Exhibit 10.1

 

THIRD AMENDMENT TO CREDIT AGREEMENT

 

THIS THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of July 30, 2004 (as amended
or modified from time to time, this “Amendment”), is by and among HANDLEMAN
COMPANY, a Michigan corporation (the “Company”), each of the Subsidiaries of the
Company designated in Section 1.1 as a Borrowing Subsidiary (individually, a
“Borrowing Subsidiary” and, collectively, the “Borrowing Subsidiaries”) (the
Company and the Borrowing Subsidiaries may each be referred to as a “Borrower”
and, collectively, as the “Borrowers”), the lenders party hereto from time to
time, (the “Banks” and individually, a “Bank”), STANDARD FEDERAL BANK N.A., as
administrative agent for the Banks (in such capacity, the “Agent”), KEYBANK
NATIONAL ASSOCIATION, as syndication agent (in such capacity, the “Syndication
Agent”) and US BANK, N.A., as documentation agent (in such capacity, the
“Documentation Agent”).

 

R E C I T A L

 

The Company, the Subsidiary Borrowers, the Banks, the Agent, the Syndication
Agent and the Documentation Agent are parties to a Credit Agreement dated as of
August 8, 2001, as amended by a First Amendment to Credit Agreement dated as of
October 17, 2002 and a Second Amendment to Credit Agreement dated as of October
18, 2003 (as amended, the “Credit Agreement”). The Company and the Subsidiary
Borrowers desire to amend the Credit Agreement, and the Agent, the Syndication
Agent, the Documentation Agent and the Banks are willing to do so in accordance
with the terms hereof.

 

T E R M S

 

In consideration of the premises and of the mutual agreements herein contained,
the parties agree

 

ARTICLE 1.

 

AMENDMENTS

 

Subject to Article 3 hereof, the Credit Agreement shall be amended as follows:

 

1.1 The definition of Applicable Facility Fee in Section 1.1 is deleted, and the
definitions of Adjusted Net Income, Applicable Margin and Termination Date in
Section 1.1 are restated as follows:

 

“Adjusted Net Income” of any person shall mean, for any period, the Net Income
of such Person for such period excluding, to the extent included in determining
such Net Income, each of the following, without duplication: (i) gains or
non-cash losses from the sale, exchange, transfer or other disposition of
property or assets not in the ordinary course of business and related tax
effects in accordance with Generally Accepted Accounting Principles, (ii) income
gains or losses as a direct result of any change in accounting treatment of
stock options due to FASB Interpretation No. 44: Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion No.
25 (Issue date March 2000), (iii) any other extraordinary or non-recurring gains
or other income not from the continuing operation of such person and related tax
effects in accordance with Generally Accepted Accounting Principles and (iv) the
income of any Subsidiary of such person to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that income
is not at the time permitted and the income attributable to any minority
interests.

 

“Applicable Margin” shall mean, with respect to any Application Period, the per
annum rate set forth below based upon the Leverage Ratio for the Determination
Period, provided that as of the

 

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Third Amendment Effective Date the Applicable Margin for Eurocurrency Rate Loans
and Letter of Credit fees under Section 2.5(b)(i) is 0.75%, the Applicable
Margin for Floating Rate Loans is 0% and the Applicable Margin for facility fees
under Section 2.5(a) is 0.25%:

 

Leverage Ratio

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Facility Fees

under Section 2.5(a)

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    Floating Rate Loans

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Eurocurrency Rate

Loans and

Letter of Credit Fee

Under Section 2.5(b)(i)

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< 0.50

   0.25 %   0 %   0.75 %     

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³ 0.50 but < 1.00

   0.25 %   0 %   1.00 %     

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³ 1.00 but < 1.50

   0.25 %   0 %   1.25 %     

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³ 1.50 but < 2.00

   0.30 %   0 %   1.45 %     

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³ 2.00

   0.40 %   0.10 %   1.85 %     

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“Termination Date” shall mean the earlier to occur of (a) August 6, 2007 and (b)
the date on which the Commitments shall be terminated pursuant to Section 2.4 or
6.2.

 

1.2 The following definitions are added to Section 1.1 in appropriate
alphabetical order:

 

“Third Amendment” shall mean the Third Amendment to this Agreement dated July
30, 2004.

 

“Third Amendment Effective Date” shall mean effective date of the Third
Amendment.

 

1.3 Reference in Section 2.5(a) to “Applicable Facility Fee” is deleted and
“Applicable Margin” is substituted in place thereof.

 

1.4 Section 5.2(c) is restated as follows:

 

(c) Tangible Net Worth. Permit or suffer Consolidated Tangible Net Worth of the
Company and its Subsidiaries at any time to be less than $225,000,000, plus 50%
of Consolidated Net Income of the Company and its Subsidiaries for each fiscal
quarter of the Company ending after Third Effective Date Amendment, provided
that if such Consolidated Net Income is negative for any such fiscal quarter,
the amount added for such fiscal quarter shall be zero and it shall not reduce
the amount added for any other fiscal quarter.

 

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1.5 Section 5.2(p) is restated as follows:

 

(p) Dividends, Redemptions and Other Distributions. Make, pay, declare or
authorize any dividend, payment or other distribution in respect of any class of
its Capital Stock or any dividend, payment or distribution in connection with
the redemption, purchase, retirement or other acquisition, directly or
indirectly, of any shares of its Capital Stock other than such dividends,
payments or other distributions to the extent payable solely in shares of
Capital Stock of the Company, provided, however, that the Company may make, pay,
declare or authorize any of the foregoing such dividends, payments and other
distributions subject to the satisfaction of each of the following conditions:
(i) the aggregate amount thereof on and after the Third Amendment Effective Date
shall not exceed the sum of $50,000,000 plus 50% of the consolidated Adjusted
Net Income of the Company and its Subsidiaries, commencing with the first fiscal
quarter ending after the Third Amendment Effective Date, (ii) immediately before
and after giving effect to such dividend, payment or other distribution, no
Event of Default or Default shall exist or shall have occurred and be continuing
and the representations and warranties contained in Article IV and in the other
Loan Documents shall be true and correct on and as of the date thereof (both
before and after giving effect to such dividend, payment or other distribution)
as if made on the date of such dividend, payment or other distribution, and
(iii) both before and after giving effect to such dividend, payment or other
distribution, the Company was and will be able to borrow at least $20,000,000 of
additional Loans on a pro forma basis acceptable to the Agent. The Company will
not issue any Disqualified Stock.

 

1.6 Schedule 1 attached to the Credit Agreement is replaced with Schedule 1
attached hereto.

 

ARTICLE 2.

 

REPRESENTATIONS

 

The Company represents and warrants to the Agent and the Banks that:

 

2.1 The execution, delivery and performance by the Company of this Amendment
have been duly authorized by all necessary corporate action and are not in
contravention of any material law, rule or regulation, or any judgment, decree,
writ, injunction, order or award of any arbitrator, court or governmental
authority, or of the terms of the Company’s articles of incorporation or
by-laws, or of any material contract or undertaking to which the Company is a
party or by which the Company or its property is bound or affected and do not
result in the imposition of any Lien except for Permitted Liens.

 

2.2 This Amendment is the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms; except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors’ rights and except that
the remedy of specific performance and injunctive and other forms of equitable
relief are subject to equitable defenses and to the discretion of the court
before which any proceedings may be brought.

 

2.3 After giving effect to the amendments and waivers herein contained, the
representations and warranties contained in the Credit Agreement and the
representations and warranties contained in the other Loan Documents are true on
and as of the date hereof with the same force and effect as if made on and as of
the date hereof, except to the extent any such representation or warranty is
stated to relate solely to an earlier date, in which case such representation or
warranty shall have been true and correct on and as of such earlier date, and no
Default or Unmatured Default exists or has occurred and is continuing on the
date hereof.

 

3

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ARTICLE 3.

 

CONDITIONS PRECEDENT.

 

This Amendment shall become effective as of the date hereof, provided that each
of the following has been satisfied:

 

3.1 This Amendment shall be signed by the Company and the Banks.

 

3.2 Each Guarantor shall have executed the Consent and Agreement attached
hereto.

 

3.3 The Company shall deliver to the Agent such board resolutions and incumbency
certificates required by the Agent.

 

3.4 The Company shall pay to the Agent, for the pro rata benefit of each Bank
signing this Amendment on or before 1:00 pm EST on July 30, 2004, a fee equal to
10 basis points on each such Bank’s Commitment after giving effect to this
Amendment.

 

3.5 The Company shall deliver to the Agent such other agreements and documents
in connection herewith as requested by the Agent.

 

ARTICLE 4.

 

MISCELLANEOUS.

 

4.1 References in any Loan Document to the Credit Agreement shall be deemed to
be references to the Credit Agreement as amended hereby and as further amended
from time to time.

 

4.2 The Company agrees to pay and to save the Agent harmless for the payment of
all costs and expenses arising in connection with this Amendment, including the
reasonable fees of counsel to the Agent in connection with preparing this
Amendment and the related documents.

 

4.3 The Company acknowledges and agrees that the Agent and the Banks have fully
performed all of their obligations under all documents executed in connection
with the Loan Documents and all actions taken by the Agent and the Banks are
reasonable and appropriate under the circumstances and within their rights under
the Loan Documents. The Company represents and warrants that it is not aware of
any claims or causes of action against the Agent or any Bank, any participant
lender or any of their successors or assigns.

 

4.4 Except as expressly amended hereby, the Company agrees that the Loan
Documents are ratified and confirmed and shall remain in full force and effect
and that it has no set off, counterclaim, defense or other claim or dispute with
respect to any Loan Document or any transactions in connection therewith. Terms
used but not defined herein shall have the respective meanings ascribed thereto
in the Credit Agreement.

 

4.5 This Amendment may be signed upon any number of counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument,
and telecopied signatures shall be enforceable as originals.

 

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IN WITNESS WHEREOF, the parties signing this Amendment have caused this
Amendment to be executed and delivered as of the day and year first above
written.

 

HANDLEMAN COMPANY

By:

 

 

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Title:

 

 

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5

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STANDARD FEDERAL BANK N.A., as a Bank and as Agent

By:

 

 

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Title:

 

 

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6

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KEYBANK NATIONAL ASSOCIATION, as a
Bank and as Syndication Agent

By:

 

 

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Title:

 

 

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7

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US BANK, N.A., as a Bank
and as Documentation Agent

By:

 

 

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Title:

 

 

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8

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HUNTINGTON NATIONAL BANK

By:

 

 

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Title:

 

 

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9

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COMERICA BANK

By:

 

 

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Title:

 

 

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10

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FIFTH THIRD BANK

By:

 

 

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Title:

 

 

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CONSENT AND AGREEMENT

 

As of the date and year first above written, each of the undersigned hereby:

 

(a) fully consents to the terms and provisions of the above Amendment and the
consummation of the transactions contemplated thereby, and agrees to all terms
and provisions of the above Amendment applicable to it;

 

(b) agrees that its Guaranty and all other Loan Documents executed by the
undersigned in connection with the Credit Agreement or otherwise in favor of the
Agent and/or the Banks (collectively, the “Documents”) are hereby ratified and
confirmed and shall remain in full force and effect, and the undersigned
acknowledges that it has no setoff, counterclaim, defense or other claim or
dispute with respect to any Document or any transactions in connection
therewith; and

 

(c) acknowledges that it is in its interest and to its financial benefit to
execute this consent and agreement.

 

HANDLEMAN CATEGORY MANAGEMENT

COMPANY

By:

 

 

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Title:

 

 

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HANDLEMAN DISTRIBUTION COMPANY

By:

 

 

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Title:

 

 

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HANDLEMAN ENTERTAINMENT RESOURCES LLC

By:

 

 

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Title:

 

 

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12

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LIFETIME HOLDING, INC.

By:

 

 

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Title:

 

 

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HANDLEMAN UK LIMITED

By:

 

 

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Title:

 

 

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HANDLEMAN COMPANY OF CANADA LIMITED

By:

 

 

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Title:

 

 

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HANDLEMAN ONLINE, INC.

By:

 

 

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Title:

 

 

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Schedule 1

 

COMMITMENTS

 

Lender

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   Commitment

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Standard Federal Bank N.A.

   $ 44,117,647.05

KeyBank National Association

   $ 26,470,588.24

US Bank, N.A.

   $ 26,470,588.24

Comerica Bank

   $ 22,058,823.53

Huntington National Bank

   $ 22,058,823.53

Fifth Third Bank

   $ 8,823,529.41

Total:

   $ 150,000,000

 

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