the control of Agent or any
Lender. None of the above shall affect, impair, or prevent the vesting of any of
Agent’s or any Lender’s rights or powers hereunder or under the Agreement.

          (iii) Nothing contained herein shall be deemed to limit or to expand
any waivers, covenants or indemnities made by Borrower in favor of any L/C
Issuer in any letter of credit application, reimbursement agreement or similar
document, instrument or agreement between Borrower and such L/C Issuer,
including an Application and Agreement for Documentary Letter of Credit or a
Master Documentary Agreement and a Master Standby Agreement entered into with
Agent.

Annex B-5

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ANNEX C (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 Agent shall, from time to time, deposit proceeds
of Revolving Credit Advances and Swing Line Advances made to Borrower pursuant
to Section 1.1 for use by Borrower in accordance with the provisions of
Section 1.4.

          (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

Annex C-1

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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 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 Affiliates, officers,
employees, agents, directors or other Persons acting for or in concert with
Borrower (each a “Related Person”) 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 C-2

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ANNEX D (Section 2.1(a))
to
CREDIT AGREEMENT

CLOSING CHECKLIST

[TO BE ATTACHED]

Annex D-1

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ANNEX E (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 operating
plan for Borrower for each of the next five years, 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 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.

          (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

Annex E-1

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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, (ii) a report from such accounting firm to the effect that, in
connection with their audit examination, nothing has come to their attention to
cause them to believe that a Default or Event of Default has occurred with
respect to the Financial Covenants (or specifying those Defaults and Events of
Default that they became aware of), it being understood that such audit
examination extended only to accounting matters and that no special
investigation was made with respect to the existence of Defaults or Events of
Default, (iii) a letter addressed to Agent, on behalf of itself and Lenders, in
form and substance reasonably satisfactory to Agent and subject to standard
qualifications required by nationally recognized accounting firms, signed by
such accounting firm acknowledging that Agent and Lenders are entitled to rely
upon such accounting firm’s certification of such audited Financial Statements,
(iv) the annual letters to such accountants in connection with their audit
examination detailing contingent liabilities and material litigation matters,
and (v) 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.

Annex E-2

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

 

          (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 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
thirty (30) days after the end of each Fiscal Quarter a schedule, in form and
with such detail as is acceptable to the Agent listing all outstanding Vendor
Advances made by Credit Parties as of the end of such Fiscal Quarter
satisfactory to Agent.

          (n) Second 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 Second Lien Credit Agreement and related documents.

          (o) 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 E-3

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ANNEX F (Section 4.1(b))
to
CREDIT AGREEMENT

COLLATERAL REPORTS

          Borrower shall deliver or cause to be delivered the following:

          (a) To Agent, at the time of delivery of each of the annual Financial
Statements delivered pursuant to Annex E, (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;

          (b) From time to time, if Agent or any Lender determines that
obtaining appraisals is necessary in order to comply with applicable laws, rules
or regulations applicable to the Agent or such Lender, Borrower, at its own
expense, shall deliver to Agent such appraisals of its assets as Agent may
request at any time, such appraisals to be conducted by an appraiser, and in
form and substance reasonably satisfactory to Agent; and

          (c) 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-4

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ANNEX G (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, 2006 and each Fiscal Year ending
thereafter
  $ 5,000,000  

          (b) [Intentionally Deleted]

          (c) [Intentionally Deleted]

          (d) 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, 2005 and as of the last day of each Fiscal Quarter
thereafter, for the 12 month period then ended, a ratio of (A) the sum of
(i) EBITDA plus (ii) any write-offs, recoupments, amortization or similar
recognition of expenses relating to Vendor Advances to the extent such amounts
have reduced EBITDA 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) if positive, the
Net 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 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, 2005
  2.40:1
September 30, 2005
  2.10:1
December 31, 2005
  1.95:1
March 31, 2006
  1.50:1
June 30, 2006
  1.45:1
September 30, 2006
  1.50:1
December 31, 2006
  1.55:1
March 31, 2007
  1.60:1

Annex G-1

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

 

      Fiscal Quarter Ending   Ratio
June 30, 2007
  1.65:1
September 30, 2007
  1.70:1
December 31, 2007
  1.75:1
March 31, 2008
  1.80:1
June 30, 2008
  1.85:1
September 30, 2008
  1.90:1
December 31, 2008
  2.00:1
March 31, 2009
  2.05:1
June 30, 2009
  2.10:1
September 30, 2009
  2.20:1
December 31, 2009 and each Fiscal Quarter ending thereafter
  2.25:1

          The parties hereto agree that solely for the purposes of this Section
(d), for each Fiscal Quarter set forth below, the amount of clause (A) above or
clause (B) above shall be deemed to be the amount set forth opposite such Fiscal
Quarter below under the heading (A) or (B), respectively:

                  Fiscal Quarter Ending   A     B  
March 31, 2005
  $ 7,051,764     $ 2,461,198  
December 31, 2004
  $ 7,051,764     $ 2,461,198  
September 30, 2004
  $ 7,051,764     $ 2,461,198  

          In addition, solely for the purposes of this clause (d), the
(i) amount of clause (A) above for April 2005 shall be deemed to be the actual
amount calculated for April 2005, minus $430,706 and (ii) the amount of clause
(B) above for April 2005 shall be deemed to be $820,399.

          (e) Adjusted 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, 2005 and as of the last day of each Fiscal
Quarter thereafter, for the 12 month period then ended, a ratio of (A) the sum
of (i) EBITDA plus (ii) any write-offs, recoupments, amortization or similar
recognition of expenses relating to Vendor Advances to the extent such amounts
have reduced EBITDA 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) if positive, the
Net 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 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), plus (iv) all Performance Payments (as defined in the FUNimation
Purchase Agreement) and other similar payments, of at least the ratio set forth
below opposite such Fiscal Quarter:

Annex G-2

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

 

      Fiscal Quarter Ending   Ratio
June 30, 2005
  2.30:1
September 30, 2005
  2.00:1
December 31, 2005
  1.90:1
March 31, 2006
  1.45:1
June 30, 2006
  1.05:1
September 30, 2006
  1.10:1
December 31, 2006
  1.15:1
March 31, 2007
  1.15:1
June 30, 2007
  1.20:1
September 30, 2007
  1.20:1
December 31, 2007
  1.25:1
March 31, 2008
  1.25:1
June 30, 2008
  1.30:1
September 30, 2008
  1.35:1
December 31, 2008
  1.35:1
March 31, 2009
  1.40:1
June 30, 2009
  2.00:1
September 30, 2009
  2.10:1
December 31, 2009
  2.20:1
March 31, 2010 and each Fiscal Quarter ending thereafter
  2.25:1

          The parties hereto agree that solely for the purposes of this Section
(e), for each Fiscal Quarter set forth below, the amount of clause (A) above or
clause (B) above shall be deemed to be the amount set forth opposite such Fiscal
Quarter below under the heading (A) or (B), respectively:

                  Fiscal Quarter Ending   A     B  
March 31, 2005
  $ 7,051,764     $ 2,461,198  
December 31, 2004
  $ 7,051,764     $ 2,461,198  
September 30, 2004
  $ 7,051,764     $ 2,461,198  

          In addition, solely for the purposes of this clause (e), the
(i) amount of clause (A) above for April 2005 shall be deemed to be the actual
amount calculated for April 2005, minus $430,706 and (ii) the amount of clause
(B) above for April 2005 shall be deemed to be $820,399.

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

Annex G-3

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

 

      Fiscal Quarter Ending   Ratio
June 30, 2005
  3.10:1
September 30, 2005
  3.10:1
December 31, 2005
  3.10:1
March 31, 2006
  3.20:1
June 30, 2006
  2.85:1
September 30, 2006
  2.75:1
December 31, 2006
  2.70:1
March 31, 2007
  2.65:1
June 30, 2007
  2.25:1
September 30, 2007
  2.15:1
December 31, 2007
  2.10:1
March 31, 2008
  2.05:1
June 30, 2008
  1.80:1
September 30, 2008
  1.75:1
December 31, 2008
  1.70:1
March 31, 2009
  1.65:1
June 30, 2009
  1.40:1
September 30, 2009
  1.35:1
December 31, 2009
  1.30:1
March 31, 2010 and each Fiscal Quarter ending thereafter
  1.25:1

          The parties hereto agree that solely for the purposes of this clause
(f), for each Fiscal Quarter set forth below, the EBITDA of the Borrower and its
Subsidiaries shall be deemed to be the amount set forth opposite such Fiscal
Quarter set forth below:

          Fiscal Quarter Ending   EBITDA  
March 31, 2005
  $ 12,165,938  
December 31, 2004
  $ 12,165,938  
September 30, 2004
  $ 12,165,938  

          In addition, solely for the purposes of this clause (f) EBITDA for the
month of April 2005 shall mean the actual EBITDA for the month of April 2005
plus $1,141,439.

          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

Annex G-4

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

 

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 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. All such adjustments resulting from
expenditures made subsequent to the Prior Closing Date (including capitalization
of costs and expenses or payment of pre-Prior Closing Date liabilities) shall be
treated as expenses in the period the expenditures are made and deducted as part
of the calculation of EBITDA in such period. 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 G 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 G-5

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ANNEX H (Section 9.9(a))
to
CREDIT AGREEMENT

LENDERS’ WIRE TRANSFER INFORMATION

     
Name:
  General Electric Capital Corporation
Bank:
  Deutsche Bank Trust Company Americas
 
  New York, New York
ABA #:
  021001033
Account #:
  50232854
Account Name:
  GECC/CAF Depository
Reference:
  CFN5947

Annex H-1

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

 

ANNEX I (Section 11.10)
to
CREDIT AGREEMENT

NOTICE ADDRESSES

(A)   If to Agent or GE Capital, at
General Electric Capital Corporation
500 West Monroe Street
17th Floor
Chicago, Illinois 60661
Attention: Navarre Account Manager
Telecopier No.: (312) 463-3855
Telephone No.: (312) 463-2336       with copies to:       Latham & Watkins
5800 Sears Tower
Chicago, Illinois 60606
Attention: Jeffrey G. Moran
Telecopier No.: 312-993-9767
Telephone No.: 312-876-7700       and       General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel-Commercial Finance
Telecopier No.: (203) 316-7889
Telephone No.: (203) 316-7552   (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.: 763-971-2770

Annex I-1

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

 

ANNEX J (from Annex A – Commitments definition)
to
CREDIT AGREEMENT

Lenders:

General Electric Capital Corporation:

Revolving Loan Commitment
(including a Swing Line Commitment of $5,000,0000)
$25,000,000

Term Loan B Commitment:
$100,000,000

Term Loan C Commitment:
$25,000,000

GMAC Commercial Finance LLC

Revolving Loan Commitment
$0

Term Loan B Commitment:
$15,000,000

Term Loan C Commitment:
$0

Annex J-1