Exhibit 10.1
 
CREDIT AGREEMENT
by and among
NAVARRE CORPORATION
as Borrower,
THE LENDERS THAT ARE SIGNATORIES HERETO
as the Lenders,
and
WELLS FARGO FOOTHILL, LLC
as the Arranger and Administrative Agent
Dated as of November 12, 2009
 

 

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TABLE OF CONTENTS

              Page
1. DEFINITIONS AND CONSTRUCTION
    1    
1.1. Definitions
    1    
1.2. Accounting Terms
    1    
1.3. Code
    1    
1.4. Construction
    2    
1.5. Schedules and Exhibits
    2    
2. LOAN AND TERMS OF PAYMENT
    2    
2.1. Revolver Advances
    2    
2.2. Intentionally Omitted
    3    
2.3. Borrowing Procedures and Settlements
    3    
2.4. Payments; Reductions of Commitments; Prepayments
    9    
2.5. Overadvances
    13    
2.6. Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations
    14    
2.7. Crediting Payments
    15    
2.8. Designated Account
    15    
2.9. Maintenance of Loan Account; Statements of Obligations
    15    
2.10. Fees
    16    
2.11. Letters of Credit
    16    
2.12. LIBOR Option
    20    
2.13. Capital Requirements
    22    
3. CONDITIONS; TERM OF AGREEMENT
    23    
3.1. Conditions Precedent to the Initial Extension of Credit
    23    
3.2. Conditions Precedent to all Extensions of Credit
    23    
3.3. Maturity
    24    
3.4. Effect of Maturity
    24    
3.5. Early Termination by Borrower
    24    
4. REPRESENTATIONS AND WARRANTIES
    24    
4.1. Due Organization and Qualification; Subsidiaries
    25    
4.2. Due Authorization; No Conflict
    25    
4.3. Governmental Consents
    26  

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TABLE OF CONTENTS
(continued)

              Page
4.4. Binding Obligations; Perfected Liens
    26    
4.5. Title to Assets; No Encumbrances
    26    
4.6. Jurisdiction of Organization; Location of Chief Executive Office;
Organizational Identification Number; Commercial Tort Claims
    26    
4.7. Litigation
    27    
4.8. Compliance with Laws
    27    
4.9. No Material Adverse Change
    27    
4.10. Fraudulent Transfer
    28    
4.11. Employee Benefits
    28    
4.12. Environmental Condition
    28    
4.13. Intellectual Property
    28    
4.14. Leases
    29    
4.15. Deposit Accounts and Securities Accounts
    29    
4.16. Complete Disclosure
    29    
4.17. Material Contracts
    29    
4.18. Patriot Act
    30    
4.19. Indebtedness
    30    
4.20. Payment of Taxes
    30    
4.21. Margin Stock
    30    
4.22. Governmental Regulation
    31    
4.23. OFAC
    31    
4.24. Employee and Labor Matters
    31    
4.25. Holding Companies
    32    
4.26. Intentionally Omitted
    32    
4.27. Intentionally Omitted
    32    
4.28. Eligible Accounts
    32    
4.29. Eligible Inventory
    32    
4.30. Location of Inventory and Equipment
    32    
4.31. Inventory Records
    32    
5. AFFIRMATIVE COVENANTS
    32    
5.1. Financial Statements, Reports, Certificates
    33  

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TABLE OF CONTENTS
(continued)

              Page
5.2. Collateral Reporting
    33    
5.3. Existence
    33    
5.4. Maintenance of Properties
    33    
5.5. Taxes
    33    
5.6. Insurance
    34    
5.7. Inspection
    34    
5.8. Compliance with Laws
    35    
5.9. Environmental
    35    
5.10. Disclosure Updates
    35    
5.11. Formation of Subsidiaries
    35    
5.12. Further Assurances
    36    
5.13. Lender Meetings
    37    
5.14. Material Contracts
    37    
5.15. Location of Inventory and Equipment
    37    
5.16. Eric Paulson Employment Agreement
    37    
5.17. Post-Closing Undertaking
    37    
6. NEGATIVE COVENANTS
    38    
6.1. Indebtedness
    38    
6.2. Liens
    38    
6.3. Restrictions on Fundamental Changes
    38    
6.4. Disposal of Assets
    39    
6.5. Change Name
    39    
6.6. Nature of Business
    39    
6.7. Prepayments and Amendments
    39    
6.8. Change of Control
    40    
6.9. Restricted Junior Payments
    40    
6.10. Accounting Methods
    40    
6.11. Investments
    40    
6.12. Transactions with Affiliates
    41    
6.13. Use of Proceeds
    41    
6.14. Holding Companies
    41  

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TABLE OF CONTENTS
(continued)

              Page
6.15. Inventory and Equipment with Bailees
    42    
7. FINANCIAL COVENANTS
    42    
8. EVENTS OF DEFAULT
    43    
9. RIGHTS AND REMEDIES
    46    
9.1. Rights and Remedies
    46    
9.2. Remedies Cumulative
    46    
10. WAIVERS; INDEMNIFICATION
    46    
10.1. Demand; Protest; etc
    46    
10.2. The Lender Group’s Liability for Collateral
    47    
10.3. Indemnification
    47    
11. NOTICES
    48    
12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
    49    
13. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS
    49    
13.1. Assignments and Participations
    49    
13.2. Successors
    52    
14. AMENDMENTS; WAIVERS
    52    
14.1. Amendments and Waivers
    52    
14.2. Replacement of Certain Lenders
    54    
14.3. No Waivers; Cumulative Remedies
    54    
15. AGENT; THE LENDER GROUP
    55    
15.1. Appointment and Authorization of Agent
    55    
15.2. Delegation of Duties
    55    
15.3. Liability of Agent
    56    
15.4. Reliance by Agent
    56    
15.5. Notice of Default or Event of Default
    56    
15.6. Credit Decision
    57    
15.7. Costs and Expenses; Indemnification
    57    
15.8. Agent in Individual Capacity
    58    
15.9. Successor Agent
    58    
15.10. Lender in Individual Capacity
    59    
15.11. Collateral Matters
    59  

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TABLE OF CONTENTS
(continued)

              Page
15.12. Restrictions on Actions by Lenders; Sharing of Payments
    60    
15.13. Agency for Perfection
    61    
15.14. Payments by Agent to the Lenders
    61    
15.15. Concerning the Collateral and Related Loan Documents
    61    
15.16. Audits and Examination Reports; Confidentiality; Disclaimers by Lenders;
Other Reports and Information
    62    
15.17. Several Obligations; No Liability
    63    
16. WITHHOLDING TAXES
    63    
17. GENERAL PROVISIONS
    66    
17.1. Effectiveness
    66    
17.2. Section Headings
    66    
17.3. Interpretation
    66    
17.4. Severability of Provisions
    66    
17.5. Bank Product Providers
    66    
17.6. Debtor-Creditor Relationship
    67    
17.7. Counterparts; Electronic Execution
    67    
17.8. Revival and Reinstatement of Obligations
    67    
17.9. Confidentiality
    67    
17.10. Lender Group Expenses
    68    
17.11. USA PATRIOT Act
    69    
17.12. Integration
    69  

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EXHIBITS AND SCHEDULES

     
Exhibit A-1
  Form of Assignment and Acceptance
Exhibit B-1
  Form of Borrowing Base Certificate
Exhibit C-1
  Form of Compliance Certificate
Exhibit L-1
  Form of LIBOR Notice
 
   
Schedule A-1
  Agent’s Account
Schedule A-2
  Authorized Persons
Schedule C-1
  Commitments
Schedule D-1
  Designated Account
Schedule E-1
  Eligible Inventory Locations
Schedule P-1
  Permitted Investments
Schedule P-2
  Permitted Liens
Schedule P-3
  Specific Permitted Indebtedness
Schedule 1.1
  Definitions
Schedule 2.1(c)
  Security Interests
Schedule 3.1
  Conditions Precedent
Schedule 4.1(b)
  Capitalization of Borrower
Schedule 4.1(c)
  Capitalization of Borrower’s Subsidiaries
Schedule 4.6(a)
  States of Organization
Schedule 4.6(b)
  Chief Executive Offices
Schedule 4.6(c)
  Organizational Identification Numbers
Schedule 4.6(d)
  Commercial Tort Claims
Schedule 4.7(b)
  Litigation
Schedule 4.12
  Environmental Matters
Schedule 4.13
  Intellectual Property
Schedule 4.15
  Deposit Accounts and Securities Accounts
Schedule 4.17
  Material Contracts
Schedule 4.19
  Closing Date Indebtedness
Schedule 4.30
  Locations of Inventory and Equipment
Schedule 5.1
  Financial Statements, Reports, Certificates
Schedule 5.2
  Collateral Reporting
Schedule 6.6
  Nature of Business
Schedule 6.12
  Transactions with Affiliates

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CREDIT AGREEMENT
          THIS CREDIT AGREEMENT (this “Agreement”), is entered into as of
November ___, 2009, by and among the lenders identified on the signature pages
hereof (such lenders, together with their respective successors and permitted
assigns, are referred to hereinafter each individually as a “Lender” and
collectively as the “Lenders”), WELLS FARGO FOOTHILL, LLC, a Delaware limited
liability company, as the arranger and administrative agent for the Lenders (in
such capacity, together with its successors and assigns in such capacity,
“Agent”), NAVARRE CORPORATION, a Minnesota corporation (“Borrower”).
          The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
     1.1. Definitions.
          Capitalized terms used in this Agreement shall have the meanings
specified therefor on Schedule 1.1.
     1.2. Accounting Terms.
          All accounting terms not specifically defined herein shall be
construed in accordance with GAAP; provided, however, that if Borrower notifies
Agent that Borrower requests an amendment to any provision hereof to eliminate
the effect of any Accounting Change occurring after the Closing Date or in the
application thereof on the operation of such provision (or if Agent notifies
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such Accounting Change or in the application thereof, then Agent and
Borrower agree that they will negotiate in good faith amendments to the
provisions of this Agreement that are directly affected by such Accounting
Change with the intent of having the respective positions of the Lenders and
Borrower after such Accounting Change conform as nearly as possible to their
respective positions as of the date of this Agreement and, until any such
amendments have been agreed upon, the provisions in this Agreement shall be
calculated as if no such Accounting Change had occurred. When used herein, the
term “financial statements” shall include the notes and schedules thereto.
Whenever the term “Borrower” is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower and its Subsidiaries
on a consolidated basis, unless the context clearly requires otherwise.
     1.3. Code.
          Any terms used in this Agreement that are defined in the Code shall be
construed and defined as set forth in the Code unless otherwise defined herein;
provided, however, that to the extent that the Code is used to define any term
herein and such term is defined differently in different Articles of the Code,
the definition of such term contained in Article 9 of the Code shall govern.

 

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     1.4. Construction.
          Unless the context of this Agreement or any other Loan Document
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the terms “includes” and
“including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.” The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement
or any other Loan Document refer to this Agreement or such other Loan Document,
as the case may be, as a whole and not to any particular provision of this
Agreement or such other Loan Document, as the case may be. Section, subsection,
clause, schedule, and exhibit references herein are to this Agreement unless
otherwise specified. Any reference in this Agreement or in any other Loan
Document to any agreement, instrument, or document shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements, thereto and thereof, as
applicable (subject to any restrictions on such alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements set forth herein). The words “asset” and “property”
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties, including cash, securities,
accounts, and contract rights. Any reference herein or in any other Loan
Document to the satisfaction or repayment in full of the Obligations shall mean
the repayment in full in cash (or, in the case of Letters of Credit, providing
Letter of Credit Collateralization) of all Obligations other than unasserted
contingent indemnification Obligations and other than any Bank Product
Obligations that, at such time, are allowed by the applicable Bank Product
Provider to remain outstanding and that are not required by the provisions of
this Agreement to be repaid or cash collateralized. Any reference herein to any
Person shall be construed to include such Person’s successors and assigns. Any
requirement of a writing contained herein or in any other Loan Document shall be
satisfied by the transmission of a Record.
     1.5. Schedules and Exhibits.
          All of the schedules and exhibits attached to this Agreement shall be
deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
     2.1. Revolver Advances.
          (a) Subject to the terms and conditions of this Agreement, and during
the term of this Agreement, each Lender with a Revolver Commitment agrees
(severally, not jointly or jointly and severally) to make advances (“Advances”)
to Borrower in an amount at any one time outstanding not to exceed such Lender’s
Pro Rata Share of an amount equal to the lesser of (i) the Maximum Revolver
Amount less the Letter of Credit Usage at such time, and (ii) the Borrowing Base
less the sum of the Letter of Credit Usage at such time.
          (b) Amounts borrowed pursuant to this Section 2.1 may be repaid and,
subject to the terms and conditions of this Agreement, reborrowed at any time
during the term of this Agreement. The outstanding principal amount of the
Advances, together with interest accrued

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thereon, shall be due and payable on the Maturity Date or, if earlier, on the
date on which they are declared due and payable pursuant to the terms of this
Agreement.
          (c) Anything to the contrary in this Section 2.1 notwithstanding,
Agent shall have the right to establish reserves against the Borrowing Base
and/or Maximum Revolver Amount in such amounts, and with respect to such
matters, as Agent in its Permitted Discretion shall deem necessary or
appropriate, including reserves with respect to (i) sums that Borrower or its
Subsidiaries are required to pay under any Section of this Agreement or any
other Loan Document (such as taxes, assessments, insurance premiums, or, in the
case of leased assets, rents or other amounts payable under such leases) and has
failed to pay, (ii) fluctuations in currency exchange rates, (iii) claims by
unpaid vendors with respect to Inventory, (iv) licensing fees, royalties and
other payments that may be payable in connection with the production, sale and
distribution of Inventory, (v) charge-backs to Accounts, (vi) amounts owing to
vendors in respect of the “Best Buy Software as a Service (S2) Program,” and
(vii) amounts owing by Borrower or its Subsidiaries to any Person to the extent
secured by a Lien on, or trust over, any of the Collateral, which Lien or trust,
in the Permitted Discretion of Agent likely would have a priority superior to
Agent’s Liens (such as Liens or trusts in favor of landlords, warehousemen,
carriers, mechanics, materialmen, laborers, or suppliers, or Liens or trusts for
ad valorem, excise, sales, or other taxes where given priority under applicable
law) in and to such item of the Collateral. Without limitation of the foregoing,
Agent shall establish reserves for all amounts payable to the holders of the
security interests set forth on Schedule 2.1(c). The amount of any such reserve
shall bear a reasonable relationship to the event, condition or circumstance
that is the basis for the reserve as determined by Agent in its Permitted
Discretion and shall not be duplicative of other reserves factored in the
formula of the Borrowing Base.
     2.2. Intentionally Omitted.
     2.3. Borrowing Procedures and Settlements.
          (a) Procedure for Borrowing. Each Borrowing shall be made by a written
request by an Authorized Person delivered to Agent. Such notice must be received
by Agent no later than 10:00 a.m. (California time) on the Business Day that is
the requested Funding Date specifying (i) the amount of such Borrowing, and
(ii) the requested Funding Date, which shall be a Business Day; provided,
however, that if Swing Lender is not obligated to make a Swing Loan as to a
requested Borrowing, such notice must be received by Agent no later than
10:00 a.m. (California time) on the Business Day prior to the date that is the
requested Funding Date. At Agent’s election, in lieu of delivering the
above-described written request, any Authorized Person may give Agent telephonic
notice of such request by the required time. In such circumstances, Borrower
agrees that any such telephonic notice will be confirmed in writing within 24
hours of the giving of such telephonic notice, but the failure to provide such
written confirmation shall not affect the validity of the request.
          (b) Making of Swing Loans. In the case of a request for an Advance and
so long as either (i) the aggregate amount of Swing Loans made since the last
Settlement Date, minus the amount of Collections or payments applied to Swing
Loans since the last Settlement Date, plus the amount of the requested Advance
does not exceed $6,500,000, or (ii) Swing Lender, in its sole discretion, shall
agree to make a Swing Loan notwithstanding the foregoing limitation, Swing
Lender shall make an Advance in the amount of such Borrowing (any such

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Advance made solely by Swing Lender pursuant to this Section 2.3(b) being
referred to as a “Swing Loan” and such Advances being referred to collectively
as “Swing Loans”) available to Borrower on the Funding Date applicable thereto
by transferring immediately available funds to the Designated Account. Each
Swing Loan shall be deemed to be an Advance hereunder and shall be subject to
all the terms and conditions applicable to other Advances, except that all
payments on any Swing Loan shall be payable to Swing Lender solely for its own
account. Subject to the provisions of Section 2.3(d)(ii), Swing Lender shall not
make and shall not be obligated to make any Swing Loan if Swing Lender has
actual knowledge that (i) one or more of the applicable conditions precedent set
forth in Section 3 will not be satisfied on the requested Funding Date for the
applicable Borrowing, or (ii) the requested Borrowing would exceed the
Availability on such Funding Date. Swing Lender shall not otherwise be required
to determine whether the applicable conditions precedent set forth in Section 3
have been satisfied on the Funding Date applicable thereto prior to making any
Swing Loan. The Swing Loans shall be secured by Agent’s Liens, constitute
Obligations hereunder, and bear interest at the rate applicable from time to
time to Advances that are Base Rate Loans.
          (c) Making of Loans.
               (i) In the event that Swing Lender is not obligated to make a
Swing Loan, then promptly after receipt of a request for a Borrowing pursuant to
Section 2.3(a), Agent shall notify the Lenders, not later than 1:00 p.m.
(California time) on the Business Day immediately preceding the Funding Date
applicable thereto, by telecopy, telephone, or other similar form of
transmission, of the requested Borrowing. Each Lender shall make the amount of
such Lender’s Pro Rata Share of the requested Borrowing available to Agent in
immediately available funds, to Agent’s Account, not later than 10:00 a.m.
(California time) on the Funding Date applicable thereto. After Agent’s receipt
of the proceeds of such Advances, Agent shall make the proceeds thereof
available to Borrower on the applicable Funding Date by transferring immediately
available funds equal to such proceeds received by Agent to the Designated
Account; provided, however, that, subject to the provisions of
Section 2.3(d)(ii), no Lender shall have the obligation to make any Advance if
(1) one or more of the applicable conditions precedent set forth in Section 3
will not be satisfied on the requested Funding Date for the applicable Borrowing
unless such condition has been waived, or (2) the requested Borrowing would
exceed the Availability on such Funding Date.
               (ii) Unless Agent receives notice from a Lender prior to 9:00
a.m. (California time) on the Funding Date pertaining to a Borrowing, that such
Lender will not make available as and when required hereunder to Agent for the
account of Borrower the amount of that Lender’s Pro Rata Share of the Borrowing,
Agent may assume that each Lender has made or will make such amount available to
Agent in immediately available funds on the Funding Date and Agent may (but
shall not be so required), in reliance upon such assumption, make available to
Borrower on such date a corresponding amount. If any Lender shall not have made
its full amount available to Agent in immediately available funds and if Agent
in such circumstances has made available to Borrower such amount, that Lender
shall on the Business Day following such Funding Date make such amount available
to Agent, together with interest at the Defaulting Lender Rate for each day
during such period. A notice submitted by Agent to any Lender with respect to
amounts owing under this Section 2.3(c)(ii) shall be conclusive, absent manifest
error. If such amount is so made available, such payment to Agent shall
constitute such Lender’s

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Advance on the date of Borrowing for all purposes of this Agreement. If such
amount is not made available to Agent on the Business Day following the Funding
Date, Agent will notify Borrower of such failure to fund and, upon demand by
Agent, Borrower shall pay such amount to Agent for Agent’s account, together
with interest thereon for each day elapsed since the date of such Borrowing, at
a rate per annum equal to the interest rate applicable at the time to the
Advances composing such Borrowing. The failure of any Lender to make any Advance
on any Funding Date shall not relieve any other Lender of any obligation
hereunder to make an Advance on such Funding Date, but no Lender shall be
responsible for the failure of any other Lender to make the Advance to be made
by such other Lender on any Funding Date.
               (iii) Agent shall not be obligated to transfer to a Defaulting
Lender any payments made by Borrower to Agent for the Defaulting Lender’s
benefit, and, in the absence of such transfer to the Defaulting Lender, Agent
shall transfer any such payments to each other non-Defaulting Lender member of
the Lender Group ratably in accordance with their Commitments (but only to the
extent that such Defaulting Lender’s Advance was funded by the other members of
the Lender Group) or, if so directed by Borrower and if no Default or Event of
Default has occurred and is continuing (and to the extent such Defaulting
Lender’s Advance was not funded by the Lender Group), retain same to be
re-advanced to Borrower as if such Defaulting Lender had made Advances to
Borrower. Subject to the foregoing, Agent may hold and, in its Permitted
Discretion, re-lend to Borrower for the account of such Defaulting Lender the
amount of all such payments received and retained by Agent for the account of
such Defaulting Lender. Solely for the purposes of voting or consenting to
matters with respect to the Loan Documents, such Defaulting Lender shall be
deemed not to be a “Lender” and such Lender’s Commitment shall be deemed to be
zero. This Section shall remain effective with respect to such Lender until
(x) the Obligations under this Agreement shall have been declared or shall have
become immediately due and payable, (y) the non-Defaulting Lenders, Agent, and
Borrower shall have waived such Defaulting Lender’s default in writing, or
(z) the Defaulting Lender makes its Pro Rata Share of the applicable Advance and
pays to Agent all amounts owing by Defaulting Lender in respect thereof. The
operation of this Section shall not be construed to increase or otherwise affect
the Commitment of any Lender, to relieve or excuse the performance by such
Defaulting Lender or any other Lender of its duties and obligations hereunder,
or to relieve or excuse the performance by any Loan Party of its duties and
obligations hereunder to Agent or to the Lenders other than such Defaulting
Lender. Any such failure to fund by any Defaulting Lender shall constitute a
material breach by such Defaulting Lender of this Agreement and shall entitle
Borrower at its option, upon written notice to Agent, to arrange for a
substitute Lender to assume the Commitment of such Defaulting Lender, such
substitute Lender to be reasonably acceptable to Agent. In connection with the
arrangement of such a substitute Lender, the Defaulting Lender shall have no
right to refuse to be replaced hereunder, and agrees to execute and deliver a
completed form of Assignment and Acceptance in favor of the substitute Lender
(and agrees that it shall be deemed to have executed and delivered such document
if it fails to do so) subject only to being repaid its share of the outstanding
Obligations (other than Bank Product Obligations, but including an assumption of
its Pro Rata Share of the Letters of Credit) without any premium or penalty of
any kind whatsoever; provided, however, that any such assumption of the
Commitment of such Defaulting Lender shall not be deemed to constitute a waiver
of any of the Lender Groups’ or Borrower’s rights or remedies against any such
Defaulting Lender arising out of or in relation to such failure to fund.

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          (d) Protective Advances and Optional Overadvances.
               (i) Any contrary provision of this Agreement notwithstanding,
Agent hereby is authorized by Borrower and the Lenders, from time to time in
Agent’s sole discretion, (A) after the occurrence and during the continuance of
a Default or an Event of Default, or (B) at any time that any of the other
applicable conditions precedent set forth in Section 3 are not satisfied, to
make Advances to, or for the benefit of, Borrower on behalf of the Lenders (in
an aggregate amount for all such Advances taken together not exceeding
$6,500,000 outstanding at any one time) that Agent, in its Permitted Discretion
deems necessary or desirable (1) to preserve or protect the Collateral, or any
portion thereof, or (2) to enhance the likelihood of repayment of the
Obligations (other than the Bank Product Obligations) (any of the Advances
described in this Section 2.3(d)(i) shall be referred to as “Protective
Advances”).
               (ii) Any contrary provision of this Agreement notwithstanding,
the Lenders hereby authorize Agent or Swing Lender, as applicable, and either
Agent or Swing Lender, as applicable, may, but is not obligated to, knowingly
and intentionally, continue to make Advances (including Swing Loans) to Borrower
notwithstanding that an Overadvance exists or thereby would be created, so long
as (A) after giving effect to such Advances, the outstanding Revolver Usage does
not exceed the Borrowing Base by more than $6,500,000, and (B) after giving
effect to such Advances, the outstanding Revolver Usage (except for and
excluding amounts charged to the Loan Account for interest, fees, or Lender
Group Expenses) does not exceed the Maximum Revolver Amount. In the event Agent
obtains actual knowledge that the Revolver Usage exceeds the amounts permitted
by the immediately foregoing provisions, regardless of the amount of, or reason
for, such excess, Agent shall notify the Lenders as soon as practicable (and
prior to making any (or any additional) intentional Overadvances (except for and
excluding amounts charged to the Loan Account for interest, fees, or Lender
Group Expenses) unless Agent determines that prior notice would result in
imminent harm to the Collateral or its value), and the Lenders with Revolver
Commitments thereupon shall, together with Agent, jointly determine the terms of
arrangements that shall be implemented with Borrower intended to reduce, within
a reasonable time, the outstanding principal amount of the Advances to Borrower
to an amount permitted by the preceding sentence. In such circumstances, if any
Lender with a Revolver Commitment objects to the proposed terms of reduction or
repayment of any Overadvance, the terms of reduction or repayment thereof shall
be implemented according to the determination of the Required Lenders. In any
event: (x) if any unintentional Overadvance remains outstanding for more than
30 days, unless otherwise agreed to by the Required Lenders, Borrower shall
immediately repay Advances in an amount sufficient to eliminate all such
unintentional Overadvances, and (y) after the date all such Overadvances have
been eliminated, there must be at least five consecutive days before intentional
Overadvances are made. The foregoing provisions are meant for the benefit of the
Lenders and Agent and are not meant for the benefit of Borrower, which shall
continue to be bound by the provisions of Section 2.5. Each Lender with a
Revolver Commitment shall be obligated to settle with Agent as provided in
Section 2.3(e) for the amount of such Lender’s Pro Rata Share of any
unintentional Overadvances by Agent reported to such Lender, any intentional
Overadvances made as permitted under this Section 2.3(d)(ii), and any
Overadvances resulting from the charging to the Loan Account of interest, fees,
or Lender Group Expenses.

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               (iii) Each Protective Advance and each Overadvance shall be
deemed to be an Advance hereunder, except that no Protective Advance or
Overadvance shall be eligible to be a LIBOR Rate Loan and, prior to Settlement
therefor, all payments on the Protective Advances shall be payable to Agent
solely for its own account. The Protective Advances and Overadvances shall be
repayable on demand, secured by Agent’s Liens, constitute Obligations hereunder,
and bear interest at the rate applicable from time to time to Advances that are
Base Rate Loans. The ability of Agent to make Protective Advances is separate
and distinct from its ability to make Overadvances and its ability to make
Overadvances is separate and distinct from its ability to make Protective
Advances; for the avoidance of doubt, the limitations on Agent’s ability to make
Protective Advances do not apply to Overadvances and the limitations on Agent’s
ability to make Overadvances do not apply to Protective Advances. The provisions
of this Section 2.3(d) are for the exclusive benefit of Agent, Swing Lender, and
the Lenders and are not intended to benefit Borrower in any way.
               (iv) Notwithstanding anything contained in this Agreement or the
Loan Documents to the contrary: (A) no Overadvance or Protective Advance may be
made by Agent if such Advance would cause the aggregate principal amount of
Overadvances and Protective Advances outstanding to exceed an amount equal to
ten percent (10%) of the Maximum Revolver Amount; and (B) to the extent any
Protective Advance causes the aggregate Revolver Usage to exceed the Maximum
Revolver Amount, each such Protective Advance shall be for Agent’s sole and
separate account and not for the account of any Lender.
          (e) It is agreed that each Lender’s funded portion of the Advances is
intended by the Lenders to equal, at all times, such Lender’s Pro Rata Share of
the outstanding Advances. Such agreement notwithstanding, Agent, Swing Lender,
and the other Lenders agree (which agreement shall not be for the benefit of
Borrower) that in order to facilitate the administration of this Agreement and
the other Loan Documents, settlement among the Lenders as to the Advances, the
Swing Loans, and the Protective Advances shall take place on a periodic basis in
accordance with the following provisions:
               (i) Agent shall request settlement (“Settlement”) with the
Lenders on a weekly basis, or on a more frequent basis if so determined by Agent
(1) on behalf of Swing Lender, with respect to the outstanding Swing Loans,
(2) for itself, with respect to the outstanding Protective Advances, and
(3) with respect to Borrower’s or its Subsidiaries’ Collections or payments
received, as to each by notifying the Lenders by telecopy, telephone, or other
similar form of transmission, of such requested Settlement, no later than 2:00
p.m. (California time) on the Business Day immediately prior to the date of such
requested Settlement (the date of such requested Settlement being the
“Settlement Date”). Such notice of a Settlement Date shall include a summary
statement of the amount of outstanding Advances, Swing Loans, and Protective
Advances for the period since the prior Settlement Date. Subject to the terms
and conditions contained herein (including Section 2.3(c)(iii)): (y) if a
Lender’s balance of the Advances (including Swing Loans and Protective Advances)
exceeds such Lender’s Pro Rata Share of the Advances (including Swing Loans and
Protective Advances) as of a Settlement Date, then Agent shall, by no later than
12:00 p.m. (California time) on the Settlement Date, transfer in immediately
available funds to a Deposit Account of such Lender (as such Lender may
designate), an amount such that each such Lender shall, upon receipt of such
amount, have as of the Settlement Date, its Pro Rata Share of the Advances
(including Swing Loans and

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Protective Advances), and (z) if a Lender’s balance of the Advances (including
Swing Loans and Protective Advances) is less than such Lender’s Pro Rata Share
of the Advances (including Swing Loans and Protective Advances) as of a
Settlement Date, such Lender shall no later than 12:00 p.m. (California time) on
the Settlement Date transfer in immediately available funds to Agent’s Account,
an amount such that each such Lender shall, upon transfer of such amount, have
as of the Settlement Date, its Pro Rata Share of the Advances (including Swing
Loans and Protective Advances). Such amounts made available to Agent under
clause (z) of the immediately preceding sentence shall be applied against the
amounts of the applicable Swing Loans or Protective Advances and, together with
the portion of such Swing Loans or Protective Advances representing Swing
Lender’s Pro Rata Share thereof, shall constitute Advances of such Lenders. If
any such amount is not made available to Agent by any Lender on the Settlement
Date applicable thereto to the extent required by the terms hereof, Agent shall
be entitled to recover for its account such amount on demand from such Lender
together with interest thereon at the Defaulting Lender Rate.
               (ii) In determining whether a Lender’s balance of the Advances,
Swing Loans, and Protective Advances is less than, equal to, or greater than
such Lender’s Pro Rata Share of the Advances, Swing Loans, and Protective
Advances as of a Settlement Date, Agent shall, as part of the relevant
Settlement, apply to such balance the portion of payments actually received in
good funds by Agent with respect to principal, interest, fees payable by
Borrower and allocable to the Lenders hereunder, and proceeds of Collateral.
               (iii) Between Settlement Dates, Agent, to the extent Protective
Advances or Swing Loans are outstanding, may pay over to Agent or Swing Lender,
as applicable, any Collections or payments received by Agent, that in accordance
with the terms of this Agreement would be applied to the reduction of the
Advances, for application to the Protective Advances or Swing Loans. Between
Settlement Dates, Agent, to the extent no Protective Advances or Swing Loans are
outstanding, may pay over to Swing Lender any Collections or payments received
by Agent, that in accordance with the terms of this Agreement would be applied
to the reduction of the Advances, for application to Swing Lender’s Pro Rata
Share of the Advances. If, as of any Settlement Date, Collections or payments of
Borrower or its Subsidiaries received since the then immediately preceding
Settlement Date have been applied to Swing Lender’s Pro Rata Share of the
Advances other than to Swing Loans, as provided for in the previous sentence,
Swing Lender shall pay to Agent for the accounts of the Lenders, and Agent shall
pay to the Lenders, to be applied to the outstanding Advances of such Lenders,
an amount such that each Lender shall, upon receipt of such amount, have, as of
such Settlement Date, its Pro Rata Share of the Advances. During the period
between Settlement Dates, Swing Lender with respect to Swing Loans, Agent with
respect to Protective Advances, and each Lender (subject to the effect of
agreements between Agent and individual Lenders) with respect to the Advances
other than Swing Loans and Protective Advances, shall be entitled to interest at
the applicable rate or rates payable under this Agreement on the daily amount of
funds employed by Swing Lender, Agent, or the Lenders, as applicable.
          (f) Notation. Agent, as a non-fiduciary agent for Borrower, shall
maintain a register showing the principal amount of the Advances owing to each
Lender, including the Swing Loans owing to Swing Lender, and Protective Advances
owing to Agent, and the interests

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therein of each Lender, from time to time and such register shall, absent
manifest error, conclusively be presumed to be correct and accurate.
          (g) Lenders’ Failure to Perform. All Advances (other than Swing Loans
and Protective Advances) shall be made by the Lenders contemporaneously and in
accordance with their Pro Rata Shares. It is understood that (i) no Lender shall
be responsible for any failure by any other Lender to perform its obligation to
make any Advance (or other extension of credit) hereunder, nor shall any
Commitment of any Lender be increased or decreased as a result of any failure by
any other Lender to perform its obligations hereunder, and (ii) no failure by
any Lender to perform its obligations hereunder shall excuse any other Lender
from its obligations hereunder.
     2.4. Payments; Reductions of Commitments; Prepayments.
          (a) Payments by Borrower.
               (i) Except as otherwise expressly provided herein, all payments
by Borrower shall be made to Agent’s Account for the account of the Lender Group
and shall be made in immediately available funds, no later than 11:00 a.m.
(California time) on the date specified herein. Any payment received by Agent
later than 11:00 a.m. (California time) shall be deemed to have been received on
the following Business Day and any applicable interest or fee shall continue to
accrue until such following Business Day.
               (ii) Unless Agent receives notice from Borrower prior to the date
on which any payment is due to the Lenders that Borrower will not make such
payment in full as and when required, Agent may assume that Borrower has made
(or will make) such payment in full to Agent on such date in immediately
available funds and Agent may (but shall not be so required), in reliance upon
such assumption, distribute to each Lender on such due date an amount equal to
the amount then due such Lender. If and to the extent Borrower does not make
such payment in full to Agent on the date when due, each Lender severally shall
repay to Agent on demand such amount distributed to such Lender, together with
interest thereon at the Defaulting Lender Rate for each day from the date such
amount is distributed to such Lender until the date repaid.
     (b) Apportionment and Application.
               (i) So long as no Application Event has occurred and is
continuing and except as otherwise provided with respect to Defaulting Lenders,
all principal and interest payments shall be apportioned ratably among the
Lenders (according to the unpaid principal balance of the Obligations to which
such payments relate held by each Lender) and all payments of fees and expenses
(other than fees or expenses that are for Agent’s separate account) shall be
apportioned ratably among the Lenders having a Pro Rata Share of the type of
Commitment or Obligation to which a particular fee or expense relates. All
payments to be made hereunder by Borrower shall be remitted to Agent and
(subject to Section 2.4(b)(iv), Section 2.4(e), and Section 2.4(f)) all such
payments, and all proceeds of Collateral received by Agent, shall be applied, so
long as no Application Event has occurred and is continuing, to reduce the
balance of the Advances outstanding and, thereafter, to Borrower (to be wired to
the Designated Account) or such other Person entitled thereto under applicable
law.

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               (ii) At any time that an Application Event has occurred and is
continuing and except as otherwise provided with respect to Defaulting Lenders,
all payments remitted to Agent and all proceeds of Collateral received by Agent
shall be applied as follows:
                    (A) first, to pay any Lender Group Expenses (including cost
or expense reimbursements) or indemnities then due to Agent under the Loan
Documents, until paid in full,
                    (B) second, to pay any fees or premiums then due to Agent
under the Loan Documents until paid in full,
                    (C) third, to pay interest due in respect of all Protective
Advances until paid in full,
                    (D) fourth, to pay the principal of all Protective Advances
until paid in full,
                    (E) fifth, ratably to pay any Lender Group Expenses
(including cost or expense reimbursements) or indemnities then due to any of the
Lenders under the Loan Documents, until paid in full,
                    (F) sixth, ratably to pay any fees or premiums then due to
any of the Lenders under the Loan Documents until paid in full,
                    (G) seventh, ratably to pay interest due in respect of the
Advances (other than Protective Advances) and the Swing Loans until paid in
full,
                    (H) eighth, ratably (i) to pay the principal of all Swing
Loans until paid in full, (ii) to pay the principal of all Advances until paid
in full, (iii) to Agent, to be held by Agent, for the benefit of Issuing Lender
(and for the ratable benefit of each of the Lenders that have an obligation to
pay to Agent, for the account of the Issuing Lender, a share of each Letter of
Credit Disbursement), as cash collateral in an amount up to 105% of the Letter
of Credit Usage, and (iv) up to the amount of the Aggregate Bank Product Reserve
established prior to the occurrence of, and not in contemplation of, the subject
Application Event, ratably (based on the Bank Product Reserve established for
each Bank Product of a Bank Product Provider) to the Bank Product Providers on
account of all amounts then due and payable in respect of Bank Product
Obligations, with any balance to be paid to Agent, to be held by Agent, for the
ratable (based on the Bank Product Reserve established for each Bank Product of
a Bank Product Provider) benefit of the Bank Product Providers, as cash
collateral in an amount up to the amount the Bank Product Providers reasonably
determine to be the credit exposure of Borrower and its Subsidiaries in respect
of Bank Products,
                    (I) ninth, to pay any other Obligations (including being
paid to the Bank Product Providers on account of all amounts then due and
payable in respect of Bank Products, with any balance to be paid to Agent, to be
held by Agent, for the benefit of the Bank Product Providers, as cash
collateral), and

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                    (J) tenth, to Borrower (to be wired to the Designated
Account) or such other Person entitled thereto under applicable law.
               (iii) Agent promptly shall distribute to each Lender, pursuant to
the applicable wire instructions received from each Lender in writing, such
funds as it may be entitled to receive, subject to a Settlement delay as
provided in Section 2.3(e).
               (iv) In each instance, so long as no Application Event has
occurred and is continuing, Section 2.4(b)(i) shall not apply to any payment
made by Borrower to Agent and specified by Borrower to be for the payment of
specific Obligations then due and payable (or prepayable) under any provision of
this Agreement or any other Loan Document.
               (v) For purposes of Section 2.4(b)(ii), “paid in full” means
payment in cash of all amounts owing under the Loan Documents, including loan
fees, service fees, professional fees, interest (and specifically including
interest accrued after the commencement of any Insolvency Proceeding), default
interest, interest on interest, and expense reimbursements, whether or not any
of the foregoing would be or is allowed or disallowed in whole or in part in any
Insolvency Proceeding.
               (vi) In the event of a direct conflict between the priority
provisions of this Section 2.4 and any other provision contained in any other
Loan Document, it is the intention of the parties hereto that such provisions be
read together and construed, to the fullest extent possible, to be in concert
with each other. In the event of any actual, irreconcilable conflict that cannot
be resolved as aforesaid, the terms and provisions of this Section 2.4 shall
control and govern.
          (c) Reduction of Revolver Commitments. The Revolver Commitments shall
terminate on the Maturity Date. Borrower may reduce the Revolver Commitments to
an amount (which may be zero) not less than the sum of (A) the Revolver Usage as
of such date, plus (B) the principal amount of all Advances not yet made as to
which a request has been given by Borrower under Section 2.3(a), plus (C) the
amount of all Letters of Credit not yet issued as to which a request has been
given by Borrower pursuant to Section 2.11(a). Each such reduction shall be in
an amount which is not less than $5,000,000 (unless the Revolver Commitments are
being reduced to zero and the amount of the Revolver Commitments in effect
immediately prior to such reduction are less than $5,000,000), shall be made by
providing not less than 10 Business Days prior written notice to Agent and shall
be irrevocable. Once reduced, the Revolver Commitments may not be increased.
Each such reduction of the Revolver Commitments shall reduce the Revolver
Commitments of each Lender proportionately in accordance with its Pro Rata Share
thereof.
          (d) Optional Prepayments. Borrower may prepay the principal of any
Advance at any time in whole or in part.
          (e) Mandatory Prepayments.
               (i) Borrowing Base. If, at any time, (A) the Revolver Usage on
such date exceeds (B) the Borrowing Base (such excess being referred to as the
“Borrowing Base

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Excess”), then Borrower shall immediately prepay the Obligations in accordance
with Section 2.4(f)(i) in an aggregate amount equal to the Borrowing Base
Excess.
               (ii) Dispositions. Within 1 Business Day of the date of receipt
by Borrower or any of its Subsidiaries of the Net Cash Proceeds of any voluntary
or involuntary sale or disposition by Borrower or any of its Subsidiaries of
assets (including casualty losses or condemnations but excluding sales or
dispositions which qualify as Permitted Dispositions under clauses (a), (b),
(c), (d), (e), (j), (k), (l) or (m) of the definition of Permitted
Dispositions), Borrower shall prepay the outstanding principal amount of the
Obligations in accordance with Section 2.4(f)(ii) in an amount equal to 100% of
such Net Cash Proceeds (including condemnation awards and payments in lieu
thereof) received by such Person in connection with such sales or dispositions;
provided that, so long as (A) no Default or Event of Default shall have occurred
and is continuing or would result therefrom, (B) Borrower shall have given Agent
prior written notice of Borrower’s intention to apply such monies to the costs
of replacement of the properties or assets that are the subject of such sale or
disposition or the cost of purchase or construction of other assets useful in
the business of Borrower or its Subsidiaries, (C) the monies are held in a
Deposit Account in which Agent has a perfected first-priority security interest,
and (D) Borrower or its Subsidiaries, as applicable, complete such replacement,
purchase, or construction within 180 days after the initial receipt of such
monies, then the Loan Party whose assets were the subject of such disposition
shall have the option to apply such monies to the costs of replacement of the
assets that are the subject of such sale or disposition or the costs of purchase
or construction of other assets useful in the business of Borrower or such
Subsidiary] unless and to the extent that such applicable period shall have
expired without such replacement, purchase, or construction being made or
completed, in which case, any amounts remaining in the cash collateral account
shall be paid to Agent and applied in accordance with Section 2.4(f)(ii);
provided, however, that Borrower and its Subsidiaries shall not have the right
to use such Net Cash Proceeds to make such replacements, purchases, or
construction in excess of $1,000,000 in any given fiscal year. Nothing contained
in this Section 2.4(e)(ii) shall permit Borrower or any of its Subsidiaries to
sell or otherwise dispose of any assets other than in accordance with
Section 6.4.
               (iii) Extraordinary Receipts. Within 3 Business Days of the date
of receipt by Borrower or any of its Subsidiaries of any Extraordinary Receipts,
Borrower shall prepay the outstanding principal amount of the Obligations in
accordance with Section 2.4(f)(ii) in an amount equal to 100% of such
Extraordinary Receipts, net of any reasonable expenses incurred in collecting
such Extraordinary Receipts.
               (iv) Indebtedness. Within 3 Business Days of the date of
incurrence by Borrower or any of its Subsidiaries of any Indebtedness (other
than Permitted Indebtedness), Borrower shall prepay the outstanding principal
amount of the Obligations in accordance with Section 2.4(f)(ii) in an amount
equal to 100% of the Net Cash Proceeds received by such Person in connection
with such incurrence. The provisions of this Section 2.4(e)(iv) shall not be
deemed to be implied consent to any such incurrence otherwise prohibited by the
terms and conditions of this Agreement.
               (v) Equity. Within 3 Business Days of the date of the issuance by
Borrower or any of its Subsidiaries of any shares of its or their Stock (other
than (A) in the event that Borrower or any of its Subsidiaries forms any
Subsidiary in accordance with the terms

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hereof, the issuance by such Subsidiary of Stock to Borrower or such Subsidiary,
as applicable, and (B) the issuance of Stock of Borrower to directors, officers
and employees of Borrower and its Subsidiaries pursuant to employee stock option
plans (or other employee incentive plans or other compensation arrangements)
approved by the Board of Directors), Borrower shall prepay the outstanding
principal amount of the Obligations in accordance with Section 2.4(f)(ii) in an
amount equal to 100% of the Net Cash Proceeds received by such Person in
connection with such issuance. The provisions of this Section 2.4(e)(v) shall
not be deemed to be implied consent to any such issuance otherwise prohibited by
the terms and conditions of this Agreement.
          (f) Application of Payments.
               (i) Each prepayment pursuant to Section 2.4(e)(i) shall, (A) so
long as no Application Event shall have occurred and be continuing, be applied,
first, to the outstanding principal amount of the Advances until paid in full,
and second, to cash collateralize the Letters of Credit in an amount equal to
105% of the then extant Letter of Credit Usage, and (B) if an Application Event
shall have occurred and be continuing, be applied in the manner set forth in
Section 2.4(b)(ii).
               (ii) Each prepayment pursuant to Section 2.4(e)(ii), 2.4(e)(iii),
2.4(e)(iv) or 2.4(e)(v) above shall (A) so long as no Application Event shall
have occurred and be continuing, be applied, first, to the outstanding principal
amount of the Advances (with a corresponding permanent reduction in the Maximum
Revolver Amount, except that no corresponding permanent reduction shall be
required in connection with prepayments pursuant to Section 2.4(e)(ii) as a
result of Permitted Dispositions of Eligible Accounts or Eligible Inventory),
until paid in full, and second, to cash collateralize the Letters of Credit in
an amount equal to 105% of the then extant Letter of Credit Usage (with a
corresponding permanent reduction in the Maximum Revolver Amount), and (B) if an
Application Event shall have occurred and be continuing, be applied in the
manner set forth in Section 2.4(b)(ii). In the event of a mandatory prepayment
under Section 2.4(e)(ii) (other than as a result of the sale or disposition of
the Publishing Business or as a result of the sale or disposition of Eligible
Accounts or Eligible Inventory), Agent may establish a reserve against the
Borrowing Base in the amount of such prepayment.
     2.5. Overadvances.
          If, at any time or for any reason, the amount of Obligations owed by
Borrower to the Lender Group pursuant to Section 2.1 or Section 2.11 is greater
than any of the limitations set forth in Section 2.1 or Section 2.11, as
applicable (an “Overadvance”), Borrower shall immediately pay to Agent, in cash,
the amount of such excess, which amount shall be used by Agent to reduce the
Obligations in accordance with the priorities set forth in Section 2.4(b).
Borrower promises to pay the Obligations (including principal, interest, fees,
costs, and expenses) in Dollars in full on the Maturity Date or, if earlier, on
the date on which the Obligations are declared due and payable pursuant to the
terms of this Agreement.

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     2.6. Interest Rates and Letter of Credit Fee: Rates, Payments, and
Calculations.
          (a) Interest Rates. Except as provided in Section 2.6(c), all
Obligations (except for undrawn Letters of Credit and except for Bank Product
Obligations) shall bear interest on the Daily Balance thereof as follows:
               (i) if the relevant Obligation is a LIBOR Rate Loan, at a per
annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin, and
               (ii) otherwise, at a per annum rate equal to the Base Rate plus
the Base Rate Margin.
          (b) Letter of Credit Fee. Borrower shall pay Agent (for the ratable
benefit of the Lenders with a Revolver Commitment, subject to any agreements
between Agent and individual Lenders), a Letter of Credit fee (in addition to
the charges, commissions, fees, and costs set forth in Section 2.11(e)) which
shall accrue at a per annum rate equal to the LIBOR Rate Margin times the Daily
Balance of the undrawn amount of all outstanding Letters of Credit.
          (c) Default Rate. Upon the occurrence and during the continuation of
an Event of Default and at the election of the Required Lenders,
               (i) all Obligations (except for undrawn Letters of Credit and
except for Bank Product Obligations) shall bear interest on the Daily Balance
thereof at a per annum rate equal to 2 percentage points above the per annum
rate otherwise applicable hereunder, and
               (ii) the Letter of Credit fee provided for in Section 2.6(b)
shall be increased to 2 percentage points above the per annum rate otherwise
applicable hereunder.
          (d) Payment. Except to the extent provided to the contrary in
Section 2.10 or Section 2.12(a), interest, Letter of Credit fees, all other fees
payable hereunder or under any of the other Loan Documents, and all costs,
expenses, and Lender Group Expenses payable hereunder or under any of the other
Loan Documents shall be due and payable, in arrears, on the first day of each
month at any time that Obligations or Commitments are outstanding. Borrower
hereby authorizes Agent, from time to time without prior notice to Borrower, to
charge all interest, Letter of Credit fees, and all other fees payable hereunder
or under any of the other Loan Documents (in each case, as and when due and
payable), all costs, expenses, and Lender Group Expenses payable hereunder or
under any of the other Loan Documents (in each case, as and when incurred), all
charges, commissions, fees, and costs provided for in Section 2.11(e) (as and
when accrued or incurred), all fees and costs provided for in Section 2.10 (as
and when accrued or incurred), and all other payments as and when due and
payable under any Loan Document (including any amounts due and payable to a Bank
Product Provider in respect of a Bank Product up to the amount of the Bank
Product Reserve established for such Bank Product) to the Loan Account, which
amounts thereafter shall constitute Advances hereunder and shall accrue interest
at the rate then applicable to Advances that are Base Rate Loans. Any interest,
fees, costs, expenses, Lender Group Expenses, or other amounts payable hereunder
or under any other Loan Document not paid when due shall be compounded by being
charged to the Loan Account and shall thereafter constitute Advances hereunder
and shall accrue interest at the rate then applicable to Advances that are Base
Rate Loans.

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          (e) Computation. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year, in each case, for
the actual number of days elapsed in the period during which the interest or
fees accrue. In the event the Base Rate is changed from time to time hereafter,
the rates of interest hereunder based upon the Base Rate automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Base Rate.
          (f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall
the interest rate or rates payable under this Agreement, plus any other amounts
paid in connection herewith, exceed the highest rate permissible under any law
that a court of competent jurisdiction shall, in a final determination, deem
applicable. Borrower and the Lender Group, in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and manner
of payment stated within it; provided, however, that, anything contained herein
to the contrary notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then, ipso facto, as
of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
     2.7. Crediting Payments.
          The receipt of any payment item by Agent shall not be considered a
payment on account unless such payment item is a wire transfer of immediately
available federal funds made to Agent’s Account or unless and until such payment
item is honored when presented for payment. Should any payment item not be
honored when presented for payment, then Borrower shall be deemed not to have
made such payment and interest shall be calculated accordingly. Anything to the
contrary contained herein notwithstanding, any payment item shall be deemed
received by Agent only if it is received into Agent’s Account on a Business Day
on or before 11:00 a.m. (California time). If any payment item is received into
Agent’s Account on a non-Business Day or after 11:00 a.m. (California time) on a
Business Day, it shall be deemed to have been received by Agent as of the
opening of business on the immediately following Business Day.
     2.8. Designated Account.
          Agent is authorized to make the Advances and Issuing Lender is
authorized to issue the Letters of Credit, under this Agreement based upon
telephonic or other instructions received from anyone purporting to be an
Authorized Person or, without instructions, if pursuant to Section 2.6(d).
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by Agent or the Lenders hereunder.
Unless otherwise agreed by Agent and Borrower, any Advance or Swing Loan
requested by Borrower and made by Agent or the Lenders hereunder shall be made
to the Designated Account.
     2.9. Maintenance of Loan Account; Statements of Obligations.
          Agent shall maintain an account on its books in the name of Borrower
(the “Loan Account”) on which Borrower will be charged with all Advances
(including Protective Advances

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and Swing Loans) made by Agent, Swing Lender, or the Lenders to Borrower or for
Borrower’s account, the Letters of Credit issued or made by Issuing Lender for
Borrower’s account, and with all other payment Obligations hereunder or under
the other Loan Documents (except for Bank Product Obligations), including,
accrued interest, fees and expenses, and Lender Group Expenses. In accordance
with Section 2.7, the Loan Account will be credited with all payments received
by Agent from Borrower or for Borrower’s account. Agent shall render statements
regarding the Loan Account to Borrower, including principal, interest, fees, and
including an itemization of all charges and expenses constituting Lender Group
Expenses owing, and such statements, absent manifest error, shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrower and the Lender Group unless, within 30 days after
receipt thereof by Borrower, Borrower shall deliver to Agent written objection
thereto describing the error or errors contained in any such statements.
     2.10. Fees.
          Borrower shall pay to Agent,
          (a) for the account of Agent, as and when due and payable under the
terms of the Fee Letter, the fees set forth in the Fee Letter.
          (b) for the ratable account of those Lenders with Revolver
Commitments, on the first day of each month from and after the Closing Date up
to the first day of the month prior to the Payoff Date and on the Payoff Date,
an unused line fee in an amount equal to the Applicable Unused Line Fee times
the result of (i) the Maximum Revolver Amount, less (ii) the sum of (A) the
Availability Block (if any) and (B) the average Daily Balance of the Revolver
Usage during the immediately preceding month (or portion thereof).
     2.11. Letters of Credit.
          (a) Subject to the terms and conditions of this Agreement, upon the
request of Borrower made in accordance herewith, the Issuing Lender agrees to
issue, or to cause an Underlying Issuer, as Issuing Lender’s agent, to issue, a
requested Letter of Credit. If Issuing Lender, at its option, elects to cause an
Underlying Issuer to issue a requested Letter of Credit, then Issuing Lender
agrees that it will obligate itself to reimburse such Underlying Issuer (which
may include, among, other means, by becoming an applicant with respect to such
Letter of Credit or entering into undertakings which provide for reimbursements
of such Underlying Issuer with respect to such Letter of Credit; each such
obligation or undertaking, irrespective of whether in writing, a “Reimbursement
Undertaking”) with respect to Letters of Credit issued by such Underlying
Issuer. By submitting a request to Issuing Lender for the issuance of a Letter
of Credit, Borrower shall be deemed to have requested that Issuing Lender issue
or that an Underlying Issuer issue the requested Letter of Credit and to have
requested Issuing Lender to issue a Reimbursement Undertaking with respect to
such requested Letter of Credit if it is to be issued by an Underlying Issuer
(it being expressly acknowledged and agreed by Borrower that Borrower is and
shall be deemed to be an applicant (within the meaning of Section 5-102(a)(2) of
the Code) with respect to each Underlying Letter of Credit). Each request for
the issuance of a Letter of Credit, or the amendment, renewal, or extension of
any outstanding Letter of Credit, shall be made in writing by an Authorized
Person and delivered to the Issuing Lender via hand delivery, telefacsimile, or
other electronic method of transmission reasonably in advance of the

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requested date of issuance, amendment, renewal, or extension. Each such request
shall be in form and substance reasonably satisfactory to the Issuing Lender and
shall specify (i) the amount of such Letter of Credit, (ii) the date of
issuance, amendment, renewal, or extension of such Letter of Credit, (iii) the
expiration date of such Letter of Credit, (iv) the name and address of the
beneficiary of the Letter of Credit, and (v) such other information (including,
in the case of an amendment, renewal, or extension, identification of the Letter
of Credit to be so amended, renewed, or extended) as shall be necessary to
prepare, amend, renew, or extend such Letter of Credit. Anything contained
herein to the contrary notwithstanding, the Issuing Lender may, but shall not be
obligated to, issue or cause the issuance of a Letter of Credit or to issue a
Reimbursement Undertaking in respect of an Underlying Letter of Credit, in
either case, that supports the obligations of Borrower or its Subsidiaries in
respect of (1) a lease of real property, or (2) an employment contract. Borrower
agrees that this Agreement (along with the terms of the applicable application)
will govern each Letter of Credit and its issuance. The Issuing Lender shall
have no obligation to issue a Letter of Credit or a Reimbursement Undertaking in
respect of an Underlying Letter of Credit, in either case, if any of the
following would result after giving effect to the requested issuance:
               (i) the Letter of Credit Usage would exceed the Borrowing Base
less the outstanding amount of Advances, or
               (ii) the Letter of Credit Usage would exceed $10,000,000, or
               (iii) the Letter of Credit Usage would exceed the Maximum
Revolver Amount less the sum of (A) the Aggregate Bank Product Reserve, and
(B) the outstanding amount of Advances.
          Borrower and the Lender Group acknowledge and agree that certain
Letters of Credit may be issued to support letters of credit that already are
outstanding as of the Closing Date. Each Letter of Credit shall be in form and
substance reasonably acceptable to the Issuing Lender, including the requirement
that the amounts payable thereunder must be payable in Dollars. If Issuing
Lender makes a payment under a Letter of Credit or an Underlying Issuer makes a
payment under an Underlying Letter of Credit, Borrower shall pay to Agent an
amount equal to the applicable Letter of Credit Disbursement not later than
11:00 a.m., California time, on the date that Borrower receives written or
telephonic notice of such Letter of Credit Disbursement if such notice is
received prior to 10:00 a.m., California time, or not later than 11:00 a.m.,
California time, on the following Business Day, if such notice is received after
10:00 a.m., California time, and, in the absence of such payment, the amount of
the Letter of Credit Disbursement immediately and automatically shall be deemed
to be an Advance hereunder and, initially, shall bear interest at the rate then
applicable to Advances that are Base Rate Loans. If a Letter of Credit
Disbursement is deemed to be an Advance hereunder, Borrower’s obligation to pay
the amount of such Letter of Credit Disbursement to Issuing Lender shall be
discharged and replaced by the resulting Advance. Promptly following receipt by
Agent of any payment from Borrower pursuant to this paragraph, Agent shall
distribute such payment to the Issuing Lender or, to the extent that Lenders
have made payments pursuant to Section 2.11(b) to reimburse the Issuing Lender,
then to such Lenders and the Issuing Lender as their interests may appear.
          (b) Promptly following receipt of a notice of a Letter of Credit
Disbursement pursuant to Section 2.11(a), each Lender with a Revolver Commitment
agrees to fund its Pro

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Rata Share of any Advance deemed made pursuant to Section 2.11(a) on the same
terms and conditions as if Borrower had requested the amount thereof as an
Advance and Agent shall promptly pay to Issuing Lender the amounts so received
by it from the Lenders. By the issuance of a Letter of Credit or a Reimbursement
Undertaking (or an amendment to a Letter of Credit or a Reimbursement
Undertaking increasing the amount thereof) and without any further action on the
part of the Issuing Lender or the Lenders with Revolver Commitments, the Issuing
Lender shall be deemed to have granted to each Lender with a Revolver
Commitment, and each Lender with a Revolver Commitment shall be deemed to have
purchased, a participation in each Letter of Credit issued by Issuing Lender and
each Reimbursement Undertaking, in an amount equal to its Pro Rata Share of such
Letter of Credit or Reimbursement Undertaking, and each such Lender agrees to
pay to Agent, for the account of the Issuing Lender, such Lender’s Pro Rata
Share of any Letter of Credit Disbursement made by Issuing Lender or an
Underlying Issuer under the applicable Letter of Credit. In consideration and in
furtherance of the foregoing, each Lender with a Revolver Commitment hereby
absolutely and unconditionally agrees to pay to Agent, for the account of the
Issuing Lender, such Lender’s Pro Rata Share of each Letter of Credit
Disbursement made by Issuing Lender or an Underlying Issuer and not reimbursed
by Borrower on the date due as provided in Section 2.11(a), or of any
reimbursement payment required to be refunded to Borrower for any reason. Each
Lender with a Revolver Commitment acknowledges and agrees that its obligation to
deliver to Agent, for the account of the Issuing Lender, an amount equal to its
respective Pro Rata Share of each Letter of Credit Disbursement pursuant to this
Section 2.11(b) shall be absolute and unconditional and such remittance shall be
made notwithstanding the occurrence or continuation of an Event of Default or
Default or the failure to satisfy any condition set forth in Section 3. If any
such Lender fails to make available to Agent the amount of such Lender’s Pro
Rata Share of a Letter of Credit Disbursement as provided in this Section, such
Lender shall be deemed to be a Defaulting Lender and Agent (for the account of
the Issuing Lender) shall be entitled to recover such amount on demand from such
Lender together with interest thereon at the Defaulting Lender Rate until paid
in full.
          (c) Borrower hereby agrees to indemnify, save, defend, and hold the
Lender Group and each Underlying Issuer harmless from any loss, cost, expense,
or liability, and reasonable attorneys fees incurred by Issuing Lender, any
other member of the Lender Group, or any Underlying Issuer arising out of or in
connection with any Reimbursement Undertaking or any Letter of Credit; provided,
however, that Borrower shall not be obligated hereunder to indemnify for any
loss, cost, expense, or liability that a court of competent jurisdiction finally
determines to have resulted from the gross negligence or willful misconduct of
the Issuing Lender, any other member of the Lender Group, or any Underlying
Issuer. Borrower agrees to be bound by the Underlying Issuer’s regulations and
interpretations of any Letter of Credit or by Issuing Lender’s interpretations
of any Reimbursement Undertaking even though this interpretation may be
different from Borrower’s own, and Borrower understands and agrees that none of
the Issuing Lender, the Lender Group, or any Underlying Issuer shall be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower’s instructions or those contained in the Letter of Credit or
any modifications, amendments, or supplements thereto; provided, however, that
Borrower shall not be obligated hereunder to indemnify for any loss, cost,
expense or liability that a court of competent jurisdiction finally determines
to have resulted from the gross negligence or willful misconduct of the Issuing
Lender, any other member of the Lender Group, or any Underlying Issuer. Borrower
understands that the Reimbursement Undertakings may require Issuing Lender to
indemnify the

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Underlying Issuer for certain costs or liabilities arising out of claims by
Borrower against such Underlying Issuer. Borrower hereby agrees to indemnify,
save, defend, and hold Issuing Lender and the other members of the Lender Group
harmless with respect to any loss, cost, expense (including reasonable attorneys
fees), or liability incurred by them as a result of the Issuing Lender’s
indemnification of an Underlying Issuer; provided, however, that Borrower shall
not be obligated hereunder to indemnify for any such loss, cost, expense, or
liability to the extent that it is caused by the gross negligence or willful
misconduct of the Issuing Lender or any other member of the Lender Group.
Borrower hereby acknowledges and agrees that none of the Issuing Lender, any
other member of the Lender Group, or any Underlying Issuer shall be responsible
for delays, errors, or omissions resulting from the malfunction of equipment in
connection with any Letter of Credit.
          (d) Borrower hereby authorizes and directs any Underlying Issuer to
deliver to the Issuing Lender all instruments, documents, and other writings and
property received by such Underlying Issuer pursuant to such Underlying Letter
of Credit and to accept and rely upon the Issuing Lender’s instructions with
respect to all matters arising in connection with such Underlying Letter of
Credit and the related application.
          (e) Any and all issuance charges, usage charges, commissions, fees,
and costs incurred by the Issuing Lender relating to Underlying Letters of
Credit shall be Lender Group Expenses for purposes of this Agreement and shall
be reimbursable immediately by Borrower to Agent for the account of the Issuing
Lender; it being acknowledged and agreed by Borrower that, as of the Closing
Date, the usage charge imposed by the Underlying Issuer is .825% per annum times
the undrawn amount of each Underlying Letter of Credit, that such usage charge
may be changed from time to time, and that the Underlying Issuer also imposes a
schedule of charges for amendments, extensions, drawings, and renewals.
          (f) If by reason of (i) any change after the Closing Date in any
applicable law, treaty, rule, or regulation or any change in the interpretation
or application thereof by any Governmental Authority, or (ii) compliance by the
Issuing Lender, any other member of the Lender Group, or Underlying Issuer with
any direction, request, or requirement (irrespective of whether having the force
of law) of any Governmental Authority or monetary authority including,
Regulation D of the Federal Reserve Board as from time to time in effect (and
any successor thereto):
               (i) any reserve, deposit, or similar requirement is or shall be
imposed or modified in respect of any Letter of Credit issued or caused to be
issued hereunder or hereby, or
               (ii) there shall be imposed on the Issuing Lender, any other
member of the Lender Group, or Underlying Issuer any other condition regarding
any Letter of Credit or Reimbursement Undertaking,
and the result of the foregoing is to increase, directly or indirectly, the cost
to the Issuing Lender, any other member of the Lender Group, or an Underlying
Issuer of issuing, making, guaranteeing, or maintaining any Reimbursement
Undertaking or Letter of Credit or to reduce the amount receivable in respect
thereof, then, and in any such case, Agent may, at any time within a reasonable
period after the additional cost is incurred or the amount received is reduced,

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notify Borrower, and Borrower shall pay within 30 days after demand therefor,
such amounts as Agent may specify to be necessary to compensate the Issuing
Lender, any other member of the Lender Group, or an Underlying Issuer for such
additional cost or reduced receipt, together with interest on such amount from
the date of such demand until payment in full thereof at the rate then
applicable to Base Rate Loans hereunder; provided, however, that Borrower shall
not be required to provide any compensation pursuant to this Section 2.12(f) for
any such amounts incurred more than 180 days prior to the date on which the
demand for payment is first made to Borrower; provided further, however, that if
an event or circumstance giving rise to such amounts is retroactive, then the
180-day period referred to above shall be extended to include the period of
retroactive effect thereof. The determination by Agent of any amount due
pursuant to this Section 2.12(f), as set forth in a certificate setting forth
the calculation thereof in reasonable detail, shall, in the absence of manifest
or demonstrable error, be final and conclusive and binding on all of the parties
hereto.
     2.12. LIBOR Option.
          (a) Interest and Interest Payment Dates. In lieu of having interest
charged at the rate based upon the Base Rate, Borrower shall have the option
(the “LIBOR Option”) to have interest on all or a portion of the Advances be
charged (whether at the time when made (unless otherwise provided herein), upon
conversion from a Base Rate Loan to a LIBOR Rate Loan, or upon continuation of a
LIBOR Rate Loan as a LIBOR Rate Loan) at a rate of interest based upon the LIBOR
Rate. Interest on LIBOR Rate Loans shall be payable on the earliest of (i) the
last day of the Interest Period applicable thereto; (ii) the date on which all
or any portion of the Obligations are accelerated pursuant to the terms hereof,
or (iii) the date on which this Agreement is terminated pursuant to the terms
hereof. On the last day of each applicable Interest Period, unless Borrower
properly has exercised the LIBOR Option with respect thereto, the interest rate
applicable to such LIBOR Rate Loan automatically shall convert to the rate of
interest then applicable to Base Rate Loans of the same type hereunder. At any
time that an Event of Default has occurred and is continuing, Borrower no longer
shall have the option to request that Advances bear interest at a rate based
upon the LIBOR Rate.
          (b) LIBOR Election.
               (i) Borrower may, at any time and from time to time, so long as
no Event of Default has occurred and is continuing, elect to exercise the LIBOR
Option by notifying Agent prior to 11:00 a.m. (California time) at least 3
Business Days prior to the commencement of the proposed Interest Period (the
“LIBOR Deadline”). Notice of Borrower’s election of the LIBOR Option for a
permitted portion of the Advances and an Interest Period pursuant to this
Section shall be made by delivery to Agent of a LIBOR Notice received by Agent
before the LIBOR Deadline, or by telephonic notice received by Agent before the
LIBOR Deadline (to be confirmed by delivery to Agent of a LIBOR Notice received
by Agent prior to 5:00 p.m. (California time) on the same day). Promptly upon
its receipt of each such LIBOR Notice, Agent shall provide a copy thereof to
each of the affected Lenders.
               (ii) Each LIBOR Notice shall be irrevocable and binding on
Borrower. In connection with each LIBOR Rate Loan, Borrower shall indemnify,
defend, and hold Agent and the Lenders harmless against any loss, cost, or
expense actually incurred by Agent or any Lender as a result of (A) the payment
of any principal of any LIBOR Rate Loan other than on the

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last day of an Interest Period applicable thereto (including as a result of an
Event of Default), (B) the conversion of any LIBOR Rate Loan other than on the
last day of the Interest Period applicable thereto, or (C) the failure to
borrow, convert, continue or prepay any LIBOR Rate Loan on the date specified in
any LIBOR Notice delivered pursuant hereto (such losses, costs, or expenses,
“Funding Losses”). A certificate of Agent or a Lender delivered to Borrower
setting forth in reasonable detail any amount or amounts that Agent or such
Lender is entitled to receive pursuant to this Section 2.12 shall be conclusive
absent manifest error. Borrower shall pay such amount to Agent or the Lender, as
applicable, within 30 days of the date of its receipt of such certificate.
               (iii) Borrower shall have not more than 5 LIBOR Rate Loans in
effect at any given time. Borrower only may exercise the LIBOR Option for
proposed LIBOR Rate Loans of at least $1,000,000.
          (c) Conversion. Borrower may convert LIBOR Rate Loans to Base Rate
Loans at any time; provided, however, that in the event that LIBOR Rate Loans
are converted or prepaid on any date that is not the last day of the Interest
Period applicable thereto, including as a result of any automatic prepayment
through the required application by Agent of proceeds of Borrower’s and its
Subsidiaries’ Collections in accordance with Section 2.4(b) or for any other
reason, including early termination of the term of this Agreement or
acceleration of all or any portion of the Obligations pursuant to the terms
hereof, Borrower shall indemnify, defend, and hold Agent and the Lenders and
their Participants harmless against any and all Funding Losses in accordance
with Section 2.12 (b)(ii).
          (d) Special Provisions Applicable to LIBOR Rate.
               (i) The LIBOR Rate may be adjusted by Agent with respect to any
Lender on a prospective basis to take into account any additional or increased
costs to such Lender of maintaining or obtaining any eurodollar deposits or
increased costs, in each case, due to changes in applicable law occurring
subsequent to the commencement of the then applicable Interest Period, including
changes in tax laws (except changes of general applicability in corporate income
tax laws) and changes in the reserve requirements imposed by the Board of
Governors of the Federal Reserve System (or any successor), excluding the
Reserve Percentage, which additional or increased costs would increase the cost
of funding or maintaining loans bearing interest at the LIBOR Rate. In any such
event, the affected Lender shall give Borrower and Agent notice of such a
determination and adjustment and Agent promptly shall transmit the notice to
each other Lender and, upon its receipt of the notice from the affected Lender,
Borrower may, by notice to such affected Lender (y) require such Lender to
furnish to Borrower a statement setting forth the basis for adjusting such LIBOR
Rate and the method for determining the amount of such adjustment, or (z) repay
the LIBOR Rate Loans with respect to which such adjustment is made (together
with any amounts due under Section 2.12(b)(ii)). For the avoidance of doubt,
nothing contained in this Section 2.12(d)(i) shall prohibit Borrower from
converting a LIBOR Rate Loan to a Base Rate Loan at the end of an applicable
Interest Period.
               (ii) In the event that any change in market conditions or any
law, regulation, treaty, or directive, or any change therein or in the
interpretation or application thereof, shall at any time after the date hereof,
in the reasonable opinion of any Lender, make it unlawful or impractical for
such Lender to fund or maintain LIBOR Rate Loans or to continue

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such funding or maintaining, or to determine or charge interest rates at the
LIBOR Rate, such Lender shall give notice of such changed circumstances to Agent
and Borrower and Agent promptly shall transmit the notice to each other Lender
and (y) in the case of any LIBOR Rate Loans of such Lender that are outstanding,
the date specified in such Lender’s notice shall be deemed to be the last day of
the Interest Period of such LIBOR Rate Loans, and interest upon the LIBOR Rate
Loans of such Lender thereafter shall accrue interest at the rate then
applicable to Base Rate Loans, and (z) Borrower shall not be entitled to elect
the LIBOR Option until such Lender determines that it would no longer be
unlawful or impractical to do so.
          (e) No Requirement of Matched Funding. Anything to the contrary
contained herein notwithstanding, neither Agent, nor any Lender, nor any of
their Participants, is required actually to acquire eurodollar deposits to fund
or otherwise match fund any Obligation as to which interest accrues at the LIBOR
Rate.
     2.13. Capital Requirements.
          (a) If, after the date hereof, any Lender determines that (i) the
adoption of or change in any law, rule, regulation or guideline regarding
capital requirements for banks or bank holding companies, or any change in the
interpretation or application thereof by any Governmental Authority charged with
the administration thereof, or (ii) compliance by such Lender or its parent bank
holding company with any guideline, request or directive of any such entity
regarding capital adequacy (whether or not having the force of law), has the
effect of reducing the return on such Lender’s or such holding company’s capital
as a consequence of such Lender’s Commitments hereunder to a level below that
which such Lender or such holding company could have achieved but for such
adoption, change, or compliance (taking into consideration such Lender’s or such
holding company’s then existing policies with respect to capital adequacy and
assuming the full utilization of such entity’s capital) by any amount deemed by
such Lender to be material, then such Lender may notify Borrower and Agent
thereof. Following receipt of such notice, Borrower agrees to pay such Lender on
demand the amount of such reduction of return of capital as and when such
reduction is determined, payable within 30 days after presentation by such
Lender of a statement in the amount and setting forth in reasonable detail such
Lender’s calculation thereof and the assumptions upon which such calculation was
based (which statement shall be deemed true and correct absent manifest error).
In determining such amount, such Lender may use any reasonable averaging and
attribution methods. Failure or delay on the part of any Lender to demand
compensation pursuant to this Section shall not constitute a waiver of such
Lender’s right to demand such compensation; provided that Borrower shall not be
required to compensate a Lender pursuant to this Section for any reductions in
return incurred more than 180 days prior to the date that such Lender notifies
Borrower of such law, rule, regulation or guideline giving rise to such
reductions and of such Lender’s intention to claim compensation therefor;
provided further that if such claim arises by reason of the adoption of or
change in any law, rule, regulation or guideline that is retroactive, then the
180-day period referred to above shall be extended to include the period of
retroactive effect thereof.
          (b) If any Lender requests additional or increased costs referred to
in Section 2.12(d)(i) or amounts under Section 2.13(a) (any such Lender, an
“Affected Lender”), then such Affected Lender shall use reasonable efforts to
promptly designate a different one of its lending offices or to assign its
rights and obligations hereunder to another of its offices or branches, if

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(i) in the reasonable judgment of such Affected Lender, such designation or
assignment would eliminate or reduce amounts payable pursuant to
Section 2.12(d)(i) or Section 2.13(a), as applicable, and (ii) in the reasonable
judgment of such Affected Lender, such designation or assignment would not
subject it to any material unreimbursed cost or expense and would not otherwise
be materially disadvantageous to it. Borrower agrees to pay all reasonable
out-of-pocket costs and expenses incurred by such Affected Lender in connection
with any such designation or assignment. If, after such reasonable efforts, such
Affected Lender does not so designate a different one of its lending offices or
assign its rights to another of its offices or branches so as to eliminate
Borrower’s obligation to pay any future amounts to such Affected Lender pursuant
to Section 2.12(d)(i) or Section 2.13(a), as applicable, then Borrower (without
prejudice to any amounts then due to such Affected Lender under
Section 2.12(d)(i) or Section 2.13(a), as applicable) may, unless prior to the
effective date of any such assignment the Affected Lender withdraws its request
for such additional amounts under Section 2.12(d)(i) or Section 2.13(a), as
applicable, may seek a substitute Lender reasonably acceptable to Agent to
purchase the Obligations owed to such Affected Lender and such Affected Lender’s
Commitments hereunder (a “Replacement Lender”), and if such Replacement Lender
agrees to such purchase, such Affected Lender shall assign to the Replacement
Lender its Obligations and Commitments, pursuant to an Assignment and Acceptance
Agreement, and upon such purchase by the Replacement Lender, such Replacement
Lender shall be deemed to be a “Lender” for purposes of this Agreement and such
Affected Lender shall cease to be a “Lender” for purposes of this Agreement.
3. CONDITIONS; TERM OF AGREEMENT.
     3.1. Conditions Precedent to the Initial Extension of Credit.
          The obligation of each Lender to make its initial extension of credit
provided for hereunder, is subject to the fulfillment, to the satisfaction of
Agent and each Lender of each of the conditions precedent set forth on
Schedule 3.1 (the making of such initial extension of credit by a Lender being
conclusively deemed to be its satisfaction or waiver of the conditions
precedent).
     3.2. Conditions Precedent to all Extensions of Credit.
          The obligation of the Lender Group (or any member thereof) to make any
Advances hereunder (or to extend any other credit hereunder) at any time shall
be subject to the following conditions precedent:
          (a) the representations and warranties of Borrower or its Subsidiaries
contained in this Agreement or in the other Loan Documents shall be true and
correct in all material respects (except that such materiality qualifier shall
not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof) on and as of the date
of such extension of credit, as though made on and as of such date (except to
the extent that such representations and warranties relate solely to an earlier
date); and
          (b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof.

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     3.3. Maturity.
          This Agreement shall continue in full force and effect for a term
ending on November ___, 2012 (the “Maturity Date”). The foregoing
notwithstanding, the Lender Group, upon the election of the Required Lenders,
shall have the right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the continuation
of an Event of Default.
     3.4. Effect of Maturity.
          On the Maturity Date, all commitments to provide additional credit
hereunder shall automatically be terminated and all Obligations (including
contingent reimbursement obligations of Borrower with respect to outstanding
Letters of Credit and including all Bank Product Obligations) immediately shall
become due and payable without notice or demand (including the requirement that
Borrower provide (a) Letter of Credit Collateralization, and (b) Bank Product
Collateralization). No termination of the obligations of the Lender Group shall
relieve or discharge any Loan Party of its duties, Obligations, or covenants
hereunder or under any other Loan Document and Agent’s Liens in the Collateral
shall remain in effect until all Obligations have been paid in full. When all of
the Obligations have been paid in full and the Lender Group’s obligations to
provide additional credit under the Loan Documents have been terminated
irrevocably, Agent will, at Borrower’s sole expense, execute and deliver any
termination statements, lien releases, discharges of security interests, and
other similar discharge or release documents (and, if applicable, in recordable
form) as are reasonably necessary to release, as of record, Agent’s Liens and
all notices of security interests and liens previously filed by Agent with
respect to the Obligations.
     3.5. Early Termination by Borrower.
          Borrower has the option, at any time upon 10 Business Days prior
written notice to Agent, to terminate this Agreement and terminate the
Commitments hereunder by paying to Agent the Obligations (including
(a) providing Letter of Credit Collateralization with respect to the then
existing Letter of Credit Usage, and (b) providing Bank Product
Collateralization with respect to the then existing Bank Products), in full.
     4. REPRESENTATIONS AND WARRANTIES.
          In order to induce the Lender Group to enter into this Agreement,
Borrower makes the following representations and warranties to the Lender Group
which shall be true, correct, and complete, in all material respects (except
that such materiality qualifier shall not be applicable to any representations
and warranties that already are qualified or modified by materiality in the text
thereof), as of the Closing Date, and shall be true, correct, and complete, in
all material respects (except that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof), as of the date of the making of
each Advance (or other extension of credit) made thereafter, as though made on
and as of the date of such Advance (or other extension of credit) (except to the
extent that such representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive the execution and
delivery of this Agreement:

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     4.1. Due Organization and Qualification; Subsidiaries.
          (a) Each Loan Party (i) is duly organized and existing and in good
standing under the laws of the jurisdiction of its organization, (ii) qualified
to do business in any state where the failure to be so qualified reasonably
could be expected to result in a Material Adverse Change, and (iii) has all
requisite power and authority to own and operate its properties, to carry on its
business as now conducted and as proposed to be conducted, to enter into the
Loan Documents to which it is a party and to carry out the transactions
contemplated thereby.
          (b) Set forth on Schedule 4.1(b) is a complete and accurate
description of the authorized capital Stock of Borrower, by class, and, as of
the Closing Date, a description of the number of shares of each such class that
are issued and outstanding. Other than as described on Schedule 4.1(b), there
are no subscriptions, options, warrants, or calls relating to any shares of
Borrower’s capital Stock, including any right of conversion or exchange under
any outstanding security or other instrument. Borrower is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital Stock or any security convertible into or
exchangeable for any of its capital Stock.
          (c) Set forth on Schedule 4.1(c) (as such Schedule may be updated from
time to time to reflect changes permitted to be made under Section 5.11), is a
complete and accurate list of the Loan Parties’ direct and indirect
Subsidiaries, showing: (i) the number of shares of each class of common and
preferred Stock authorized for each of such Subsidiaries, and (ii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by Borrower. All of the outstanding capital Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
          (d) Except as set forth on Schedule 4.1(c), there are no
subscriptions, options, warrants, or calls relating to any shares of Borrower’s
Subsidiaries’ capital Stock, including any right of conversion or exchange under
any outstanding security or other instrument. Neither Borrower nor any of its
Subsidiaries is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of Borrower’s Subsidiaries’
capital Stock or any security convertible into or exchangeable for any such
capital Stock.
     4.2. Due Authorization; No Conflict.
          (a) As to each Loan Party, the execution, delivery, and performance by
such Loan Party of the Loan Documents to which it is a party have been duly
authorized by all necessary action on the part of such Loan Party.
          (b) As to each Loan Party, the execution, delivery, and performance by
such Loan Party of the Loan Documents to which it is a party do not and will not
(i) violate any material provision of federal, state, or local law or regulation
applicable to any Loan Party or its Subsidiaries, the Governing Documents of any
Loan Party or its Subsidiaries, or any order, judgment, or decree of any court
or other Governmental Authority binding on any Loan Party or its Subsidiaries,
(ii) conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under any Material Contract of any Loan Party
or its Subsidiaries except to the extent that any such conflict, breach or
default could not individually or in the aggregate reasonably be expected to
have a Material Adverse Change, (iii) result in or require the creation

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or imposition of any Lien of any nature whatsoever upon any assets of any Loan
Party, other than Permitted Liens, or (iv) require any approval of any Loan
Party’s interestholders or any approval or consent of any Person under any
Material Contract of any Loan Party, other than consents or approvals that have
been obtained and that are still in force and effect and except, in the case of
Material Contracts, for consents or approvals, the failure to obtain could not
individually or in the aggregate reasonably be expected to cause a Material
Adverse Change.
     4.3. Governmental Consents.
          The execution, delivery, and performance by each Loan Party of the
Loan Documents to which such Loan Party is a party and the consummation of the
transactions contemplated by the Loan Documents do not and will not require any
registration with, consent, or approval of, or notice to, or other action with
or by, any Governmental Authority, other than registrations, consents,
approvals, notices, or other actions that have been obtained and that are still
in force and effect and except for filings and recordings with respect to the
Collateral to be made, or otherwise delivered to Agent for filing or
recordation, as of the Closing Date.
     4.4. Binding Obligations; Perfected Liens.
          (a) Each Loan Document has been duly executed and delivered by each
Loan Party that is a party thereto and is the legally valid and binding
obligation of such Loan Party, enforceable against such Loan Party in accordance
with its respective terms, except as enforcement may be limited by equitable
principles or by bankruptcy, insolvency, reorganization, moratorium, or similar
laws relating to or limiting creditors’ rights generally.
          (b) Agent’s Liens are validly created, perfected (other than (i) in
respect of motor vehicles and (ii) any Deposit Accounts and Securities Accounts
not subject to a Control Agreement as permitted by Section 6.11, and subject
only to the filing of financing statements and the recordation of the Copyright
Security Agreement, in each case, in the appropriate filing offices), and first
priority Liens, subject only to Permitted Liens.
     4.5. Title to Assets; No Encumbrances.
          Each of the Loan Parties and its Subsidiaries has (i) good, sufficient
and legal title to (in the case of fee interests in Real Property), (ii) valid
leasehold interests in (in the case of leasehold interests in real or personal
property), and (iii) good and marketable title to (in the case of all other
personal property), all of their respective assets reflected in their most
recent financial statements delivered pursuant to Section 5.1, in each case
except for assets disposed of since the date of such financial statements to the
extent permitted hereby. All of such assets are free and clear of Liens except
for Permitted Liens.
     4.6. Jurisdiction of Organization; Location of Chief Executive Office;
Organizational Identification Number; Commercial Tort Claims.
          (a) The name of (within the meaning of Section 9-503 of the Code) and
jurisdiction of organization of each Loan Party and each of its Subsidiaries is
set forth on Schedule 4.6(a) (as such Schedule may be updated from time to time
to reflect changes permitted to be made under Section 6.5).

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          (b) The chief executive office of each Loan Party and each of its
Subsidiaries is located at the address indicated on Schedule 4.6(b) (as such
Schedule may be updated from time to time to reflect changes permitted to be
made under Section 5.15).
          (c) Each Loan Party’s and each of its Subsidiaries’ tax identification
numbers and organizational identification numbers, if any, are identified on
Schedule 4.6(c) (as such Schedule may be updated from time to time to reflect
changes permitted to be made under Section 6.5).
          (d) As of the Closing Date, no Loan Party and no Subsidiary of a Loan
Party holds any commercial tort claims that exceed $50,000 in amount, except as
set forth on Schedule 4.6(d).
     4.7. Litigation.
          (a) There are no actions, suits, or proceedings pending or, to the
best knowledge of Borrower, threatened in writing against a Loan Party or any of
its Subsidiaries that either individually or in the aggregate could reasonably
be expected to result in a Material Adverse Change.
          (b) Schedule 4.7(b) sets forth a complete and accurate description,
with respect to each of the actions, suits, or proceedings that, as of the
Closing Date, is pending or, to the best knowledge of Borrower, threatened
against a Loan Party or any of its Subsidiaries, of (i) the parties to such
actions, suits, or proceedings, (ii) the nature of the dispute that is the
subject of such actions, suits, or proceedings, (iii) Borrower’s good faith
estimate of the maximum amount of the liability of Loan Parties and their
Subsidiaries in connection with such actions, suits, or proceedings, (iv) the
status, as of the Closing Date, with respect to such actions, suits, or
proceedings, and (v) whether any liability of the Loan Parties’ and their
Subsidiaries in connection with such actions, suits, or proceedings is covered
by insurance.
     4.8. Compliance with Laws.
          No Loan Party nor any of its Subsidiaries (a) is in violation of any
applicable laws, rules, regulations, executive orders, or codes (including
Environmental Laws) that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Change, or (b) is subject to or in
default with respect to any final judgments, writs, injunctions, decrees, rules
or regulations of any court or any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Change.
     4.9. No Material Adverse Change.
          All historical financial statements relating to the Loan Parties and
their Subsidiaries that have been delivered by a Loan Party to Agent have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and present fairly in all material respects, the Loan Parties’ and
their Subsidiaries’ consolidated financial condition as of the date

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thereof and results of operations for the period then ended. Since March 31,
2009, no event, circumstance, or change has occurred that has or could
reasonably be expected to result in a Material Adverse Change with respect to
the Loan Parties and their Subsidiaries, taken as a whole.
     4.10. Fraudulent Transfer.
          (a) Each Loan Party is Solvent.
          (b) No transfer of property is being made by any Loan Party and no
obligation is being incurred by any Loan Party in connection with the
transactions contemplated by this Agreement or the other Loan Documents with the
intent to hinder, delay, or defraud either present or future creditors of such
Loan Party.
     4.11. Employee Benefits.
          No Loan Party, none of their Subsidiaries, nor any of their ERISA
Affiliates maintains or contributes to any Benefit Plan.
     4.12. Environmental Condition.
          Except as set forth on Schedule 4.12, (a) to Borrower’s knowledge, no
Loan Party’s or its Subsidiaries’ properties or assets has ever been used by a
Loan Party, its Subsidiaries, or by previous owners or operators in the disposal
of, or to produce, store, handle, treat, release, or transport, any Hazardous
Materials, where such disposal, production, storage, handling, treatment,
release or transport was in violation, in any material respect, of any
applicable Environmental Law, (b) to Borrower’s knowledge, no Loan Party’s or
its Subsidiaries’ properties or assets has ever been designated or identified in
any manner pursuant to any environmental protection statute as a Hazardous
Materials disposal site, (c) no Loan Party nor any of its Subsidiaries has
received notice that a Lien arising under any Environmental Law has attached to
any revenues or to any Real Property owned or operated by a Loan Party or its
Subsidiaries, and (d) no Loan Party nor any of its Subsidiaries nor any of their
respective facilities or operations is subject to any outstanding written order,
consent decree, or settlement agreement with any Person relating to any
Environmental Law or Environmental Liability that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Change.
     4.13. Intellectual Property.
          Each Loan Party and its Subsidiaries own, or hold licenses in, all
trademarks, trade names, copyrights, patents, and licenses that are necessary to
the conduct of its business as currently conducted, and attached hereto as
Schedule 4.13 (as updated from time to time) is a true, correct, and complete
listing of all material trademarks, trade names, copyrights, patents, and
licenses as to which Borrower or one of its Subsidiaries is the owner or is an
exclusive licensee; provided, however, that Borrower may amend Schedule 4.13 to
add additional intellectual property so long as such amendment occurs by written
notice to Agent not less than 30 days after the date on which the applicable
Loan Party or its Subsidiary acquires any such property after the Closing Date.

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     4.14. Leases.
          Each Loan Party and its Subsidiaries enjoy peaceful and undisturbed
possession under all leases material to their business and to which they are
parties or under which they are operating, and, subject to Permitted Protests,
all of such material leases are valid and subsisting and no material default by
the applicable Loan Party or its Subsidiaries exists under any of them.
     4.15. Deposit Accounts and Securities Accounts.
          Set forth on Schedule 4.15 (as updated pursuant to the provisions of
the Security Agreement from time to time) is a listing of all of the Loan
Parties’ and their Subsidiaries’ Deposit Accounts and Securities Accounts,
including, with respect to each bank or securities intermediary (a) the name and
address of such Person, and (b) the account numbers of the Deposit Accounts or
Securities Accounts maintained with such Person.
     4.16. Complete Disclosure.
          All factual information (taken as a whole) furnished by or on behalf
of a Loan Party or its Subsidiaries in writing to Agent or any Lender (including
all information contained in the Schedules hereto or in the other Loan
Documents) for purposes of or in connection with this Agreement, the other Loan
Documents, or any transaction contemplated herein or therein is, and all other
such factual information (taken as a whole) hereafter furnished by or on behalf
of a Loan Party or its Subsidiaries in writing to Agent or any Lender will be,
true and accurate, in all material respects, on the date as of which such
information is dated or certified and not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading in any
material respect at such time in light of the circumstances under which such
information was provided. On the Closing Date, the Projections that were most
recently delivered to Agent (and were accepted by Agent) represent, and as of
the date on which any other Projections are delivered to Agent, such additional
Projections represent Borrower’s good faith estimate of the Loan Parties’ and
their Subsidiaries future performance for the periods covered thereby based upon
assumptions believed by Borrower to be reasonable at the time of the delivery
thereof to Agent (it being understood that such Projections are subject to
uncertainties and contingencies, many of which are beyond the control of the
Loan Parties and their Subsidiaries and no assurances can be given that such
Projections will be realized).
     4.17. Material Contracts.
          Set forth on Schedule 4.17 (as updated from time to time) is a
reasonably detailed description of the Material Contracts of each Loan Party and
its Subsidiaries; provided, however, that Borrower may amend Schedule 4.17 to
add additional Material Contracts so long as such amendment occurs by written
notice to Agent at the time that Borrower provides its quarterly financial
statements pursuant to Section 5.1. Except for matters which, either
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Change, each Material Contract (other than those that have
expired at the end of their normal terms) (a) is in full force and effect and is
binding upon and enforceable against the applicable Loan Party or its Subsidiary
and, to the best of Borrower’s knowledge, each other Person that is a party
thereto in accordance with its terms, (b) has not been otherwise amended or
modified (other than

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amendments or modifications permitted by Section 6.7(b)), and (c) is not in
default due to the action or inaction of the applicable Loan Party or its
Subsidiary.
     4.18. Patriot Act.
          To the extent applicable, each Loan Party is in compliance, in all
material respects, with the (a) Trading with the Enemy Act, as amended, and each
of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling
legislation or executive order relating thereto, and (b) Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism (USA Patriot Act of 2001) (the “Patriot Act”). No part of the
proceeds of the loans made hereunder will be used, directly or indirectly, for
any payments to any governmental official or employee, political party, official
of a political party, candidate for political office, or anyone else acting in
an official capacity, in order to obtain, retain or direct business or obtain
any improper advantage, in violation of the United States Foreign Corrupt
Practices Act of 1977, as amended.
     4.19. Indebtedness.
          Set forth on Schedule 4.19 is a true and complete list of all
Indebtedness of each Loan Party and each of its Subsidiaries outstanding
immediately prior to the Closing Date that is to remain outstanding after the
Closing Date and such Schedule accurately sets forth the aggregate principal
amount of such Indebtedness as of the Closing Date.
     4.20. Payment of Taxes.
          Except as otherwise permitted under Section 5.5, all tax returns and
reports of each Loan Party and its Subsidiaries required to be filed by any of
them have been timely filed, and all taxes shown on such tax returns to be due
and payable and all assessments, fees and other governmental charges upon a Loan
Party and its Subsidiaries and upon their respective assets, income, businesses
and franchises that are due and payable have been paid when due and payable.
Each Loan Party and each of its Subsidiaries have made adequate provision in
accordance with GAAP for all taxes not yet due and payable. Borrower knows of no
proposed tax assessment against a Loan Party or any of its Subsidiaries that is
not being actively contested by such Loan Party or such Subsidiary diligently,
in good faith, and by appropriate proceedings; provided such reserves or other
appropriate provisions, if any, as shall be required in conformity with GAAP
shall have been made or provided therefor. No Loan Party nor any of its
Subsidiaries has ever been a party to any understanding or arrangement
constituting a “tax shelter” within the meaning of Section 6662(d)(2)(C)(iii) of
the IRC or within the meaning of Section 6111(c) or Section 6111(d) of the IRC
as in effect immediately prior to the enactment of the American Jobs Creation
Act of 2004, or has ever “participated” in a “reportable transaction” within the
meaning of Treasury Regulation Section 1.6011-4, except as would not be
reasonably expected to, individually or in the aggregate, result in a Material
Adverse Change.
     4.21. Margin Stock.
          No Loan Party nor any of its Subsidiaries is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying

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any Margin Stock. No part of the proceeds of the loans made to Borrower will be
used to purchase or carry any such Margin Stock or to extend credit to others
for the purpose of purchasing or carrying any such margin stock or for any
purpose that violates, or is inconsistent with, the provisions of Regulation T,
U or X of said Board of Governors.
     4.22. Governmental Regulation.
          No Loan Party nor any of its Subsidiaries is subject to regulation
under the Federal Power Act or the Investment Company Act of 1940 or under any
other federal or state statute or regulation which may limit its ability to
incur Indebtedness or which may otherwise render all or any portion of the
Obligations unenforceable. No Loan Party nor any of its Subsidiaries is a
“registered investment company” or a company “controlled” by a “registered
investment company” or a “principal underwriter” of a “registered investment
company” as such terms are defined in the Investment Company Act of 1940.
     4.23. OFAC.
          No Loan Party nor any of its Subsidiaries is in violation of any of
the country or list based economic and trade sanctions administered and enforced
by OFAC. No Loan Party nor any of its Subsidiaries (a) is a Sanctioned Person or
a Sanctioned Entity, (b) has more than 10% of its assets located in Sanctioned
Entities, or (c) derives more than 10% of its revenues from investments in, or
transactions with Sanctioned Persons or Sanctioned Entities. The proceeds of any
Advance will not be used to fund any operations in, finance any investments or
activities in, or make any payments to, a Sanctioned Person or a Sanctioned
Entity.
     4.24. Employee and Labor Matters.
          There is (i) no unfair labor practice complaint pending or, to the
knowledge of Borrower, threatened against Borrower or its Subsidiaries before
any Governmental Authority and no grievance or arbitration proceeding pending or
threatened against Borrower or its Subsidiaries which arises out of or under any
collective bargaining agreement, (ii) no strike, labor dispute, slowdown,
stoppage or similar action or grievance pending or threatened against Borrower
or its Subsidiaries, or (iii) to the knowledge of Borrower, no union
representation question existing with respect to the employees of Borrower or
its Subsidiaries and no union organizing activity taking place with respect to
any of the employees of Borrower or its Subsidiaries. None of Borrower or its
Subsidiaries has incurred any liability or obligation under the Worker
Adjustment and Retraining Notification Act or similar state law, which remains
unpaid or unsatisfied. The hours worked and payments made to employees of
Borrower have not been in violation of the Fair Labor Standards Act or any other
applicable legal requirements, except to the extent such violations could not,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Effect. All material payments due from Borrower or its Subsidiaries on
account of wages and employee health and welfare insurance and other benefits
have been paid or accrued as a liability on the books of Borrower, except where
the failure to do so could not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.

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     4.25. Holding Companies.
          Each of Navarre CP, Navarre CLP and Navarre CS is a holding company
and does not have any material liabilities (other than the liabilities arising
under the Loan Documents or with respect to ownership of Stock of a Loan Party),
own any material assets (other than the Stock of a Loan Party) or engage in any
operations or business (other than the ownership of the Stock of a Loan Party).
     4.26. Intentionally Omitted.
     4.27. Intentionally Omitted.
     4.28. Eligible Accounts.
          As to each Account that is identified by Borrower as an Eligible
Account in a Borrowing Base Certificate submitted to Agent, such Account is
(a) a bona fide existing payment obligation of the applicable Account Debtor
created by the sale and delivery of Inventory or the rendition of services to
such Account Debtor in the ordinary course of a Loan Party’s business, and
(b) not excluded as ineligible by virtue of one or more of the excluding
criteria set forth in the definition of Eligible Accounts.
     4.29. Eligible Inventory.
          As to each item of Inventory that is identified by Borrower as
Eligible Inventory in a Borrowing Base Certificate submitted to Agent, such
Inventory is (a) of good and merchantable quality, free from known defects, and
(b) not excluded as ineligible by virtue of one or more of the excluding
criteria set forth in the definition of Eligible Inventory.
     4.30. Location of Inventory and Equipment.
          The Inventory and Equipment (other than vehicles or Equipment out for
repair) of the Loan Parties and their Subsidiaries are not stored with a bailee,
warehouseman, or similar party and are located only at, or in-transit between,
the locations identified on Schedule 4.30 (as such Schedule may be updated
pursuant to Section 5.15).
     4.31. Inventory Records.
          Each Loan Party keeps correct and accurate records itemizing and
describing the type, quality, and quantity of its and its Subsidiaries’
Inventory and the book value thereof.
     5. AFFIRMATIVE COVENANTS.
          Borrower covenants and agrees that, until termination of all of the
Commitments and payment in full of the Obligations, the Loan Parties shall and
shall cause each of their Subsidiaries to comply with each of the following:

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     5.1. Financial Statements, Reports, Certificates.
          Deliver to Agent, with copies to each Lender, each of the financial
statements, reports, and other items set forth on Schedule 5.1 at the times
specified therein. In addition, Borrower agrees that no Subsidiary of a Loan
Party will have a fiscal year different from that of Borrower. In addition,
Borrower agrees to maintain a system of accounting that enables Borrower to
produce financial statements in accordance with GAAP. Each Loan Party shall also
(a) keep a reporting system that shows all additions, sales, claims, returns,
and allowances with respect to its and its Subsidiaries’ sales, and (b) maintain
its billing systems/practices as approved by Agent prior to the Closing Date and
shall only make material modifications thereto with notice to, and with the
consent of, Agent.
     5.2. Collateral Reporting.
          Provide Agent (and if so requested by Agent, with copies for each
Lender) with each of the reports set forth on Schedule 5.2 at the times
specified therein. In addition, Borrower agrees to use commercially reasonable
efforts in cooperation with Agent to facilitate and implement a system of
electronic collateral reporting in order to provide electronic reporting of each
of the items set forth on such Schedule.
     5.3. Existence.
          Except as otherwise permitted under Section 6.3, at all times maintain
and preserve in full force and effect its existence (including being in good
standing in its jurisdiction of organization) and all rights and franchises,
licenses and permits material to its business; provided, however, that no Loan
Party or any of its Subsidiaries shall be required to preserve any such right or
franchise, licenses or permits if such Person’s board of directors (or similar
governing body) shall determine that the preservation thereof is no longer
desirable in the conduct of the business of such Person, and that the loss
thereof is not disadvantageous in any material respect to such Person or to the
Lenders.
     5.4. Maintenance of Properties.
          Maintain and preserve all of its assets that are necessary or useful
in the proper conduct of its business in good working order and condition,
ordinary wear, tear, and casualty excepted and Permitted Dispositions excepted,
and comply with the material provisions of all material leases to which it is a
party as lessee, so as to prevent the loss or forfeiture thereof, unless such
provisions are the subject of a Permitted Protest.
     5.5. Taxes.
          Cause all assessments and taxes imposed, levied, or assessed against
any Loan Party or its Subsidiaries, or any of their respective assets or in
respect of any of its income, businesses, or franchises to be paid in full,
before delinquency or before the expiration of any extension period, except to
the extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest and so long as, in the case of an assessment or tax that has
or may become a Lien against any of the Collateral, such contest proceedings
conclusively operate to stay the sale of any portion of the Collateral to
satisfy such assessment or tax. Borrower will and

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will cause each of its Subsidiaries to make timely payment or deposit of all tax
payments and withholding taxes required of it and them by applicable laws,
including those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Agent with
proof reasonably satisfactory to Agent indicating that Borrower and its
Subsidiaries have made such payments or deposits.
     5.6. Insurance.
          At Borrower’s expense, maintain insurance respecting each of the Loan
Parties’ and their Subsidiaries’ assets wherever located, covering loss or
damage by fire, theft, explosion, and all other hazards and risks as ordinarily
are insured against by other Persons engaged in the same or similar businesses.
Borrower also shall maintain (with respect to each of the Loan Parties and their
Subsidiaries) business interruption, general liability, product liability
insurance, director’s and officer’s liability insurance, and fiduciary liability
insurance, as well as insurance against larceny, embezzlement, and criminal
misappropriation. All such policies of insurance shall be with responsible and
reputable insurance companies acceptable to Agent and in such amounts as is
carried generally in accordance with sound business practice by companies in
similar businesses similarly situated and located and in any event in amount,
adequacy and scope reasonably satisfactory to Agent. All property insurance
policies covering the Collateral are to be made payable to Agent for the benefit
of Agent and the Lenders, as their interests may appear, in case of loss,
pursuant to a standard loss payable endorsement with a standard non contributory
“lender” or “secured party” clause and are to contain such other provisions as
Agent may reasonably require to fully protect the Lenders’ interest in the
Collateral and to any payments to be made under such policies. All certificates
of property and general liability insurance are to be delivered to Agent, with
the loss payable (but only in respect of Collateral) and additional insured
endorsements in favor of Agent and shall provide for not less than 30 days
(10 days in the case of non-payment) prior written notice to Agent of the
exercise of any right of cancellation. If Borrower fails to maintain such
insurance, Agent may arrange for such insurance, but at Borrower’s expense and
without any responsibility on Agent’s part for obtaining the insurance, the
solvency of the insurance companies, the adequacy of the coverage, or the
collection of claims. Borrower shall give Agent prompt notice of any loss
exceeding $250,000 covered by its casualty or business interruption insurance.
Upon the occurrence and during the continuance of an Event of Default, Agent
shall have the sole right to file claims under any property and general
liability insurance policies in respect of the Collateral, to receive, receipt
and give acquittance for any payments that may be payable thereunder, and to
execute any and all endorsements, receipts, releases, assignments, reassignments
or other documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.
     5.7. Inspection.
          Permit Agent and each of its duly authorized representatives or agents
to visit any of its properties and inspect any of its assets or books and
records, to conduct appraisals and valuations, to examine and make copies of its
books and records, and to discuss its affairs, finances, and accounts with, and
to be advised as to the same by, its officers and employees at such reasonable
times and intervals as Agent may designate and, so long as no Default or Event
of Default exists, with reasonable prior notice to Borrower. It is agreed and
understood that,

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unless Agent elects otherwise, at least two audits and two appraisals per
calendar year will be conducted by Agent.
     5.8. Compliance with Laws.
          Comply with the requirements of all applicable laws, rules,
regulations, and orders of any Governmental Authority, other than laws, rules,
regulations, and orders the non-compliance with which, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Change.
     5.9. Environmental.
          (a) Keep any property either owned or operated by Borrower or its
Subsidiaries free of any Environmental Liens or post bonds or other financial
assurances sufficient to satisfy the obligations or liability evidenced by such
Environmental Liens,
          (b) comply, in all material respects, with Environmental Laws and
provide to Agent documentation of such compliance which Agent reasonably
requests,
          (c) promptly notify Agent of any release of which Borrower has
knowledge of a Hazardous Material in any reportable quantity from or onto
property owned or operated by Borrower or its Subsidiaries and take any Remedial
Actions required to abate said release or otherwise to come into compliance, in
all material respects, with applicable Environmental Law, and
          (d) promptly, but in any event within 5 Business Days of its receipt
thereof, provide Agent with written notice of any of the following: (i) notice
that an Environmental Lien has been filed against any of the real or personal
property of Borrower or its Subsidiaries, (ii) commencement of any Environmental
Action or notice that an Environmental Action will be filed against Borrower or
its Subsidiaries, and (iii) notice of a violation, citation, or other
administrative order which could reasonably be expected to result in a Material
Adverse Change.
     5.10. Disclosure Updates.
          Promptly and in no event later than 10 Business Days after obtaining
knowledge thereof, notify Agent if any written information, exhibit, or report
furnished to the Lender Group contained, at the time it was furnished, any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which made. The foregoing to the contrary notwithstanding,
any notification pursuant to the foregoing provision will not cure or remedy the
effect of the prior untrue statement of a material fact or omission of any
material fact nor shall any such notification have the effect of amending or
modifying this Agreement or any of the Schedules hereto unless otherwise agreed
to or waived by Agent.
     5.11. Formation of Subsidiaries.
          At the time that any Loan Party forms any direct or indirect
Subsidiary or acquires any direct or indirect Subsidiary after the Closing Date,
such Loan Party shall (a) within 10 days of such formation or acquisition cause
any such new Subsidiary to provide to Agent a guaranty

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of the Obligations with such other security documents (including mortgages with
respect to any Real Property owned in fee of such new Subsidiary), as well as
appropriate financing statements (and with respect to all property subject to a
mortgage, fixture filings), all in form and substance reasonably satisfactory to
Agent (including being sufficient to grant Agent a first priority Lien (subject
to Permitted Liens) in and to the assets of such newly formed or acquired
Subsidiary to secure the guaranty of the Obligations); provided that such
guaranty and such other security documents shall not be required to be provided
to Agent with respect to any Subsidiary of Borrower that is a CFC if providing
such documents would result in adverse tax consequences or the costs to the Loan
Parties of providing such Guaranty, executing any security documents or
perfecting the security interests created thereby are unreasonably excessive (as
determined by Agent in consultation with Borrower) in relation to the benefits
of Agent and the Lenders of the security or guarantee afforded thereby,
(b) within 10 days of such formation or acquisition (or such later date as
permitted by Agent in its sole discretion) provide to Agent a pledge agreement
and appropriate certificates and powers or financing statements, hypothecating
all of the direct or beneficial ownership interest in such new Subsidiary
reasonably satisfactory to Agent to secure the Obligations; provided that only
65% of the total outstanding voting Stock of any first tier Subsidiary of
Borrower that is a CFC and none of the total outstanding voting Stock of any
other Subsidiary of such CFC shall be required to be pledged if hypothecating a
greater amount would result in adverse tax consequences or the costs to the Loan
Parties of providing such pledge or perfecting the security interests created
thereby are unreasonably excessive (as determined by Agent in consultation with
Borrower) in relation to the benefits of Agent and the Lenders of the security
or guarantee afforded thereby (which pledge, if reasonably requested by Agent,
shall be governed by the laws of the jurisdiction of such Subsidiary), and (c)
within 10 days of such formation or acquisition (or such later date as permitted
by Agent in its sole discretion) provide to Agent all other documentation,
including one or more opinions of counsel reasonably satisfactory to Agent,
which in its opinion is appropriate with respect to the execution and delivery
of the applicable documentation referred to above (including policies of title
insurance or other documentation with respect to all Real Property owned in fee
and subject to a mortgage). Any document, agreement, or instrument executed or
issued pursuant to this Section 5.11 shall be a Loan Document.
     5.12. Further Assurances.
          At any time upon the reasonable request of Agent, execute or deliver
to Agent any and all financing statements, fixture filings, security agreements,
pledges, assignments, endorsements of certificates of title, mortgages, deeds of
trust, opinions of counsel, and all other documents (collectively, the
“Additional Documents”) that Agent may reasonably request in form and substance
reasonably satisfactory to Agent, to create, perfect, and continue perfected or
to better perfect Agent’s Liens in all of the assets of Borrower and its
Subsidiaries (whether now owned or hereafter arising or acquired, tangible or
intangible, real or personal), to create and perfect Liens in favor of Agent in
any Real Property acquired by Borrower or its Subsidiaries after the Closing
Date, and in order to fully consummate all of the transactions contemplated
hereby and under the other Loan Documents; provided that the foregoing shall not
apply to any Subsidiary of Borrower that is a CFC if providing such documents
would result in adverse tax consequences or the costs to the Loan Parties of
providing such documents are unreasonably excessive (as determined by Agent in
consultation with Borrower) in relation to the benefits of Agent and the Lenders
of the benefits afforded thereby. To the maximum extent permitted by

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applicable law, Borrower authorizes Agent to execute any such Additional
Documents in the applicable Loan Party’s or its Subsidiary’s name, as
applicable, and authorizes Agent to file such executed Additional Documents in
any appropriate filing office. In furtherance and not in limitation of the
foregoing, each Loan Party shall take such actions as Agent may reasonably
request from time to time to ensure that the Obligations are guarantied by the
Guarantors and are secured by substantially all of the assets of Borrower and
its Subsidiaries and all of the outstanding capital Stock of Borrower’s
Subsidiaries (subject to limitations contained in the Loan Documents with
respect to CFCs).
     5.13. Lender Meetings.
          Within 90 days after the close of each fiscal year of Borrower at the
request of Agent or of the Required Lenders and upon reasonable prior notice,
hold a meeting (at a mutually agreeable location and time or, at the option of
Agent, by conference call) with all Lenders who choose to attend such meeting at
which meeting shall be reviewed the financial results of the previous fiscal
year and the financial condition of Borrower and its Subsidiaries and the
projections presented for the current fiscal year of Borrower.
     5.14. Material Contracts.
          Within 30 days after the end of each fiscal quarter of Borrower,
provide Agent with copies of (a) each Material Contract entered into since the
prior fiscal quarter end of Borrower, and (b) each material amendment or
modification of any Material Contract entered into since the prior fiscal
quarter end of Borrower.
     5.15. Location of Inventory and Equipment.
          Keep each Loan Parties’ and its Subsidiaries’ Inventory and Equipment
(other than vehicles and Equipment out for repair) only at the locations
identified on Schedule 4.30 and their chief executive offices only at the
locations identified on Schedule 4.6(b); provided, however, that Borrower may
amend Schedule 4.30 or Schedule 4.6(b) so long as such amendment occurs by
written notice to Agent not less than 10 days prior to the date on which such
Inventory or Equipment is moved to such new location or such chief executive
office is relocated and so long as such new location is within the continental
United States, and so long as, at the time of such written notification,
Borrower provides Agent a Collateral Access Agreement with respect thereto.
     5.16. Eric Paulson Employment Agreement.
          At all times maintain sufficient funds to pay all remaining amounts
due to Eric Paulson pursuant to his employment agreement as more particularly
described on Schedule 6.12, of which at least $1,000,000 shall be in a “rabbi
trust” for the benefit of Eric Paulson.
     5.17. Post-Closing Undertaking.
          Within 30 days following the Closing Date, deliver to Agent a
Collateral Access Agreement with respect to (i) the location leased by Borrower
at 7400 49th Avenue North, New

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Hope, Minnesota, and (ii) the location leased by FUNimation Productions, Ltd. at
1200 Lakeside Parkway, Building 1, Flower Mound, Texas.
     6. NEGATIVE COVENANTS.
          Borrower covenants and agrees that, until termination of all of the
Commitments and payment in full of the Obligations, the Loan Parties will not
and will not permit any of their Subsidiaries to do any of the following:
     6.1. Indebtedness.
          Create, incur, assume, suffer to exist, guarantee, or otherwise become
or remain, directly or indirectly, liable with respect to any Indebtedness,
except for Permitted Indebtedness.
     6.2. Liens.
          Create, incur, assume, or suffer to exist, directly or indirectly, any
Lien on or with respect to any of its assets, of any kind, whether now owned or
hereafter acquired, or any income or profits therefrom, except for Permitted
Liens.
     6.3. Restrictions on Fundamental Changes.
          (a) Enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its Stock, except for (i) any merger between
Loan Parties, provided that Borrower must be the surviving entity of any such
merger to which it is a party, (ii) any merger between Loan Parties and
Subsidiaries of Borrower that are not Loan Parties so long as such Loan Party is
the surviving entity of any such merger, and (iii) any merger between
Subsidiaries of Borrower that are not Loan Parties,
          (b) Liquidate, wind up, or dissolve itself (or suffer any liquidation
or dissolution), except for (i) the liquidation or dissolution of non-operating
Subsidiaries of Borrower with nominal assets and nominal liabilities, (ii) the
liquidation or dissolution of a Loan Party (other than Borrower) or any of its
wholly-owned Subsidiaries so long as all of the assets (including any interest
in any Stock) of such liquidating or dissolving Loan Party or Subsidiary are
transferred to a Loan Party that is not liquidating or dissolving, or (iii) the
liquidation or dissolution of a Subsidiary of Borrower that is not a Loan Party
(other than any such Subsidiary the Stock of which (or any portion thereof) is
subject to a Lien in favor of Agent) so long as all of the assets of such
liquidating or dissolving Subsidiary are transferred to a Subsidiary of Borrower
that is not liquidating or dissolving, or (iv) the liquidation or dissolution of
BCI,
          (c) Suspend or go out of a substantial portion of its or their
business, except as permitted pursuant to clauses (a) or (b) above or in
connection with the transactions permitted pursuant to Section 6.4, or
          (d) Create or establish any Subsidiary unless such Subsidiary (A) is
owned by Borrower or a Subsidiary of Borrower and (B) organized under the laws
of a state of the United States or the District of Columbia.

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     6.4. Disposal of Assets.
          Other than Permitted Dispositions, Permitted Investments, or
transactions expressly permitted by Sections 6.3 and 6.11, convey, sell, lease,
license, assign, transfer, or otherwise dispose of (or enter into an agreement
to convey, sell, lease, license, assign, transfer, or otherwise dispose of) any
of Borrower’s or its Subsidiaries’ assets.
     6.5. Change Name.
          Change Borrower’s or any of its Subsidiaries’ name, organizational
identification number, state of organization or organizational identity;
provided, however, that Borrower or any of its Subsidiaries may change their
names upon at least 10 days prior written notice to Agent of such change.
     6.6. Nature of Business.
          Make any change in the nature of its or their business as described in
Schedule 6.6 or acquire any properties or assets that are not reasonably related
to the conduct of such business activities; provided that Borrower and its
Subsidiaries may engage in any business that is reasonably related or ancillary
to its or their business.
     6.7. Prepayments and Amendments.
          (a) Except in connection with Refinancing Indebtedness permitted by
Section 6.1,
               (i) optionally prepay, redeem, defease, purchase, or otherwise
acquire any Indebtedness of Borrower or its Subsidiaries, other than (A) the
Obligations in accordance with this Agreement, and (B) Permitted Intercompany
Advances,
               (ii) make any payment on account of Indebtedness that has been
contractually subordinated in right of payment if such payment is not permitted
at such time under the subordination terms and conditions, or
          (b) Directly or indirectly, amend, modify, or change any of the terms
or provisions of
               (i) any agreement, instrument, document, indenture, or other
writing evidencing or concerning Permitted Indebtedness other than (A) the
Obligations in accordance with this Agreement, (B) Permitted Intercompany
Advances, and (C) Indebtedness permitted under clauses (c), (f), (h) and (i) of
the definition of Permitted Indebtedness,
               (ii) any Material Contract except to the extent that such
amendment, modification, alteration, increase, or change could not, individually
or in the aggregate, reasonably be expected to be materially more burdensome on
the Loan Parties, or
               (iii) the Governing Documents of any Loan Party or any of its
Subsidiaries if the effect thereof, either individually or in the aggregate,
could reasonably be expected to be materially adverse to the interests of the
Lenders.

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     6.8. Change of Control.
          Cause, permit, or suffer, directly or indirectly, any Change of
Control.
     6.9. Restricted Junior Payments.
          Make any Restricted Junior Payment; provided, however, that, so long
as it is permitted by law,
          (a) Borrower’s Subsidiaries may declare and pay dividends to Borrower,
and
          (b) so long as no Default or Event of Default shall have occurred and
be continuing or would result therefrom, Borrower may make distributions to
former employees, officers, or directors (or any spouses, ex-spouses, or estates
of any of the foregoing) on account of redemptions of Stock of Borrower held by
such Persons, provided, however, that the aggregate amount of such redemptions
made by Borrower during the term of this Agreement, does not exceed $250,000 in
the aggregate.
     6.10. Accounting Methods.
          Modify or change its fiscal year or its method of accounting (other
than as may be required to conform to GAAP).
     6.11. Investments.
          Except for Permitted Investments, directly or indirectly, make or
acquire any Investment or incur any liabilities (including contingent
obligations) for or in connection with any Investment; provided, however, that
(other than (a) an aggregate amount of not more than $50,000 at any one time, in
the case of Borrower and its Subsidiaries (other than those Subsidiaries that
are CFCs), (b) amounts deposited into Deposit Accounts specially and exclusively
used for payroll, payroll taxes and other employee wage and benefit payments to
or for Borrower’s or its Subsidiaries’ employees, and (c) an aggregate amount of
not more than $50,000 (calculated at current exchange rates) at any one time, in
the case of Subsidiaries of Borrower that are CFCs) Borrower and its
Subsidiaries shall not have Permitted Investments consisting of cash, Cash
Equivalents, or amounts credited to Deposit Accounts or Securities Accounts
unless Borrower or its Subsidiary, as applicable, and the applicable bank or
securities intermediary have entered into Control Agreements with Agent
governing such Permitted Investments in order to perfect (and further establish)
Agent’s Liens in such Permitted Investments. Subject to the foregoing proviso,
Borrower shall not and shall not permit its Subsidiaries to establish or
maintain any Deposit Account or Securities Account unless Agent shall have
received a Control Agreement in respect of such Deposit Account or Securities
Account.

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     6.12. Transactions with Affiliates.
          Directly or indirectly enter into or permit to exist any transaction
with any Affiliate of Borrower or any of its Subsidiaries except for:
          (a) transactions (other than the payment of management, consulting,
monitoring, or advisory fees) between Borrower or its Subsidiaries, on the one
hand, and any Affiliate of Borrower or its Subsidiaries, on the other hand, so
long as such transactions (i) are fully disclosed to Agent prior to the
consummation thereof, if they involve one or more payments by Borrower or its
Subsidiaries in excess of $100,000 for any single transaction or series of
related transactions (provided, that no such disclosure shall be required for
transactions among Loan Parties in the ordinary course of business), and
(ii) are no less favorable, taken as a whole, to Borrower or its Subsidiaries,
as applicable, than would be obtained in an arm’s length transaction with a
non-Affiliate,
          (b) so long as it has been approved by Borrower’s Board of Directors
in accordance with applicable law, any indemnity provided for the benefit of
directors of Borrower,
          (c) so long as it has been approved by Borrower’s Board of Directors,
the payment of reasonable fees, compensation, or employee benefit arrangements
to employees, officers, and outside directors of Borrower in the ordinary course
of business and consistent with industry practice,
          (d) transactions permitted by Section 6.3 or Section 6.9, or any
Permitted Intercompany Advance, and
          (e) payments in the aggregate amount not to exceed $1,439,999 to or
for the benefit of Eric Paulson pursuant to his employment agreement as more
particularly described on Schedule 6.12.
     6.13. Use of Proceeds.
          Use the proceeds of the Advances for any purpose other than (a) on the
Closing Date, (i) to repay, in full, the outstanding principal, accrued
interest, and accrued fees and expenses owing under or in connection with the
Existing Credit Facility, and (ii) to pay transactional fees, costs, and
expenses incurred in connection with this Agreement, the other Loan Documents,
and the transactions contemplated hereby and thereby, and (b) thereafter,
consistent with the terms and conditions hereof, for its lawful and permitted
purposes.
     6.14. Holding Companies.
          Permit Navarre CP, Navarre CLP or Navarre CS to incur any liabilities
(other than liabilities arising under the Loan Documents), own or acquire any
assets (other than the Stock of a Loan Party) or engage itself in any operations
or business (other than the ownership of the Stock of a Loan Party).

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     6.15. Inventory and Equipment with Bailees.
          Except as described on Schedule 4.30, store the Inventory or Equipment
of Borrower or its Subsidiaries at any time now or hereafter with a bailee,
warehouseman, or similar party.
     7. FINANCIAL COVENANTS.
          Borrower covenants and agrees that, until termination of all of the
Commitments and payment in full of the Obligations, Borrower will comply with
each of the following financial covenants:
          (a) Fixed Charge Coverage Ratio. Have a Fixed Charge Coverage Ratio,
measured on a month-end basis, of at least the required amount set forth in the
following table for the applicable period set forth opposite thereto:

      Applicable Ratio   Applicable Period 1.75:1.0   For the 6 month period
ending September 30, 2009       1.75:1.0   For the 7 month period
ending October 31, 2009       1.75:1.0   For the 8 month period
ending November 30, 2009       1.75:1.0   For the 9 month period
ending December 31, 2009       1.75:1.0   For the 10 month period
ending January 31, 2010       1.75:1.0   For the 11 month period
ending February 28, 2010       1.75:1.0   For the 12 month period
ending March 31, 2010
and for the 12 month period
ending on the last day of each month thereafter

          (b) Net Vendor Advance. Not permit Net Vendor Advances, measured on a
month-end basis, to exceed the applicable amount set forth in the following
table for the applicable period set forth opposite thereto:

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      Applicable Amount   Applicable Period $12,500,000   For the 6 month period
ending September 30, 2009       $12,500,000   For the 7 month period
ending October 31, 2009       $12,500,000   For the 8 month period
ending November 30, 2009       $12,500,000   For the 9 month period
ending December 31, 2009       $12,500,000   For the 10 month period
ending January 31, 2010       $12,500,000   For the 11 month period
ending February 28, 2010       $12,500,000   For the 12 month period
ending March 31, 2010
and for the 12 month period
ending on the last day of each month thereafter

          (c) Capital Expenditures. Make Capital Expenditures (excluding the
amount, if any, of Capital Expenditures made with Net Cash Proceeds reinvested
pursuant to the proviso in Section 2.4(e)(ii)) in any fiscal year in an amount
less than or equal to, but not greater than, the amount set forth in the
following table for the applicable period:

                              Fiscal Year ending             March 31, 2012
Fiscal Year ending   Fiscal Year ending   and each Fiscal Year March 31, 2010  
March 31, 2011   thereafter
$3,000,000
  $ 4,000,000     $ 4,000,000  

          (d) Excess Availability. Maintain Excess Availability at all times
after the Closing Date of at least $2,000,000.
8. EVENTS OF DEFAULT.
          Any one or more of the following events shall constitute an event of
default (each, an “Event of Default”) under this Agreement:
     8.1. If Borrower fails to pay when due and payable, or when declared due
and payable, (a) all or any portion of the Obligations consisting of interest,
fees, or charges due the Lender

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Group, reimbursement of Lender Group Expenses, or other amounts (other than any
portion thereof constituting principal) constituting Obligations (including any
portion thereof that accrues after the commencement of an Insolvency Proceeding,
regardless of whether allowed or allowable in whole or in part as a claim in any
such Insolvency Proceeding), and such failure continues for a period of 3
Business Days, or (b) all or any portion of the principal of the Obligations;
     8.2. If any Loan Party or any of its Subsidiaries:
          (a) fails to perform or observe any covenant or other agreement
contained in any of (i) Sections 5.1, 5.2, 5.3 (solely if Borrower is not in
good standing in its jurisdiction of organization), 5.6, 5.7 (solely if Borrower
refuses to allow Agent or its representatives or agents to visit Borrower’s
properties, inspect its assets or books or records, examine and make copies of
its books and records, or discuss Borrower’s affairs, finances, and accounts
with officers and employees of Borrower), 5.10, 5.11, 5.13, 5.14 or 5.17 of this
Agreement, (ii) Sections 6.1 through 6.15 of this Agreement, (iii) Section 7 of
this Agreement, or (iv) Section 6 of the Security Agreement;
          (b) fails to perform or observe any covenant or other agreement
contained in any of Sections 5.3 (other than if Borrower is not in good standing
in its jurisdiction of organization), 5.4, 5.5, 5.8, 5.12, and 5.15 of this
Agreement and such failure continues for a period of 10 days after the earlier
of (i) the date on which such failure shall first become known to any officer of
Borrower or (ii) the date on which written notice thereof is given to Borrower
by Agent; or
          (c) fails to perform or observe any covenant or other agreement
contained in this Agreement, or in any of the other Loan Documents, in each
case, other than any such covenant or agreement that is the subject of another
provision of this Section 8 (in which event such other provision of this
Section 8 shall govern), and such failure continues for a period of 30 days
after the earlier of (i) the date on which such failure shall first become known
to any officer of Borrower or (ii) the date on which written notice thereof is
given to Borrower by Agent;
     8.3. If one or more judgments, orders, or awards for the payment of money
involving an aggregate amount of $500,000, or more (except to the extent fully
covered by insurance pursuant to which the insurer has accepted liability
therefor in writing) is entered or filed against a Loan Party or any of its
Subsidiaries, or with respect to any of their respective assets, and either (a)
there is a period of 45 consecutive days at any time after the entry of any such
judgment, order, or award during which (1) the same is not discharged, or (2) a
stay of enforcement thereof is not in effect, or (b) enforcement proceedings are
commenced upon such judgment, order, or award;
     8.4. If an Insolvency Proceeding is commenced by a Loan Party or any of its
Subsidiaries;
     8.5. If an Insolvency Proceeding is commenced against a Loan Party or any
of its Subsidiaries and any of the following events occur: (a) such Loan Party
or such Subsidiary consents to the institution of such Insolvency Proceeding
against it, (b) the petition commencing the Insolvency Proceeding is not timely
controverted, (c) the petition commencing the

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Insolvency Proceeding is not dismissed within 60 calendar days of the date of
the filing thereof, (d) an interim trustee is appointed to take possession of
all or any substantial portion of the properties or assets of, or to operate all
or any substantial portion of the business of, such Loan Party or its
Subsidiary, or (e) an order for relief shall have been issued or entered
therein;
     8.6. If a Loan Party or any of its Subsidiaries is enjoined, restrained, or
in any way prevented by court order from continuing to conduct all or any
material part of its business affairs;
     8.7. If there is a default in one or more agreements to which a Loan Party
or any of its Subsidiaries is a party with one or more third Persons relative to
a Loan Party’s or any of its Subsidiaries’ Indebtedness involving an aggregate
amount of $250,000 or more, and such default (i) occurs at the final maturity of
the obligations thereunder, or (ii) results in a right by such third Person,
irrespective of whether exercised, to accelerate the maturity of such Loan
Party’s or its Subsidiary’s obligations thereunder;
     8.8. If any warranty, representation, statement, or Record made herein or
in any other Loan Document or delivered in writing to Agent or any Lender in
connection with this Agreement or any other Loan Document proves to be untrue in
any material respect (except that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof) as of the date of issuance or
making or deemed making thereof;
     8.9. If the obligation of any Guarantor under the Guaranty is limited or
terminated by operation of law or by such Guarantor;
     8.10. If the Security Agreement or any other Loan Document that purports to
create a Lien, shall, for any reason, fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien on the Collateral covered thereby, except (a) as a result of
a disposition of the applicable Collateral in a transaction permitted under this
Agreement, or (b) as the result of an action or failure to act on the part of
Agent or any other Lender;
     8.11. If there shall be a breach by any Loan Party of any of the terms of
any License Agreement that results in a right of the licensor thereunder to
terminate such License Agreement, or if any License Agreement terminates unless
the term of such License Agreement expires by its terms (as in effect on the
Closing Date) and the expiration of such License Agreement could not reasonably
be expected to result in a Material Adverse Change; or
     8.12. The validity or enforceability of any Loan Document shall at any time
for any reason (other than solely as the result of an action or failure to act
on the part of Agent or any other Lender) be declared to be null and void, or a
proceeding shall be commenced by a Loan Party or its Subsidiaries, or by any
Governmental Authority having jurisdiction over a Loan Party or its
Subsidiaries, seeking to establish the invalidity or unenforceability thereof,
or a Loan Party or its Subsidiaries shall deny that such Loan Party or its
Subsidiaries has any liability or obligation purported to be created under any
Loan Document.

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9. RIGHTS AND REMEDIES.
     9.1. Rights and Remedies.
          Upon the occurrence and during the continuation of an Event of
Default, Agent may, and, at the instruction of the Required Lenders, shall, in
each case by written notice to Borrower and in addition to any other rights or
remedies provided for hereunder or under any other Loan Document or by
applicable law, do any one or more of the following on behalf of the Lender
Group:
          (a) declare the Obligations, whether evidenced by this Agreement or by
any of the other Loan Documents immediately due and payable, whereupon the same
shall become and be immediately due and payable, without presentment, demand,
protest, or further notice or other requirements of any kind, all of which are
hereby expressly waived by Borrower; and
          (b) declare the Revolver Commitments terminated, whereupon the
Revolver Commitments shall immediately be terminated together with any
obligation of any Lender hereunder to make Advances and the obligation of the
Issuing Lender to issue Letters of Credit.
The foregoing to the contrary notwithstanding, upon the occurrence of any Event
of Default described in Section 8.4 or Section 8.5, in addition to the remedies
set forth above, without any notice to Borrower or any other Person or any act
by the Lender Group, the Commitments shall automatically terminate and the
Obligations then outstanding, together with all accrued and unpaid interest
thereon and all fees and all other amounts due under this Agreement and the
other Loan Documents, shall automatically and immediately become due and
payable, without presentment, demand, protest, or notice of any kind, all of
which are expressly waived by Borrower.
     9.2. Remedies Cumulative.
     The rights and remedies of the Lender Group under this Agreement, the other
Loan Documents, and all other agreements shall be cumulative. The Lender Group
shall have all other rights and remedies not inconsistent herewith as provided
under the Code, by law, or in equity. No exercise by the Lender Group of one
right or remedy shall be deemed an election, and no waiver by the Lender Group
of any Event of Default shall be deemed a continuing waiver. No delay by the
Lender Group shall constitute a waiver, election, or acquiescence by it.
10. WAIVERS; INDEMNIFICATION.
     10.1. Demand; Protest; etc.
          Each Loan Party a party hereto waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of documents, instruments, chattel paper, and guarantees at any time held by the
Lender Group on which such Loan Party may in any way be liable.

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     10.2. The Lender Group’s Liability for Collateral.
          Borrower hereby agrees that: (a) so long as Agent complies with its
obligations, if any, under the Code, the Lender Group shall not in any way or
manner be liable or responsible for: (i) the safekeeping of the Collateral,
(ii) any loss or damage thereto occurring or arising in any manner or fashion
from any cause, (iii) any diminution in the value thereof, or (iv) any act or
default of any carrier, warehouseman, bailee, forwarding agency, or other
Person, and (b) all risk of loss, damage, or destruction of the Collateral shall
be borne by Borrower.
     10.3. Indemnification.
          Borrower shall pay, indemnify, defend, and hold the Agent-Related
Persons, the Lender-Related Persons, and each Participant (each, an “Indemnified
Person”) harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings,
liabilities, fines, costs, penalties, and damages, and all reasonable fees and
disbursements of attorneys, experts, or consultants and all other costs and
expenses actually incurred in connection therewith or in connection with the
enforcement of this indemnification (as and when they are incurred and
irrespective of whether suit is brought), at any time asserted against, imposed
upon, or incurred by any of them (a) in connection with or as a result of or
related to the execution and delivery (provided that Borrower shall not be
liable for costs and expenses (including attorneys fees) of any Lender (other
than WFF) incurred in advising, structuring, drafting, reviewing, administering
or syndicating the Loan Documents), enforcement, performance, or administration
(including any restructuring or workout with respect hereto) of this Agreement,
any of the other Loan Documents, or the transactions contemplated hereby or
thereby or the monitoring of Borrower’s and its Subsidiaries’ compliance with
the terms of the Loan Documents (other than disputes solely between the
Lenders), (b) with respect to any investigation, litigation, or proceeding
related to this Agreement, any other Loan Document, or the use of the proceeds
of the credit provided hereunder (irrespective of whether any Indemnified Person
is a party thereto), or any act, omission, event, or circumstance in any manner
related thereto, and (c) in connection with or arising out of any presence or
release of Hazardous Materials at, on, under, to or from any assets or
properties owned, leased or operated by Borrower or any of its Subsidiaries or
any Environmental Actions, Environmental Liabilities or Remedial Actions related
in any way to any such assets or properties of Borrower or any of its
Subsidiaries (each and all of the foregoing, the “Indemnified Liabilities”). The
foregoing to the contrary notwithstanding, Borrower shall have no obligation to
any Indemnified Person under this Section 10.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person or its officers, directors, employees, attorneys, or agents. This
provision shall survive the termination of this Agreement and the repayment of
the Obligations. If any Indemnified Person makes any payment to any other
Indemnified Person with respect to an Indemnified Liability as to which Borrower
was required to indemnify the Indemnified Person receiving such payment, the
Indemnified Person making such payment is entitled to be indemnified and
reimbursed by Borrower with respect thereto. WITHOUT LIMITATION, THE FOREGOING
INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED
LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY
NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

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

         
 
  If to Borrower:   NAVARRE CORPORATION
 
      7400 49th Avenue North
 
      New Hope, Minnesota 55428
 
      Attn: General Counsel
 
      Fax No. (763) 594-1107
 
       
 
  with copies to:   Winthrop & Weinstine
 
      225 South Sixth Street, Suite 3500
 
      Minneapolis, Minnesota 55402
 
      Attn: Jonathan W.J. Armour, Esq.
 
      Fax No. (612) 604-6942
 
       
 
  If to Agent:   WELLS FARGO FOOTHILL, LLC
 
      One Boston Place, Suite 1800
 
      Boston, Massachusetts 02108
 
      Attn: Business Finance Portfolio Manager
 
      Fax No. (617) 523-1697
 
       
 
  with copies to:   GOLDBERG KOHN BELL BLACK
 
      ROSENBLOOM & MORITZ, LTD.
 
      55 East Monroe Street, Suite 3300
 
      Chicago, Illinois 60603
 
      Attn: Gary Zussman
 
      Fax No. (312) 332-2196

          Any party hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other party. All notices or demands sent in accordance with this Section 11,
shall be deemed received on the earlier of the date of actual receipt or 3
Business Days after the deposit thereof in the mail; provided, that (a) notices
sent by overnight courier service shall be deemed to have been given when
received, (b) notices by facsimile shall be deemed to have been given when sent
(except that, if not given during normal business hours for the recipient, shall
be deemed to have been given at the opening of business on the next Business Day
for the recipient) and (c) notices by electronic mail shall be deemed received
upon the sender’s receipt of an acknowledgment from the intended recipient (such
as by the “return receipt requested” function, as available, return email or
other written acknowledgment).

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12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
          (a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT
OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT
HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF ILLINOIS.
          (b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
FEDERAL COURTS LOCATED IN THE COUNTY OF COOK, STATE OF ILLINOIS; PROVIDED,
HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER
PROPERTY MAY BE BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION
WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. BORROWER AND EACH MEMBER OF THE LENDER GROUP WAIVE, TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12(b).
          (c) TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND
EACH MEMBER OF THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. BORROWER AND EACH MEMBER OF THE LENDER GROUP REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
13. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
     13.1. Assignments and Participations.
          (a) With the prior written consent of Agent, which consent of Agent
shall not be unreasonably withheld, delayed or conditioned, and shall not be
required in connection with an assignment to a Person that is a Lender or an
Affiliate (other than individuals) of a Lender, any Lender may assign and
delegate to one or more assignees (each, an “Assignee”; provided,

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however, that no Loan Party or Affiliate of a Loan Party shall be permitted to
become an Assignee) all or any portion of the Obligations, the Commitments and
the other rights and obligations of such Lender hereunder and under the other
Loan Documents, in a minimum amount (unless waived by Agent) of $5,000,000
(except such minimum amount shall not apply to (x) an assignment or delegation
by any Lender to any other Lender or an Affiliate of any Lender or (y) a group
of new Lenders, each of which is an Affiliate of each other or a Related Fund of
such new Lender to the extent that the aggregate amount to be assigned to all
such new Lenders is at least $5,000,000); provided, however, that Borrower and
Agent may continue to deal solely and directly with such Lender in connection
with the interest so assigned to an Assignee until (i) written notice of such
assignment, together with payment instructions, addresses, and related
information with respect to the Assignee, have been given to Borrower and Agent
by such Lender and the Assignee, (ii) such Lender and its Assignee have
delivered to Borrower and Agent an Assignment and Acceptance and Agent has
notified the assigning Lender of its receipt thereof in accordance with
Section 13.1(b), and (iii) unless waived by Agent, the assigning Lender or
Assignee has paid to Agent for Agent’s separate account a processing fee in the
amount of $3,500.
          (b) From and after the date that Agent notifies the assigning Lender
(with a copy to Borrower) that it has received an executed Assignment and
Acceptance and, if applicable, payment of the required processing fee, (i) the
Assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of a Lender under the Loan
Documents, and (ii) the assigning Lender shall, to the extent that rights and
obligations hereunder and under the other Loan Documents have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights (except
with respect to Section 10.3) and be released from any future obligations under
this Agreement (and in the case of an Assignment and Acceptance covering all or
the remaining portion of an assigning Lender’s rights and obligations under this
Agreement and the other Loan Documents, such Lender shall cease to be a party
hereto and thereto); provided, however, that nothing contained herein shall
release any assigning Lender from obligations that survive the termination of
this Agreement, including such assigning Lender’s obligations under Section 15
and Section 17.9(a).
          (c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document furnished
pursuant hereto, (ii) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of any
Loan Party or the performance or observance by any Loan Party of any of its
obligations under this Agreement or any other Loan Document furnished pursuant
hereto, (iii) such Assignee confirms that it has received a copy of this
Agreement, together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance, (iv) such Assignee will, independently and without
reliance upon Agent, such assigning Lender or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to

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make its own credit decisions in taking or not taking action under this
Agreement, (v) such Assignee appoints and authorizes Agent to take such actions
and to exercise such powers under this Agreement and the other Loan Documents as
are delegated to Agent, by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto, and (vi) such Assignee agrees that
it will perform all of the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.
          (d) Immediately upon Agent’s receipt of the required processing fee,
if applicable, and delivery of notice to the assigning Lender pursuant to
Section 13.1(b), this Agreement shall be deemed to be amended to the extent, but
only to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the Commitments arising therefrom. The Commitment
allocated to each Assignee shall reduce such Commitments of the assigning Lender
pro tanto.
          (e) Any Lender may at any time sell to one or more commercial banks,
financial institutions, or other Persons (a “Participant”) participating
interests in all or any portion of its Obligations, its Commitment, and the
other rights and interests of that Lender (the “Originating Lender”) hereunder
and under the other Loan Documents; provided, however, that (i) the Originating
Lender shall remain a “Lender” for all purposes of this Agreement and the other
Loan Documents and the Participant receiving the participating interest in the
Obligations, the Commitments, and the other rights and interests of the
Originating Lender hereunder shall not constitute a “Lender” hereunder or under
the other Loan Documents and the Originating Lender’s obligations under this
Agreement shall remain unchanged, (ii) the Originating Lender shall remain
solely responsible for the performance of such obligations, (iii) Borrower,
Agent, and the Lenders shall continue to deal solely and directly with the
Originating Lender in connection with the Originating Lender’s rights and
obligations under this Agreement and the other Loan Documents, (iv) no Lender
shall transfer or grant any participating interest under which the Participant
has the right to approve any amendment to, or any consent or waiver with respect
to, this Agreement or any other Loan Document, except to the extent such
amendment to, or consent or waiver with respect to this Agreement or of any
other Loan Document would (A) extend the final maturity date of the Obligations
hereunder in which such Participant is participating, (B) reduce the interest
rate applicable to the Obligations hereunder in which such Participant is
participating, (C) release all or substantially all of the Collateral or
guaranties (except to the extent expressly provided herein or in any of the Loan
Documents) supporting the Obligations hereunder in which such Participant is
participating, (D) postpone the payment of, or reduce the amount of, the
interest or fees payable to such Participant through such Lender, or (E) change
the amount or due dates of scheduled principal repayments or prepayments or
premiums, and (v) all amounts payable by Borrower hereunder and under the other
Loan Documents shall be determined as if such Lender had not sold such
participation, except that, if amounts outstanding under this Agreement are due
and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of set off in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement. The rights of any Participant only shall be derivative through the
Originating Lender with whom such Participant participates and no Participant
shall have any rights under this Agreement or the other Loan Documents or any
direct rights as to the other Lenders, Agent, Borrower, the Collections of
Borrower or its

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Subsidiaries, the Collateral, or otherwise in respect of the Obligations. No
Participant shall have the right to participate directly in the making of
decisions by the Lenders among themselves.
          (f) In connection with any such assignment or participation or
proposed assignment or participation or any grant of a security interest in, or
pledge of, its rights under and interest in this Agreement, a Lender may,
subject to the provisions of Section 17.9, disclose all documents and
information which it now or hereafter may have relating to Borrower and its
Subsidiaries and their respective businesses.
          (g) Any other provision in this Agreement notwithstanding, any Lender
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement in favor of any Federal Reserve
Bank in accordance with Regulation A of the Federal Reserve Bank or U.S.
Treasury Regulation 31 CFR §203.24, and such Federal Reserve Bank may enforce
such pledge or security interest in any manner permitted under applicable law.
     13.2. Successors.
          This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties; provided, however, that no Loan
Party a party hereto may assign this Agreement or any rights or duties hereunder
without the Lenders’ prior written consent and any prohibited assignment shall
be absolutely void ab initio. No consent to assignment by the Lenders shall
release Borrower from its Obligations. A Lender may assign this Agreement and
the other Loan Documents and its rights and duties hereunder and thereunder
pursuant to Section 13.1 and, except as expressly required pursuant to
Section 13.1, no consent or approval by any Loan Party is required in connection
with any such assignment.
14. AMENDMENTS; WAIVERS.
     14.1. Amendments and Waivers.
          (a) No amendment, waiver or other modification of any provision of
this Agreement or any other Loan Document (other than Bank Product Agreements or
the Fee Letter), and no consent with respect to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and signed by
the Required Lenders (or by Agent at the written request of the Required
Lenders) and Borrower and then any such waiver or consent shall be effective,
but only in the specific instance and for the specific purpose for which given;
provided, however, that no such waiver, amendment, or consent shall, unless in
writing and signed by all of the Lenders directly affected thereby and Borrower,
do any of the following:
               (i) increase the amount of or extend the expiration date of any
Commitment of any Lender,
               (ii) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees, or other
amounts due hereunder or under any other Loan Document,

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               (iii) reduce the principal of, or the rate of interest on, any
loan or other extension of credit hereunder, or reduce any fees or other amounts
payable hereunder or under any other Loan Document (except (y) in connection
with the waiver of applicability of Section 2.6(c) (which waiver shall be
effective with the written consent of the Required Lenders), and (z) that any
amendment or modification of defined terms used in the financial covenants in
this Agreement shall not constitute a reduction in the rate of interest or a
reduction of fees for purposes of this clause (iii)),
               (iv) amend or modify this Section or any provision of this
Agreement providing for consent or other action by all Lenders,
               (v) other than as permitted by Section 15.11, release Agent’s
Lien in and to any of the Collateral,
               (vi) change the definition of “Required Lenders” or “Pro Rata
Share”,
               (vii) contractually subordinate any of the Agent’s Liens,
               (viii) other than in connection with a merger, liquidation,
dissolution or sale of such Person expressly permitted by the terms hereof or
the other Loan Documents, release Borrower or any Guarantor from any obligation
for the payment of money or consent to the assignment or transfer by Borrower or
any Guarantor of any of its rights or duties under this Agreement or the other
Loan Documents,
               (ix) amend any of the provisions of Section 2.4(b)(i) or (ii),
               (x) amend Section 13.1(a) to permit a Loan Party or an Affiliate
of a Loan Party to be permitted to become an Assignee, or
               (xi) change the definition of Borrowing Base or any of the
defined terms (including the definitions of Eligible Accounts and Eligible
Inventory) that are used in such definition to the extent that any such change
results in more credit being made available to Borrower based upon the Borrowing
Base, but not otherwise, or the definitions of Maximum Revolver Amount.
          (b) No amendment, waiver, modification, or consent shall amend,
modify, or waive (i) the definition of, or any of the terms or provisions of,
the Fee Letter, without the written consent of Agent and Borrower (and shall not
require the written consent of any of the Lenders), and (ii) any provision of
Section 15 pertaining to Agent, or any other rights or duties of Agent under
this Agreement or the other Loan Documents, without the written consent of
Agent, Borrower, and the Required Lenders,
          (c) No amendment, waiver, modification, or consent shall amend,
modify, or waive any provision of this Agreement or the other Loan Documents
pertaining to Issuing Lender, or any other rights or duties of Issuing Lender
under this Agreement or the other Loan Documents, without the written consent of
Issuing Lender, Agent, Borrower, and the Required Lenders,

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          (d) No amendment, waiver, modification, or consent shall amend,
modify, or waive any provision of this Agreement or the other Loan Documents
pertaining to Swing Lender, or any other rights or duties of Swing Lender under
this Agreement or the other Loan Documents, without the written consent of Swing
Lender, Agent, Borrower, and the Required Lenders,
          (e) Anything in this Section 14.1 to the contrary notwithstanding, any
amendment, modification, waiver, consent, termination, or release of, or with
respect to, any provision of this Agreement or any other Loan Document that
relates only to the relationship of the Lender Group among themselves, and that
does not affect the rights or obligations of Borrower, shall not require consent
by or the agreement of Borrower.
     14.2. Replacement of Certain Lenders.
          (a) If (i) any action to be taken by the Lender Group or Agent
hereunder requires the unanimous consent, authorization, or agreement of all
Lenders and if such action has received the consent, authorization, or agreement
of the Required Lenders but not all of the Lenders or (ii) any Lender makes a
claim for compensation under Section 16, then Borrower or Agent, upon at least 5
Business Days prior irrevocable notice, may permanently replace any Lender (a
“Holdout Lender”) that failed to give its consent, authorization, or agreement
or made a claim for compensation (a “Tax Lender”) with one or more Replacement
Lenders, and the Holdout Lender or Tax Lender, as applicable, shall have no
right to refuse to be replaced hereunder. Such notice to replace the Holdout
Lender or Tax Lender, as applicable, shall specify an effective date for such
replacement, which date shall not be later than 15 Business Days after the date
such notice is given.
          (b) Prior to the effective date of such replacement, the Holdout
Lender and each Replacement Lender shall execute and deliver an Assignment and
Acceptance, subject only to the Holdout Lender being repaid its share of the
outstanding Obligations (including an assumption of its Pro Rata Share of the
Letters of Credit) without any premium or penalty of any kind whatsoever. If the
Holdout Lender shall refuse or fail to execute and deliver any such Assignment
and Acceptance prior to the effective date of such replacement, the Holdout
Lender shall be deemed to have executed and delivered such Assignment and
Acceptance. The replacement of any Holdout Lender shall be made in accordance
with the terms of Section 13.1. Until such time as the Replacement Lenders shall
have acquired all of the Obligations, the Commitments, and the other rights and
obligations of the Holdout Lender hereunder and under the other Loan Documents,
the Holdout Lender shall remain obligated to make the Holdout Lender’s Pro Rata
Share of Advances and to purchase a participation in each Letter of Credit, in
an amount equal to its Pro Rata Share of such Letters of Credit.
     14.3. No Waivers; Cumulative Remedies.
          No failure by Agent or any Lender to exercise any right, remedy, or
option under this Agreement or any other Loan Document, or delay by Agent or any
Lender in exercising the same, will operate as a waiver thereof. No waiver by
Agent or any Lender will be effective unless it is in writing, and then only to
the extent specifically stated. No waiver by Agent or any Lender on any occasion
shall affect or diminish Agent’s and each Lender’s rights thereafter to require
strict performance by Borrower of any provision of this Agreement. Agent’s and
each

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Lender’s rights under this Agreement and the other Loan Documents will be
cumulative and not exclusive of any other right or remedy that Agent or any
Lender may have.
15. AGENT; THE LENDER GROUP.
     15.1. Appointment and Authorization of Agent.
          Each Lender hereby designates and appoints WFF as its representative
under this Agreement and the other Loan Documents and each Lender hereby
irrevocably authorizes Agent to execute and deliver each of the other Loan
Documents on its behalf and to take such other action on its behalf under the
provisions of this Agreement and each other Loan Document and to exercise such
powers and perform such duties as are expressly delegated to Agent by the terms
of this Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Agent agrees to act as such on the express
conditions contained in this Section 15. Any provision to the contrary contained
elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against Agent; it being expressly understood and
agreed that the use of the word “Agent” is for convenience only, that WFF is
merely the representative of the Lenders, and only has the contractual duties
set forth herein. Except as expressly otherwise provided in this Agreement,
Agent shall have and may use its sole discretion with respect to exercising or
refraining from exercising any discretionary rights or taking or refraining from
taking any actions that Agent expressly is entitled to take or assert under or
pursuant to this Agreement and the other Loan Documents. Without limiting the
generality of the foregoing, or of any other provision of the Loan Documents
that provides rights or powers to Agent, Lenders agree that Agent shall have the
right to exercise the following powers as long as this Agreement remains in
effect: (a) maintain, in accordance with its customary business practices,
ledgers and records reflecting the status of the Obligations, the Collateral,
the Collections of Borrower and its Subsidiaries, and related matters,
(b) execute or file any and all financing or similar statements or notices,
amendments, renewals, supplements, documents, instruments, proofs of claim,
notices and other written agreements with respect to the Loan Documents,
(c) make Advances, for itself or on behalf of Lenders, as provided in the Loan
Documents, (d) exclusively receive, apply, and distribute the Collections of
Borrower and its Subsidiaries as provided in the Loan Documents, (e) open and
maintain such bank accounts and cash management arrangements as Agent deems
necessary and appropriate in accordance with the Loan Documents for the
foregoing purposes with respect to the Collateral and the Collections of
Borrower and its Subsidiaries, (f) perform, exercise, and enforce any and all
other rights and remedies of the Lender Group with respect to Borrower or its
Subsidiaries, the Obligations, the Collateral, the Collections of Borrower and
its Subsidiaries, or otherwise related to any of same as provided in the Loan
Documents, and (g) incur and pay such Lender Group Expenses as Agent may deem
necessary or appropriate for the performance and fulfillment of its functions
and powers pursuant to the Loan Documents.
     15.2. Delegation of Duties.
          Agent may execute any of its duties under this Agreement or any other
Loan Document by or through agents, employees or attorneys in fact and shall be
entitled to advice of

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counsel concerning all matters pertaining to such duties. Agent shall not be
responsible for the negligence or misconduct of any agent or attorney in fact
that it selects as long as such selection was made without gross negligence or
willful misconduct.
     15.3. Liability of Agent.
          None of the Agent-Related Persons shall (a) be liable for any action
taken or omitted to be taken by any of them under or in connection with this
Agreement or any other Loan Document or the transactions contemplated hereby
(except for its own gross negligence or willful misconduct), or (b) be
responsible in any manner to any of the Lenders for any recital, statement,
representation or warranty made by Borrower or any of its Subsidiaries or
Affiliates, or any officer or director thereof, contained in this Agreement or
in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by Agent under or in
connection with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of Borrower or its Subsidiaries or
any other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the books and records or properties of Borrower or its
Subsidiaries.
     15.4. Reliance by Agent.
          Agent shall be entitled to rely, and shall be fully protected in
relying, upon any writing, resolution, notice, consent, certificate, affidavit,
letter, telegram, telefacsimile or other electronic method of transmission,
telex or telephone message, statement or other document or conversation believed
by it to be genuine and correct and to have been signed, sent, or made by the
proper Person or Persons, and upon advice and statements of legal counsel
(including counsel to Borrower or counsel to any Lender), independent
accountants and other experts selected by Agent. Agent shall be fully justified
in failing or refusing to take any action under this Agreement or any other Loan
Document unless Agent shall first receive such advice or concurrence of the
Lenders as it deems appropriate and until such instructions are received, Agent
shall act, or refrain from acting, as it deems advisable. If Agent so requests,
it shall first be indemnified to its reasonable satisfaction by the Lenders
against any and all liability and expense that may be incurred by it by reason
of taking or continuing to take any such action. Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the requisite
Lenders and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Lenders.
     15.5. Notice of Default or Event of Default.
          Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default, except with respect to defaults
in the payment of principal, interest, fees, and expenses required to be paid to
Agent for the account of the Lenders and, except with respect to Events of
Default of which Agent has actual knowledge, unless Agent shall have received
written notice from a Lender or Borrower referring to this Agreement, describing
such Default or Event of Default, and stating that such notice is a “notice of
default.” Agent promptly

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will notify the Lenders of its receipt of any such notice or of any Event of
Default of which Agent has actual knowledge. If any Lender obtains actual
knowledge of any Event of Default, such Lender promptly shall notify the other
Lenders and Agent of such Event of Default. Each Lender shall be solely
responsible for giving any notices to its Participants, if any. Subject to
Section 15.4, Agent shall take such action with respect to such Default or Event
of Default as may be requested by the Required Lenders in accordance with
Section 9; provided, however, that unless and until Agent has received any such
request, Agent may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Default or Event of Default as it
shall deem advisable.
     15.6. Credit Decision.
          Each Lender acknowledges that none of the Agent-Related Persons has
made any representation or warranty to it, and that no act by Agent hereinafter
taken, including any review of the affairs of Borrower and its Subsidiaries or
Affiliates, shall be deemed to constitute any representation or warranty by any
Agent-Related Person to any Lender. Each Lender represents to Agent that it has,
independently and without reliance upon any Agent-Related Person and based on
such due diligence, documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of Borrower or any
other Person party to a Loan Document, and all applicable bank regulatory laws
relating to the transactions contemplated hereby, and made its own decision to
enter into this Agreement and to extend credit to Borrower. Each Lender also
represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of Borrower or any other Person party
to a Loan Document. Except for notices, reports, and other documents expressly
herein required to be furnished to the Lenders by Agent, Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property, financial
and other condition or creditworthiness of Borrower or any other Person party to
a Loan Document that may come into the possession of any of the Agent-Related
Persons. Each Lender acknowledges that Agent does not have any duty or
responsibility, either initially or on a continuing basis (except to the extent,
if any, that is expressly specified herein) to provide such Lender with any
credit or other information with respect to Borrower, its Affiliates or any of
their respective business, legal, financial or other affairs, and irrespective
of whether such information came into Agent’s or its Affiliates’ or
representatives’ possession before or after the date on which such Lender became
a party to this Agreement.
     15.7. Costs and Expenses; Indemnification.
          Agent may incur and pay Lender Group Expenses to the extent Agent
reasonably deems necessary or appropriate for the performance and fulfillment of
its functions, powers, and obligations pursuant to the Loan Documents, including
court costs, attorneys fees and expenses, fees and expenses of financial
accountants, advisors, consultants, and appraisers, costs of collection by
outside collection agencies, auctioneer fees and expenses, and costs of security
guards or insurance premiums paid to maintain the Collateral, whether or not
Borrower is

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obligated to reimburse Agent or Lenders for such expenses pursuant to this
Agreement or otherwise. Agent is authorized and directed to deduct and retain
sufficient amounts from the Collections of Borrower and its Subsidiaries
received by Agent to reimburse Agent for such out-of-pocket costs and expenses
prior to the distribution of any amounts to Lenders. In the event Agent is not
reimbursed for such costs and expenses by Borrower or its Subsidiaries, each
Lender hereby agrees that it is and shall be obligated to pay to Agent such
Lender’s Pro Rata Share thereof. Whether or not the transactions contemplated
hereby are consummated, the Lenders shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower
and without limiting the obligation of Borrower to do so), according to their
Pro Rata Shares, from and against any and all Indemnified Liabilities; provided,
however, that no Lender shall be liable for the payment to any Agent-Related
Person of any portion of such Indemnified Liabilities resulting solely from such
Person’s gross negligence or willful misconduct nor shall any Lender be liable
for the obligations of any Defaulting Lender in failing to make an Advance or
other extension of credit hereunder. Without limitation of the foregoing, each
Lender shall reimburse Agent upon demand for such Lender’s Pro Rata Share of any
costs or out of pocket expenses (including attorneys, accountants, advisors, and
consultants fees and expenses) 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,
any other Loan Document, or any document contemplated by or referred to herein,
to the extent that Agent is not reimbursed for such expenses by or on behalf of
Borrower. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of Agent.
     15.8. Agent in Individual Capacity.
          WFF and its Affiliates may make loans to, issue letters of credit for
the account of, accept deposits from, acquire equity interests in, and generally
engage in any kind of banking, trust, financial advisory, underwriting, or other
business with Borrower and its Subsidiaries and Affiliates and any other Person
party to any Loan Document as though WFF were not Agent hereunder, and, in each
case, without notice to or consent of the other members of the Lender Group. The
other members of the Lender Group acknowledge that, pursuant to such activities,
WFF or its Affiliates may receive information regarding Borrower or its
Affiliates or any other Person party to any Loan Document that is subject to
confidentiality obligations in favor of Borrower or such other Person and that
prohibit the disclosure of such information to the Lenders, and the Lenders
acknowledge that, in such circumstances (and in the absence of a waiver of such
confidentiality obligations, which waiver Agent will use its reasonable best
efforts to obtain), Agent shall not be under any obligation to provide such
information to them. The terms “Lender” and “Lenders” include WFF in its
individual capacity.
     15.9. Successor Agent.
          Agent may resign as Agent upon 30 days prior written notice to the
Lenders (unless such notice is waived by the Required Lenders) and Borrower
(unless an Event of Default exists or such notice is waived by Borrower). If
Agent resigns under this Agreement, the Required Lenders shall be entitled, with
(so long as no Event of Default has occurred and is continuing) the consent of
Borrower (such consent not to be unreasonably withheld, delayed, or
conditioned), appoint a successor Agent for the Lenders. If, at the time that
Agent’s resignation

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is effective, it is acting as the Issuing Lender or the Swing Lender, such
resignation shall also operate to effectuate its resignation as the Issuing
Lender or the Swing Lender, as applicable, and it shall automatically be
relieved of any further obligation to issue Letters of Credit or make Swing
Loans. If no successor Agent is appointed prior to the effective date of the
resignation of Agent, Agent may appoint, after consulting with the Lenders and
Borrower, a successor Agent. If Agent has materially breached or failed to
perform any material provision of this Agreement or of applicable law, the
Required Lenders may agree in writing to remove and replace Agent with a
successor Agent from among the Lenders with (so long as no Event of Default has
occurred and is continuing) the consent of Borrower (such consent not to be
unreasonably withheld, delayed, or conditioned). In any such event, upon the
acceptance of its appointment as successor Agent hereunder, such successor Agent
shall succeed to all the rights, powers, and duties of the retiring Agent and
the term “Agent” shall mean such successor Agent and the retiring Agent’s
appointment, powers, and duties as Agent shall be terminated. After any retiring
Agent’s resignation hereunder as Agent, the provisions of this Section 15 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement. If no successor Agent has accepted
appointment as Agent by the date which is 30 days following a retiring Agent’s
notice of resignation, the retiring Agent’s resignation shall nevertheless
thereupon become effective and the Lenders shall perform all of the duties of
Agent hereunder until such time, if any, as the Lenders appoint a successor
Agent as provided for above.
     15.10. Lender in Individual Capacity.
          Any Lender and its respective Affiliates may make loans to, issue
letters of credit for the account of, accept deposits from, acquire equity
interests in and generally engage in any kind of banking, trust, financial
advisory, underwriting, or other business with Borrower and its Subsidiaries and
Affiliates and any other Person party to any Loan Document as though such Lender
were not a Lender hereunder without notice to or consent of the other members of
the Lender Group. The other members of the Lender Group acknowledge that,
pursuant to such activities, such Lender and its respective Affiliates may
receive information regarding Borrower or its Affiliates or any other Person
party to any Loan Document that is subject to confidentiality obligations in
favor of Borrower or such other Person and that prohibit the disclosure of such
information to the Lenders, and the Lenders acknowledge that, in such
circumstances (and in the absence of a waiver of such confidentiality
obligations, which waiver such Lender will use its reasonable best efforts to
obtain), such Lender shall not be under any obligation to provide such
information to them.
     15.11. Collateral Matters.
          (a) The Lenders hereby irrevocably authorize Agent, at its option and
in its sole discretion, to release any Lien on any Collateral (i) upon the
termination of the Commitments and payment and satisfaction in full by Borrower
of all Obligations, (ii) constituting property being sold or disposed of if a
release is required or desirable in connection therewith and if Borrower
certifies to Agent that the sale or disposition is permitted under Section 6.4
or the other Loan Documents (and Agent may rely conclusively on any such
certificate, without further inquiry), (iii) constituting property in which
Borrower or its Subsidiaries owned no interest at the time Agent’s Lien was
granted nor at any time thereafter, or (iv) constituting property leased to
Borrower or its Subsidiaries under a lease that has expired or is terminated in
a transaction permitted under this Agreement. The Lenders hereby irrevocably

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authorize Agent, based upon the instruction of the Required Lenders, to credit
bid and purchase (either directly or through one or more acquisition vehicles)
all or any portion of the Collateral at any sale thereof conducted by Agent
under the provisions of the Code, including pursuant to Sections 9-610 or 9-620
of the Code, at any sale thereof conducted under the provisions of the
Bankruptcy Code, including Section 363 of the Bankruptcy Code, or at any other
sale or foreclosure conducted by Agent (whether by judicial action or otherwise)
in accordance with applicable law. Except as provided above, Agent will not
execute and deliver a release of any Lien on any Collateral without the prior
written authorization of (y) if the release is of all or substantially all of
the Collateral, all of the Lenders, or (z) otherwise, the Required Lenders. Upon
request by Agent or Borrower at any time, the Lenders will confirm in writing
Agent’s authority to release any such Liens on particular types or items of
Collateral pursuant to this Section 15.11; provided, however, that (1) Agent
shall not be required to execute any document necessary to evidence such release
on terms that, in Agent’s opinion, would expose Agent to liability or create any
obligation or entail any consequence other than the release of such Lien without
recourse, representation, or warranty, and (2) such release shall not in any
manner discharge, affect, or impair the Obligations or any Liens (other than
those expressly being released) upon (or obligations of any Loan Party in
respect of) all interests retained by any Loan Party, including, the proceeds of
any sale, all of which shall continue to constitute part of the Collateral. The
Lenders further hereby irrevocably authorize Agent, at its option and in its
sole discretion, to subordinate any Lien granted to or held by Agent under any
Loan Document to the holder of any Permitted Lien on such property if such
Permitted Lien secures Permitted Purchase Money Indebtedness.
          (b) Agent shall have no obligation whatsoever to any of the Lenders to
assure that the Collateral exists or is owned by Borrower or its Subsidiaries or
is cared for, protected, or insured or has been encumbered, or that Agent’s
Liens have been properly or sufficiently or lawfully created, perfected,
protected, or enforced or are entitled to any particular priority, or to
exercise at all or in any particular manner or under any duty of care,
disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Agent pursuant to any of the Loan
Documents, it being understood and agreed that in respect of the Collateral, or
any act, omission, or event related thereto, subject to the terms and conditions
contained herein, Agent may act in any manner it may deem appropriate, in its
sole discretion given Agent’s own interest in the Collateral in its capacity as
one of the Lenders and that Agent shall have no other duty or liability
whatsoever to any Lender as to any of the foregoing, except as otherwise
provided herein.
     15.12. Restrictions on Actions by Lenders; Sharing of Payments.
          (a) Each of the Lenders agrees that it shall not, without the express
written consent of Agent, and that it shall, to the extent it is lawfully
entitled to do so, upon the written request of Agent, set off against the
Obligations, any amounts owing by such Lender to Borrower or its Subsidiaries or
any deposit accounts of Borrower or its Subsidiaries now or hereafter maintained
with such Lender. Each of the Lenders further agrees that it shall not, unless
specifically requested to do so in writing by Agent, take or cause to be taken
any action, including, the commencement of any legal or equitable proceedings to
enforce any Loan Document against Borrower or any Guarantor or to foreclose any
Lien on, or otherwise enforce any security interest in, any of the Collateral.

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          (b) If, at any time or times any Lender shall receive (i) by payment,
foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments
with respect to the Obligations, except for any such proceeds or payments
received by such Lender from Agent pursuant to the terms of this Agreement, or
(ii) payments from Agent in excess of such Lender’s Pro Rata Share of all such
distributions by Agent, such Lender promptly shall (A) turn the same over to
Agent, in kind, and with such endorsements as may be required to negotiate the
same to Agent, or in immediately available funds, as applicable, for the account
of all of the Lenders and for application to the Obligations in accordance with
the applicable provisions of this Agreement, or (B) purchase, without recourse
or warranty, an undivided interest and participation in the Obligations owed to
the other Lenders so that such excess payment received shall be applied ratably
as among the Lenders in accordance with their Pro Rata Shares; provided,
however, that to the extent that such excess payment received by the purchasing
party is thereafter recovered from it, those purchases of participations shall
be rescinded in whole or in part, as applicable, and the applicable portion of
the purchase price paid therefor shall be returned to such purchasing party, but
without interest except to the extent that such purchasing party is required to
pay interest in connection with the recovery of the excess payment.
     15.13. Agency for Perfection.
          Agent hereby appoints each other Lender as its agent (and each Lender
hereby accepts such appointment) for the purpose of perfecting Agent’s Liens in
assets which, in accordance with Article 8 or Article 9, as applicable, of the
Code can be perfected by possession or control. Should any Lender obtain
possession or control of any such Collateral, such Lender shall notify Agent
thereof, and, promptly upon Agent’s request therefor shall deliver possession or
control of such Collateral to Agent or in accordance with Agent’s instructions.
     15.14. Payments by Agent to the Lenders.
          All payments to be made by Agent to the Lenders shall be made by bank
wire transfer of immediately available funds pursuant to such wire transfer
instructions as each party may designate for itself by written notice to Agent.
Concurrently with each such payment, Agent shall identify whether such payment
(or any portion thereof) represents principal, premium, fees, or interest of the
Obligations.
     15.15. Concerning the Collateral and Related Loan Documents.
          Each member of the Lender Group authorizes and directs Agent to enter
into this Agreement and the other Loan Documents. Each member of the Lender
Group agrees that any action taken by Agent in accordance with the terms of this
Agreement or the other Loan Documents relating to the Collateral and the
exercise by Agent of its powers set forth therein or herein, together with such
other powers that are reasonably incidental thereto, shall be binding upon all
of the Lenders.

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     15.16. Audits and Examination Reports; Confidentiality; Disclaimers by
Lenders; Other Reports and Information.
          By becoming a party to this Agreement, each Lender:
          (a) is deemed to have requested that Agent furnish such Lender,
promptly after it becomes available, a copy of each field audit or examination
report respecting Borrower or its Subsidiaries (each a “Report” and
collectively, “Reports”) prepared by or at the request of Agent, and Agent shall
so furnish each Lender with such Reports,
          (b) expressly agrees and acknowledges that Agent does not (i) make any
representation or warranty as to the accuracy of any Report, and (ii) shall not
be liable for any information contained in any Report,
          (c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that Agent or other party performing any
audit or examination will inspect only specific information regarding Borrower
and its Subsidiaries and will rely significantly upon Borrower’s and its
Subsidiaries’ books and records, as well as on representations of Loan Parties’
personnel,
          (d) agrees to keep all Reports and other material, non-public
information regarding Borrower and its Subsidiaries and their operations,
assets, and existing and contemplated business plans in a confidential manner in
accordance with Section 17.9, and
          (e) without limiting the generality of any other indemnification
provision contained in this Agreement, agrees: (i) to hold Agent and any other
Lender preparing a Report harmless from any action the indemnifying Lender may
take or fail to take or any conclusion the indemnifying Lender may reach or draw
from any Report in connection with any loans or other credit accommodations that
the indemnifying Lender has made or may make to Borrower, or the indemnifying
Lender’s participation in, or the indemnifying Lender’s purchase of, a loan or
loans of Borrower, and (ii) to pay and protect, and indemnify, defend and hold
Agent, and any such other Lender preparing a Report harmless from and against,
the claims, actions, proceedings, damages, costs, expenses, and other amounts
(including, attorneys fees and costs) incurred by Agent and any such other
Lender preparing a Report as the direct or indirect result of any third parties
who might obtain all or part of any Report through the indemnifying Lender.
In addition to the foregoing: (x) any Lender may from time to time request of
Agent in writing that Agent provide to such Lender a copy of any report or
document provided by Borrower or its Subsidiaries to Agent that has not been
contemporaneously provided by Borrower or such Subsidiary to such Lender, and,
upon receipt of such request, Agent promptly shall provide a copy of same to
such Lender, (y) to the extent that Agent is entitled, under any provision of
the Loan Documents, to request additional reports or information from Borrower
or its Subsidiaries, any Lender may, from time to time, reasonably request Agent
to exercise such right as specified in such Lender’s notice to Agent, whereupon
Agent promptly shall request of Borrower the additional reports or information
reasonably specified by such Lender, and, upon receipt thereof from Borrower or
such Subsidiary, Agent promptly shall provide a copy of same to such Lender, and
(z) any time that Agent renders to Borrower a statement regarding the Loan
Account, Agent shall send a copy of such statement to each Lender.

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     15.17. Several Obligations; No Liability.
          Notwithstanding that certain of the Loan Documents now or hereafter
may have been or will be executed only by or in favor of Agent in its capacity
as such, and not by or in favor of the Lenders, any and all obligations on the
part of Agent (if any) to make any credit available hereunder shall constitute
the several (and not joint) obligations of the respective Lenders on a ratable
basis, according to their respective Commitments, to make an amount of such
credit not to exceed, in principal amount, at any one time outstanding, the
amount of their respective Commitments. Nothing contained herein shall confer
upon any Lender any interest in, or subject any Lender to any liability for, or
in respect of, the business, assets, profits, losses, or liabilities of any
other Lender. Each Lender shall be solely responsible for notifying its
Participants of any matters relating to the Loan Documents to the extent any
such notice may be required, and no Lender shall have any obligation, duty, or
liability to any Participant of any other Lender. Except as provided in
Section 15.7, no member of the Lender Group shall have any liability for the
acts of any other member of the Lender Group. No Lender shall be responsible to
Borrower or any other Person for any failure by any other Lender to fulfill its
obligations to make credit available hereunder, nor to advance for it or on its
behalf in connection with its Commitment, nor to take any other action on its
behalf hereunder or in connection with the financing contemplated herein.
16. WITHHOLDING TAXES.
          (a) All payments made by Borrower hereunder or under any note or other
Loan Document will be made without setoff, counterclaim, or other defense. In
addition, all such payments will be made free and clear of, and without
deduction or withholding for, any present or future Taxes, and in the event any
deduction or withholding of Taxes is required, Borrower shall comply with the
next sentence of this Section 16(a). If any Taxes are so levied or imposed,
Borrower agrees to pay the full amount of such Taxes and such additional amounts
as may be necessary so that every payment of all amounts due under this
Agreement, any note, or Loan Document, including any amount paid pursuant to
this Section 16(a) after withholding or deduction for or on account of any
Taxes, will not be less than the amount provided for herein; provided, however,
that Borrower shall not be required to increase any such amounts if the increase
in such amount payable results from Agent’s or such Lender’s own willful
misconduct or gross negligence (as finally determined by a court of competent
jurisdiction). Borrower will furnish to Agent as promptly as possible after the
date the payment of any Tax is due pursuant to applicable law, certified copies
of tax receipts evidencing such payment by Borrower.
          (b) Borrower agrees to pay any present or future stamp, value added or
documentary taxes or any other excise or property taxes, charges, or similar
levies that arise from any payment made hereunder or from the execution,
delivery, performance, recordation, or filing of, or otherwise with respect to
this Agreement or any other Loan Document.
          (c) If a Lender or Participant is entitled to claim an exemption or
reduction from United States withholding tax, such Lender or Participant agrees
with and in favor of Agent, to deliver to Agent (or, in the case of a
Participant, to the Lender granting the participation only) one of the following
before receiving its first payment under this Agreement:

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               (i) if such Lender or Participant is entitled to claim an
exemption from United States withholding tax pursuant to the portfolio interest
exception, (A) a statement of the Lender or Participant, signed under penalty of
perjury, that it is not a (I) a “bank” as described in Section 881(c)(3)(A) of
the IRC, (II) a 10% shareholder of Borrower (within the meaning of Section
871(h)(3)(B) of the IRC), or (III) a controlled foreign corporation related to
Borrower within the meaning of Section 864(d)(4) of the IRC, and (B) a properly
completed and executed IRS Form W-8BEN or Form W-8IMY (with proper attachments);
               (ii) if such Lender or Participant is entitled to claim an
exemption from, or a reduction of, withholding tax under a United States tax
treaty, a properly completed and executed copy of IRS Form W-8BEN;
               (iii) if such Lender or Participant is entitled to claim that
interest paid under this Agreement is exempt from United States withholding tax
because it is effectively connected with a United States trade or business of
such Lender, a properly completed and executed copy of IRS Form W-8ECI;
               (iv) if such Lender or Participant is entitled to claim that
interest paid under this Agreement is exempt from United States withholding tax
because such Lender or Participant serves as an intermediary, a properly
completed and executed copy of IRS Form W-8IMY (with proper attachments); or
               (v) a properly completed and executed copy of any other form or
forms, including IRS Form W-9, as may be required under the IRC or other laws of
the United States as a condition to exemption from, or reduction of, United
States withholding or backup withholding tax.
Each Lender or Participant shall provide new forms (or successor forms) upon the
expiration or obsolescence of any previously delivered forms and to promptly
notify Agent (or, in the case of a Participant, to the Lender granting the
participation only) of any change in circumstances which would modify or render
invalid any claimed exemption or reduction.
          (d) If a Lender or Participant claims an exemption from withholding
tax in a jurisdiction other than the United States, such Lender or such
Participant agrees with and in favor of Agent, to deliver to Agent (or, in the
case of a Participant, to the Lender granting the participation only) any such
form or forms, as may be required under the laws of such jurisdiction as a
condition to exemption from, or reduction of, foreign withholding or backup
withholding tax before receiving its first payment under this Agreement, but
only if such Lender or such Participant is legally able to deliver such forms,
provided, however, that nothing in this Section 16(d) shall require a Lender or
Participant to disclose any information that it deems to be confidential
(including without limitation, its tax returns). Each Lender and each
Participant shall provide new forms (or successor forms) upon the expiration or
obsolescence of any previously delivered forms and to promptly notify Agent (or,
in the case of a Participant, to the Lender granting the participation only) of
any change in circumstances which would modify or render invalid any claimed
exemption or reduction.
          (e) If a Lender or Participant claims exemption from, or reduction of,
withholding tax and such Lender or Participant sells, assigns, grants a
participation in, or

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otherwise transfers all or part of the Obligations of Borrower to such Lender or
Participant, such Lender or Participant agrees to notify Agent (or, in the case
of a sale of a participation interest, to the Lender granting the participation
only) of the percentage amount in which it is no longer the beneficial owner of
Obligations of Borrower to such Lender or Participant. To the extent of such
percentage amount, Agent will treat such Lender’s or such Participant’s
documentation provided pursuant to Section 16(c) or 16(d) as no longer valid.
With respect to such percentage amount, such Participant or Assignee may provide
new documentation, pursuant to Section 16(c) or 16(d), if applicable. Borrower
agrees that each Participant shall be entitled to the benefits of this
Section 16 with respect to its participation in any portion of the Commitments
and the Obligations so long as such Participant complies with the obligations
set forth in this Section 16 with respect thereto.
          (f) If a Lender or a Participant is entitled to a reduction in the
applicable withholding tax, Agent (or, in the case of a Participant, to the
Lender granting the participation) may withhold from any interest payment to
such Lender or such Participant an amount equivalent to the applicable
withholding tax after taking into account such reduction. If the forms or other
documentation required by Section 16(c) or 16(d) are not delivered to Agent (or,
in the case of a Participant, to the Lender granting the participation), then
Agent (or, in the case of a Participant, to the Lender granting the
participation) may withhold from any interest payment to such Lender or such
Participant not providing such forms or other documentation an amount equivalent
to the applicable withholding tax.
          (g) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that Agent (or, in the case of a
Participant, to the Lender granting the participation) did not properly withhold
tax from amounts paid to or for the account of any Lender or any Participant due
to a failure on the part of the Lender or any Participant (because the
appropriate form was not delivered, was not properly executed, or because such
Lender failed to notify Agent (or such Participant failed to notify the Lender
granting the participation) of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason) such Lender shall indemnify and hold Agent harmless (or, in the case of
a Participant, such Participant shall indemnify and hold the Lender granting the
participation harmless) for all amounts paid, directly or indirectly, by Agent
(or, in the case of a Participant, to the Lender granting the participation), as
tax or otherwise, including penalties and interest, and including any taxes
imposed by any jurisdiction on the amounts payable to Agent (or, in the case of
a Participant, to the Lender granting the participation only) under this
Section 16, together with all costs and expenses (including attorneys fees and
expenses). The obligation of the Lenders and the Participants under this
subsection shall survive the payment of all Obligations and the resignation or
replacement of Agent.
          (h) If Agent or a Lender determines, in its sole discretion, that it
has received a refund of any Taxes as to which it has been indemnified by
Borrower or with respect to which Borrower has paid additional amounts pursuant
to this Section 16, so long as no Default or Event of Default has occurred and
is continuing, it shall pay over such refund to Borrower (but only to the extent
of payments made, or additional amounts paid, by Borrower under this Section 16
with respect to Taxes giving rise to such a refund), net of all out-of-pocket
expenses of Agent or such Lender and without interest (other than any interest
paid by the relevant Governmental Authority with respect to such a refund);
provided, that Borrower, upon the request of Agent or

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such Lender, agrees to repay the amount paid over to Borrower (plus any
penalties, interest or other charges, imposed by the relevant Governmental
Authority, other than such penalties, interest or other charges imposed as a
result of the willful misconduct or gross negligence of Agent hereunder) to
Agent or such Lender in the event Agent or such Lender is required to repay such
refund to such Governmental Authority. Notwithstanding anything in this
Agreement to the contrary, this Section 16 shall not be construed to require
Agent or any Lender to make available its tax returns (or any other information
which it deems confidential) to Borrower or any other Person.
17. GENERAL PROVISIONS.
     17.1. Effectiveness.
          This Agreement shall be binding and deemed effective when executed by
Borrower, Agent, and each Lender whose signature is provided for on the
signature pages hereof.
     17.2. Section Headings.
          Headings and numbers have been set forth herein for convenience only.
Unless the contrary is compelled by the context, everything contained in each
Section applies equally to this entire Agreement.
     17.3. Interpretation.
          Neither this Agreement nor any uncertainty or ambiguity herein shall
be construed against the Lender Group or Borrower, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to accomplish fairly the purposes and intentions
of all parties hereto.
     17.4. Severability of Provisions.
          Each provision of this Agreement shall be severable from every other
provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
     17.5. Bank Product Providers.
          Each Bank Product Provider shall be deemed a third party beneficiary
hereof and of the provisions of the other Loan Documents for purposes of any
reference in a Loan Document to the parties for whom Agent is acting. Agent
hereby agrees to act as a non-fiduciary agent for such Bank Product Providers
and, by virtue of providing a Bank Product, each Bank Product Provider shall be
automatically deemed to have appointed Agent as its non-fiduciary agent; it
being understood and agreed that the rights and benefits of each Bank Product
Provider under the Loan Documents consist exclusively of such Bank Product
Provider’s being a beneficiary of the Liens and security interests (and, if
applicable, guarantees) granted to Agent and the right to share in payments and
collections out of the Collateral as more fully set forth herein. In connection
with any such distribution of payments and collections, Agent shall be entitled
to assume no amounts are due and payable to any Bank Product Provider unless
such Bank Product Provider has notified Agent in writing of the amount that is
due and payable to it

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prior to such distribution. In addition, Agent shall not be obligated to
establish or increase a Bank Product Reserve for any Bank Product unless after
giving effect to such establishment or increase the sum of the Bank Product
Reserves established for all Bank Products does not exceed the Aggregate Bank
Product Reserve.
     17.6. Debtor-Creditor Relationship.
          The relationship between the Lenders and Agent, on the one hand, and
the Loan Parties, on the other hand, is solely that of creditor and debtor. No
member of the Lender Group has (or shall be deemed to have) any fiduciary
relationship or duty to any Loan Party arising out of or in connection with the
Loan Documents or the transactions contemplated thereby, and there is no agency
or joint venture relationship between the members of the Lender Group, on the
one hand, and the Loan Parties, on the other hand, by virtue of any Loan
Document or any transaction contemplated therein.
     17.7. Counterparts; Electronic Execution.
          This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement. Delivery of an
executed counterpart of this Agreement by telefacsimile or other electronic
method of transmission shall be equally as effective as delivery of an original
executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile or other electronic method of
transmission also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability, and binding effect of this Agreement. The
foregoing shall apply to each other Loan Document mutatis mutandis.
     17.8. Revival and Reinstatement of Obligations.
          If the incurrence or payment of the Obligations by Borrower or
Guarantor or the transfer to the Lender Group of any property should for any
reason subsequently be asserted, or declared, to be void or voidable under any
state or federal law relating to creditors’ rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences, or other
voidable or recoverable payments of money or transfers of property (each, a
“Voidable Transfer”), and if the Lender Group is required to repay or restore,
in whole or in part, any such Voidable Transfer, or elects to do so upon the
reasonable advice of its counsel, then, as to any such Voidable Transfer, or the
amount thereof that the Lender Group is required or elects to repay or restore,
and as to all reasonable costs, expenses, and attorneys fees of the Lender Group
related thereto, the liability of Borrower or Guarantor automatically shall be
revived, reinstated, and restored and shall exist as though such Voidable
Transfer had never been made.
     17.9. Confidentiality.
          (a) Agent and Lenders each individually (and not jointly or jointly
and severally) agree that material, non-public information regarding Borrower
and its Subsidiaries, their operations, assets, and existing and contemplated
business plans (“Confidential Information”) shall be treated by Agent and the
Lenders in a confidential manner, and shall not

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be disclosed by Agent and the Lenders to Persons who are not parties to this
Agreement, except: (i) to attorneys for and other advisors, accountants,
auditors, and consultants to any member of the Lender Group (“Lender Group
Representatives”), (ii) to Subsidiaries and Affiliates of any member of the
Lender Group (including the Bank Product Providers), provided that any such
Subsidiary or Affiliate shall have agreed to receive such information hereunder
subject to the terms of this Section 17.9, (iii) as may be required by
regulatory authorities so long as such authorities are informed of the
confidential nature of such information, (iv) as may be required by statute,
decision, or judicial or administrative order, rule, or regulation; provided
that (x) prior to any disclosure under this clause (iv), the disclosing party
agrees to provide Borrower with prior notice thereof, to the extent that it is
practicable to do so and to the extent that the disclosing party is permitted to
provide such prior notice to Borrower pursuant to the terms of the applicable
statute, decision, or judicial or administrative order, rule, or regulation and
(y) any disclosure under this clause (iv) shall be limited to the portion of the
Confidential Information as may be required by such statute, decision, or
judicial or administrative order, rule, or regulation, (v) as may be agreed to
in advance by Borrower or as requested or required by any Governmental Authority
pursuant to any subpoena or other legal process, provided, that, (x) prior to
any disclosure under this clause (v) the disclosing party agrees to provide
Borrower with prior notice thereof, to the extent that it is practicable to do
so and to the extent that the disclosing party is permitted to provide such
prior notice to Borrower pursuant to the terms of the subpoena or other legal
process and (y) any disclosure under this clause (v) shall be limited to the
portion of the Confidential Information as may be required by such governmental
authority pursuant to such subpoena or other legal process, (vi) as to any such
information that is or becomes generally available to the public (other than as
a result of prohibited disclosure by Agent or the Lenders or the Lender Group
Representatives), (vii) in connection with any assignment, participation or
pledge of any Lender’s interest under this Agreement, provided that any such
assignee, participant, or pledgee shall have agreed in writing to receive such
information hereunder subject to the terms of this Section, (viii) in connection
with any litigation or other adversary proceeding involving parties hereto which
such litigation or adversary proceeding involves claims related to the rights or
duties of such parties under this Agreement or the other Loan Documents;
provided, that, prior to any disclosure to any Person (other than any Loan
Party, Agent, any Lender, any of their respective Affiliates, or their
respective counsel) under this clause (viii) with respect to litigation
involving any Person (other than Borrower, Agent, any Lender, any of their
respective Affiliates, or their respective counsel), the disclosing party agrees
to provide Borrower with prior notice thereof, and (ix) in connection with, and
to the extent reasonably necessary for, the exercise of any secured creditor
remedy under this Agreement or under any other Loan Document.
          (b) Anything in this Agreement to the contrary notwithstanding, Agent
may provide information concerning the terms and conditions of this Agreement
and the other Loan Documents to loan syndication and pricing reporting services.
     17.10. Lender Group Expenses.
          Borrower agrees to pay any and all Lender Group Expenses promptly
after demand therefore by Agent and agrees that its obligations contained in
this Section 17.10 shall survive payment or satisfaction in full of all other
Obligations.

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     17.11. USA PATRIOT Act.
          Each Lender that is subject to the requirements of the Patriot Act
hereby notifies Borrower that pursuant to the requirements of the Act, it is
required to obtain, verify and record information that identifies Borrower,
which information includes the name and address of Borrower and other
information that will allow such Lender to identify Borrower in accordance with
the Patriot Act.
     17.12. Integration.
          This Agreement, together with the other Loan Documents, reflects the
entire understanding of the parties with respect to the transactions
contemplated hereby and shall not be contradicted or qualified by any other
agreement, oral or written, before the date hereof.
[Signature pages to follow.]

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          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first above written.
NAVARRE CORPORATION, a Minnesota corporation
By: /s/
Title:
WELLS FARGO FOOTHILL, LLC,
a Delaware limited liability company, as Agent and as a Lender
By: /s/
Title:
CAPITAL ONE LEVERAGE FINANCE CORP.,
as a Lender
By: /s/
Title:
Signature Page to Credit Agreement

 

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Schedule 1.1
As used in the Agreement, the following terms shall have the following
definitions:
          “Account” means an account (as that term is defined in the Code).
          “Account Debtor” means any Person who is obligated on an Account,
chattel paper, or a general intangible.
          “Accounting Changes” means 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).
          “ACH Transactions” means any cash management or related services
(including the Automated Clearing House processing of electronic fund transfers
through the direct Federal Reserve Fedline system) provided by a Bank Product
Provider for the account of Borrower or its Subsidiaries.
          “Acquisition” means (a) the purchase or other acquisition by a Person
or its Subsidiaries of all or substantially all of the assets of (or any
division or business line of) any other Person, or (b) the purchase or other
acquisition (whether by means of a merger, consolidation, or otherwise) by a
Person or its Subsidiaries of all or substantially all of the Stock of any other
Person.
          “Additional Documents” has the meaning specified therefor in
Section 5.12 of the Agreement.
          “Additional Last Day Sales Cost of Goods Sold” means as of any date of
determination the cost of goods sold associated with the Excess Eligible Last
Day Sales Accounts as determined by Agent.
          “Advances” has the meaning specified therefor in Section 2.1(a) of the
Agreement.
          “Affected Lender” has the meaning specified therefor in
Section 2.13(b) of the Agreement.
          “Affiliate” means, as applied to any Person, any other Person who
controls, is controlled by, or is under common control with, such Person. For
purposes of this definition, “control” means the possession, directly or
indirectly through one or more intermediaries, of the power to direct the
management and policies of a Person, whether through the ownership of Stock, by
contract, or otherwise; provided, however, that, for purposes of the definition
of Eligible Accounts and Section 6.12 of the Agreement: (a) any Person which
owns directly or indirectly 10% or more of the Stock having ordinary voting
power for the election of directors or other members of the governing body of a
Person or 10% or more of the partnership or other ownership interests of a
Person (other than as a limited partner of such Person) shall be deemed an
Affiliate of such Person, (b) each director (or comparable manager) of a Person
shall be

Schedule 1.1 - Page 1

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deemed to be an Affiliate of such Person, and (c) each partnership in which a
Person is a general partner shall be deemed an Affiliate of such Person.
          “Agent” has the meaning specified therefor in the preamble to the
Agreement.
          “Agent-Related Persons” means Agent, together with its Affiliates,
officers, directors, employees, attorneys, and agents.
          “Agent’s Account” means the Deposit Account of Agent identified on
Schedule A-1.
          “Agent’s Liens” means the Liens granted by Borrower or its
Subsidiaries to Agent under the Loan Documents.
          “Agreement” means the Credit Agreement to which this Schedule 1.1 is
attached.
          “Aggregate Bank Product Reserve” means, as of any date of
determination, the lesser of (a) $2,500,000 and (b) the sum of the Bank Product
Reserves that have been established by Agent as of such date of determination.
          “Application Event” means the occurrence of (a) a failure by Borrower
to repay all of the Obligations on the Maturity Date, or (b) an Event of Default
and the election by Agent or the Required Lenders to require that payments and
proceeds of Collateral be applied pursuant to Section 2.4(b)(ii) of the
Agreement.
          “Applicable Unused Line Fee” means, with respect to any payment date
of the Applicable Unused Line Fee as provided in Section 2.10, the Applicable
Unused Line Fee set forth in the following table that corresponds to the average
Daily Balance of the Revolver Usage for the immediately preceding month (or
portion thereof); provided, however, that for the period from the Closing Date
through the period ending November 30, 2009, the Applicable Unused Line Fee
shall be at the fee in the row styled “Level I”:

                      Applicable Unused Level   Monthly Average Revolver Usage  
Line Fee
I
  If the average Daily Balance of the Revolver Usage is less than or equal to
$20,000,000     0.75 %  
II
  If the average Daily Balance of the Revolver Usage is greater than $20,000,000
but less than or equal to $50,000,000     0.50 %  
III
  If the average Daily Balance of the Revolver Usage is greater than $50,000,000
    0.25 %

          “Assignee” has the meaning specified therefor in Section 13.1(a) of
the Agreement.

Schedule 1.1 - Page 2

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          “Assignment and Acceptance” means an Assignment and Acceptance
Agreement substantially in the form of Exhibit A-1.
          “Authorized Person” means any one of the individuals identified on
Schedule A-2, as such schedule is updated from time to time by written notice
from Borrower to Agent.
          “Availability” means, as of any date of determination, the amount that
Borrower is entitled to borrow as Advances under Section 2.1 of the Agreement
(after giving effect to all then outstanding Obligations (other than Bank
Product Obligations)).
          “Availability Block” means an amount equal to $0; provided, that the
Availability Block shall be increased to the lesser of (a) $5,000,000 and
(b) the aggregate amount of Net Cash Proceeds received in connection with one or
more sales of all or any part of the Publishing Business after the Closing Date.
          “Bank Product” means any financial accommodation extended to Borrower
or its Subsidiaries by a Bank Product Provider (other than pursuant to the
Agreement) including: (a) credit cards, (b) credit card processing services,
(c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management,
including controlled disbursement, accounts or services, or (g) transactions
under Hedge Agreements.
          “Bank Product Agreements” means those agreements entered into from
time to time by Borrower or its Subsidiaries with a Bank Product Provider in
connection with the obtaining of any of the Bank Products.
          “Bank Product Collateralization” means providing cash collateral
(pursuant to documentation reasonably satisfactory to Agent) to be held by Agent
for the benefit of the Bank Product Providers in an amount determined by Agent
as sufficient to satisfy the reasonably estimated credit exposure with respect
to the then existing Bank Products.
          “Bank Product Obligations” means (a) all obligations, liabilities,
reimbursement obligations, fees, or expenses owing by Borrower or its
Subsidiaries to any Bank Product Provider pursuant to or evidenced by a Bank
Product Agreement and irrespective of whether for the payment of money, whether
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, (b) all obligations of Borrower to reimburse an Underlying
Issuer in respect of Underlying Letters of Credit, and (c) all amounts that
Borrower or its Subsidiaries are obligated to reimburse to Agent or any member
of the Lender Group as a result of Agent or such member of the Lender Group
purchasing participations from, or executing guarantees or indemnities or
reimbursement obligations to, a Bank Product Provider with respect to the Bank
Products provided by such Bank Product Provider to Borrower or its Subsidiaries.
          “Bank Product Provider” means Wells Fargo or any of its Affiliates.
          “Bank Product Reserve” means, as of any date of determination, with
respect to a Bank Product, the amount of the reserve that Agent has established
(based upon the Bank Product Providers’ reasonable determination of the credit
exposure of Borrower and its Subsidiaries in respect of such Bank Product) in
respect of such Bank Product then provided or outstanding.

Schedule 1.1 - Page 3

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          “Bankruptcy Code” means title 11 of the United States Code, as in
effect from time to time.
          “Base LIBOR Rate” means the greater of (a) 2.00 percent per annum, and
(b) the rate per annum, determined by Agent in accordance with its customary
procedures, and utilizing such electronic or other quotation sources as it
considers appropriate, to be the rate at which Dollar deposits (for delivery on
the first day of the requested Interest Period) are offered to major banks in
the London interbank market 2 Business Days prior to the commencement of the
requested Interest Period, for a term and in an amount comparable to the
Interest Period and the amount of the LIBOR Rate Loan requested (whether as an
initial LIBOR Rate Loan or as a continuation of a LIBOR Rate Loan or as a
conversion of a Base Rate Loan to a LIBOR Rate Loan) by Borrower in accordance
with the Agreement, which determination shall be conclusive in the absence of
manifest error.
          “Base Rate” means the greatest of (a) 3.50 percent per annum, (b) the
Federal Funds Rate plus 1/2%, (c) the Base LIBOR Rate (which rate shall be
calculated based upon an Interest Period of 3 months and shall be determined on
a daily basis), plus 1%, and (d) the rate of interest announced, from time to
time, within Wells Fargo at its principal office in San Francisco as its “prime
rate”, with the understanding that the “prime rate” is one of Wells Fargo’s base
rates (not necessarily the lowest of such rates) and serves as the basis upon
which effective rates of interest are calculated for those loans making
reference thereto and is evidenced by the recording thereof after its
announcement in such internal publications as Wells Fargo may designate.
          “Base Rate Loan” means each portion of the Advances that bears
interest at a rate determined by reference to the Base Rate.
          “Base Rate Margin” means, as of any date of determination (with
respect to any portion of the outstanding Advances on such date that is a Base
Rate Loan), the applicable margin set forth in the following table that
correspond to the most recent TTM EBITDA calculation delivered to Agent pursuant
to Section 5.1 of the Agreement (the “TTM EBITDA Calculation”); provided,
however, that for the period from the Closing Date through the date Agent
receives the TTM EBITDA Calculation in respect of the testing period ending
June 30, 2010, the Base Rate Margin shall be at the margin in the row styled
“Level II”:

          Level   TTM EBITDA Calculation   Base Rate Margin
I
  If TTM EBITDA is greater than or equal to $23,000,000   3.75 percentage points
 
       
II
  If TTM EBITDA is less than $23,000,000 but greater than or equal to
$18,500,000   4.00 percentage points
 
       
III
  If TTM EBITDA is less than $18,500,000   4.25 percentage points

          Except as set forth in the foregoing proviso, the Base Rate Margin
shall be based upon the most recent TTM EBITDA Calculation, which will be
calculated as of the end of each fiscal quarter. Except as set forth in the
foregoing proviso, the Base Rate Margin shall be re-

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determined quarterly on the first day of the month following the date of
delivery to Agent of the certified calculation of the TTM EBITDA pursuant to
Section 5.1 of the Agreement for the most recently ended fiscal quarter;
provided, however, that if Borrower fails to provide such certification when
such certification is due, the Base Rate Margin shall be set at the margin in
the row styled “Level III” as of the first day of the month following the date
on which the certification was required to be delivered until the date on which
such certification is delivered (on which date (but not retroactively), without
constituting a waiver of any Default or Event of Default occasioned by the
failure to timely deliver such certification, the Base Rate Margin shall be set
at the margin based upon the calculations disclosed by such certification. In
the event that the information regarding the TTM EBITDA contained in any
certificate delivered pursuant to Section 5.1 of the Agreement is shown to be
inaccurate, and such inaccuracy, if corrected, would have led to the application
of a higher Base Rate Margin for any period (a “Base Rate Period”) than the Base
Rate Margin actually applied for such Base Rate Period, then (i) Borrower shall
immediately deliver to Agent a correct certificate for such Base Rate Period,
(ii) the Base Rate Margin shall be determined as if the correct Base Rate Margin
(as set forth in the table above) were applicable for such Base Rate Period, and
(iii) Borrower shall immediately deliver to Agent full payment in respect of the
accrued additional interest as a result of such increased Base Rate Margin for
such Base Rate Period, which payment shall be promptly applied by Agent to the
affected Obligations.
          “BCI” means BCI Eclipse Company, LLC, a Minnesota limited liability
company.
          “Benefit Plan” means a “defined benefit plan” (as defined in
Section 3(35) of ERISA) for which Borrower or any of its Subsidiaries or ERISA
Affiliates has been an “employer” (as defined in Section 3(5) of ERISA) within
the past six years.
          “Board of Directors” means the board of directors (or comparable
managers) of Borrower or any committee thereof duly authorized to act on behalf
of the board of directors (or comparable managers).
          “Borrower” has the meaning specified therefor in the preamble to the
Agreement.
          “Borrowing” means a borrowing hereunder consisting of Advances made on
the same day by the Lenders (or Agent on behalf thereof), or by Swing Lender in
the case of a Swing Loan, or by Agent in the case of a Protective Advance.
          “Borrowing Base” means, as of any date of determination, the Dollar
Equivalent of the result of:
     (a) 85% of the amount of Eligible Accounts, less the amount, if any, of the
Dilution Reserve, plus
     (b) the lowest of
     (i) $15,000,000,

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     (ii) the sum of (A) 50% of the value of Eligible Inventory and (B) the
lesser of 50% of the Additional Last Day Sales Cost of Goods Sold and
$1,000,000,
     (iii) 85% times the most recently determined Net Liquidation Percentage
times the book value of Loan Parties’ Inventory, and
     (iv) 50% of the amount of credit availability created by clause (a) above,
minus
     (c) the sum of (i) the Aggregate Bank Product Reserve, (ii) the
Availability Block, and (iii) the aggregate amount of reserves, if any,
established by Agent under Section 2.1(c) of the Agreement.
Notwithstanding the forgoing, (i) at no time shall the amount of the Borrowing
Base attributable to the Eligible Accounts arising from the Publishing Business
exceed 25% of the aggregate Borrowing Base attributable to Eligible Accounts,
and (ii) at no time shall the Availability attributable to Eligible Last Day
Sales Accounts that have been billed to the applicable Account Debtor but with
respect to which title to the goods have not yet passed to the applicable
Account Debtor exceed the Last Day Sales Sublimit.
          “Borrowing Base Certificate” means a certificate in the form of
Exhibit B-1.
          “Borrowing Base Excess Amount” has the meaning set forth in
Section 2.4(e)(i).
          “Business Day” means any day that is not a Saturday, Sunday, or other
day on which banks are authorized or required to close in the state of
Massachusetts, except that, if a determination of a Business Day shall relate to
a LIBOR Rate Loan, the term “Business Day” also shall exclude any day on which
banks are closed for dealings in Dollar deposits in the London interbank market.
          “Capital Expenditures” means, with respect to any Person for any
period, the aggregate of all expenditures by such Person and its Subsidiaries
during such period that are capital expenditures as determined in accordance
with GAAP, whether such expenditures are paid in cash or financed excluding any
Production Costs and excluding any Vendor Advances.
          “Capitalized Lease Obligation” means that portion of the obligations
under a Capital Lease that is required to be capitalized in accordance with
GAAP.
          “Capital Lease” means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
          “Cash Equivalents” means (a) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States or issued by any agency
thereof and backed by the full faith and credit of the United States, in each
case maturing within 1 year from the date of acquisition thereof, (b) marketable
direct obligations issued or fully guaranteed by any state of the United States
or any political subdivision of any such state or any public instrumentality
thereof maturing within 1 year from the date of acquisition thereof and, at the
time of acquisition, having one of the two highest ratings obtainable from
either Standard & Poor’s Rating Group

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(“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”), (c) commercial paper
maturing no more than 270 days from the date of creation thereof and, at the
time of acquisition, having a rating of at least A-1 from S&P or at least P-1
from Moody’s, (d) certificates of deposit, time deposits, overnight bank
deposits or bankers’ acceptances maturing within 1 year from the date of
acquisition thereof issued by any bank organized under the laws of the United
States or any state thereof or the District of Columbia or any United States
branch of a foreign bank having at the date of acquisition thereof combined
capital and surplus of not less than $250,000,000, (e) Deposit Accounts
maintained with (i) any bank that satisfies the criteria described in clause (d)
above, or (ii) any other bank organized under the laws of the United States or
any state thereof so long as the full amount maintained with any such other bank
is insured by the Federal Deposit Insurance Corporation, (f) repurchase
obligations of any commercial bank satisfying the requirements of clause (d) of
this definition or recognized securities dealer having combined capital and
surplus of not less than $250,000,000, having a term of not more than seven
days, with respect to securities satisfying the criteria in clauses (a) or
(d) above, (g) debt securities with maturities of six months or less from the
date of acquisition backed by standby letters of credit issued by any commercial
bank satisfying the criteria described in clause (d) above, and (h) Investments
in money market funds substantially all of whose assets are invested in the
types of assets described in clauses (a) through (g) above.
          “CFC” means a controlled foreign corporation (as that term is defined
in the IRC).
          “Change of Control” means that (a) any “person” or “group” (within the
meaning of Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of 20%, or more, of the Stock of Borrower having the right to vote for the
election of members of the Board of Directors, (b) a majority of the members of
the Board of Directors do not constitute Continuing Directors, or (c) Borrower
fails to own and control, directly or indirectly, 100% of the Stock of each
other Loan Party.
          “Closing Date” means the date of the making of the initial Advance (or
other extension of credit) hereunder.
          “Closing 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) non-cash loss
from extraordinary items for such period, (iv) depreciation and amortization for
such period (other than amortization with respect to Vendor Advances and
Production Costs), (v) amortized debt discount for such period, (vi) the amount
of any deduction to consolidated net income as the result of any grant to any
members of the management of such Person of any Stock, in each case to the
extent included in the calculation of consolidated net income of such Person for
such period in accordance with

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GAAP, (vii) goodwill impairment to the extent approved by Agent, and
(viii) impairment, restructuring and severance expenses to the extent approved
by Agent. 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.
          “Closing TTM EBITDA” means, as of any date of determination, Closing
EBITDA of Borrower determined on a consolidated basis in accordance with GAAP,
for the 12 month period most recently ended.
          “Code” means the Illinois Uniform Commercial Code, as in effect from
time to time.
          “Collateral” means all assets and interests in assets and proceeds
thereof now owned or hereafter acquired by Borrower or its Subsidiaries in or
upon which a Lien is granted by such Person in favor of Agent or the Lenders
under any of the Loan Documents.
          “Collateral Access Agreement” means a landlord waiver, bailee letter,
or acknowledgement agreement of any lessor, warehouseman, processor, consignee,
or other Person in possession of, having a Lien upon, or having rights or
interests in Borrower’s or its Subsidiaries’ books and records, Equipment, or
Inventory, in each case, in form and substance reasonably satisfactory to Agent.
          “Collections” means all cash, checks, notes, instruments, and other
items of payment (including insurance proceeds, cash proceeds of asset sales,
rental proceeds, and tax refunds).
          “Commitment” means, with respect to each Lender, its Revolver
Commitment or its Total Commitment, as the context requires, and, with respect
to all Lenders, their Revolver Commitments or their Total Commitments, as the
context requires, in each case as such Dollar amounts are set forth beside such
Lender’s name under the applicable heading on Schedule C-1 or in the Assignment
and Acceptance pursuant to which such Lender became a Lender

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hereunder, as such amounts may be reduced or increased from time to time
pursuant to assignments made in accordance with the provisions of Section 13.1
of the Agreement.
          “Compliance Certificate” means a certificate substantially in the form
of Exhibit C-1 delivered by the chief financial officer of Borrower to Agent.
          “Confidential Information” has the meaning specified therefor in
Section 17.9(a) of the Agreement.
          “Continuing Director” means (a) any member of the Board of Directors
who was a director (or comparable manager) of Borrower on the Closing Date, and
(b) any individual who becomes a member of the Board of Directors after the
Closing Date if such individual was approved, appointed or nominated for
election to the Board of Directors by a majority of the Continuing Directors,
but excluding any such individual originally proposed for election in opposition
to the Board of Directors in office at the Closing Date in an actual or
threatened election contest relating to the election of the directors (or
comparable managers) of Borrower and whose initial assumption of office resulted
from such contest or the settlement thereof.
          “Control Agreement” means a control agreement, in form and substance
reasonably satisfactory to Agent, executed and delivered by Borrower or one of
its Subsidiaries, Agent, and the applicable securities intermediary (with
respect to a Securities Account) or bank (with respect to a Deposit Account).
          “Controlled Account Agreement” has the meaning specified therefor in
the Security Agreement.
          “Copyright Security Agreement” has the meaning specified therefor in
the Security Agreement.
          “Currency Exchange Rate” means, as of the any date of determination,
the spot rate for the purchase of Dollars based on the amount of Canadian
Dollars necessary to purchase one Dollar, as determined by Agent in its sole
discretion.
          “Daily Balance” means, as of any date of determination and with
respect to any Obligation, the amount of such Obligation owed at the end of such
day.
          “Default” means an event, condition, or default that, with the giving
of notice, the passage of time, or both, would be an Event of Default.
          “Defaulting Lender” means any Lender that fails to make any Advance
(or other extension of credit) that it is required to make hereunder on the date
that it is required to do so hereunder.
          “Defaulting Lender Rate” means (a) for the first 3 days from and after
the date the relevant payment is due, the Base Rate, and (b) thereafter, the
interest rate then applicable to Advances that are Base Rate Loans (inclusive of
the Base Rate Margin applicable thereto).
          “Deposit Account” means any deposit account (as that term is defined
in the Code).

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          “Designated Account” means the Deposit Account of Borrower identified
on Schedule D-1.
          “Designated Account Bank” has the meaning specified therefor in
Schedule D-1.
          “Dilution” means, as of any date of determination, a percentage, based
upon the experience of the most recently ended 12 month period prior to such
date of determination or for the 3 month period of the immediately preceding
year corresponding to the next succeeding 3 month period beginning on or after
such date of determination (as elected by Agent) or as Agent otherwise
determines in its Permitted Discretion, that is the result of dividing the
Dollar amount of (a) bad debt write-downs, discounts, advertising allowances,
credits, or other dilutive items with respect to Loan Parties’ Accounts during
such period, by (b) Loan Parties’ billings with respect to Accounts during such
period.
          “Dilution Reserve” means, as of any date of determination, an amount
sufficient to reduce the advance rate against Eligible Accounts by 1 percentage
point for each percentage point by which Dilution is in excess of 5%.
          “Dollar Equivalent” means, as of any date of determination, (a) as to
any amount denominated in Dollars, the amount thereof as of such date of
determination, and (b) as to any amount denominated in Canadian Dollars, the
equivalent amount thereof in Dollars as determined by Agent on the basis of the
Currency Exchange Rate for the purchase of Dollars with Canadian Dollars in
effect on such date of determination.
          “Dollars” or “$” means United States dollars.
          “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) non-cash loss from
extraordinary items for such period, (iv) depreciation and amortization for such
period (other than amortization with respect to Vendor Advances and Production
Costs), (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

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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 Accounts” means those Accounts created by a Loan Party in
the ordinary course of its business, that arise out of a Loan Party’s sale of
goods or rendition of services, that comply with each of the representations and
warranties respecting Eligible Accounts made in the Loan Documents, and that are
not excluded as ineligible by virtue of one or more of the excluding criteria
set forth below; provided, however, that such criteria may be revised from time
to time by Agent in Agent’s Permitted Discretion to address the results of any
audit performed by Agent from time to time after the Closing Date. In
determining the amount to be included, Eligible Accounts shall be calculated net
of customer deposits and unapplied cash. Eligible Accounts shall not include the
following:
          (a) Accounts that the Account Debtor (other than the Specified Account
Debtor) has failed to pay within 90 days of original invoice date or Accounts of
an Account Debtor (other than the Specified Account Debtor) with selling terms
of more than 61 days; or Accounts that the Specified Account Debtor has failed
to pay within 30 days of due date or Accounts of the Specified Account Debtor
with selling terms of more than 60 days after the month end in which such
Account arose (provided, that the aggregate portion of the Accounts of the
Specified Account Debtor in excess of $2,000,000 shall not be Eligible
Accounts),
          (b) Accounts owed by an Account Debtor (or its Affiliates) where 50%
or more of all Accounts owed by that Account Debtor (or its Affiliates) are
deemed ineligible under clause (a) above,
          (c) Accounts with respect to which the Account Debtor is an Affiliate
of a Loan Party or an employee or agent of a Loan Party or any Affiliate of a
Loan Party,
          (d) Accounts arising in a transaction wherein goods are placed on
consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale
on approval, a bill and hold, or any other terms by reason of which the payment
by the Account Debtor may be conditional (provided that Accounts arising from
the sale of Inventory on a consignment basis in the ordinary course of a Loan
Party’s business shall not be ineligible under this clause (d) so long as
(A) the sale of Inventory on a consignment basis is subject to a written
contract that obligates the applicable Account Debtor to pay such Account within
61 days after such Account Debtor sells such Inventory to its customers and
(B) the Account Debtor has provided to the applicable Loan Party point of sale
data with respect to the sale of such Inventory by such Account Debtor),

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          (e) Accounts that are not payable in Dollars or Canadian Dollars,
          (f) Accounts with respect to which the Account Debtor either (i) does
not maintain its chief executive office in the United States or Canada, or
(ii) is not organized under the laws of the United States or any state thereof
or Canada or any province thereof, or (iii) is the government of any foreign
country or sovereign state, or of any state, province, municipality, or other
political subdivision thereof, or of any department, agency, public corporation,
or other instrumentality thereof, unless (y) the Account is supported by an
irrevocable letter of credit reasonably satisfactory to Agent (as to form,
substance, and issuer or domestic confirming bank) that has been delivered to
Agent and is directly drawable by Agent, or (z) the Account is covered by credit
insurance in form, substance, and amount, and by an insurer, reasonably
satisfactory to Agent,
          (g) Accounts with respect to which the Account Debtor is either
(i) the United States or any department, agency, or instrumentality of the
United States (exclusive, however, of Accounts with respect to which a Loan
Party has complied, to the reasonable satisfaction of Agent, with the Assignment
of Claims Act, 31 USC §3727), or (ii) any state of the United States,
          (h) Accounts with respect to which the Account Debtor is a creditor of
a Loan Party, has or has asserted a right of setoff, or has disputed its
obligation to pay all or any portion of the Account, to the extent of such
claim, right of setoff, or dispute,
          (i) Accounts owing by an Account Debtor and its Affiliates (other than
Best Buy and its Affiliates, Walmart/Sam’s Club and its Affiliates, Costco and
its Affiliates, Fry’s Electronics and its Affiliates, Staples and its Affiliates
or Anderson Merchandisers and its Affiliates) whose total obligations owing to
Borrower exceed 10% (such percentage, as applied to a particular Account Debtor
and its Affiliates, being subject to reduction by Agent in its Permitted
Discretion if the creditworthiness of such Account Debtor and its Affiliates
deteriorates) of all Eligible Accounts, to the extent of the obligations owing
by such Account Debtor and its Affiliates in excess of such percentage; Accounts
owing by Best Buy and its Affiliates if the total obligations owing to Borrower
by Best Buy and its Affiliates exceed 35% (such percentage, as applied to Best
Buy and its Affiliates, being subject to reduction by Agent in its Permitted
Discretion if the creditworthiness of Best Buy and its Affiliates deteriorates)
of all Eligible Accounts, to the extent of the obligations owing by Best Buy and
its Affiliates in excess of such percentage; Accounts owing by Wal-Mart/Sam’s
Club and its Affiliates if the total obligations owing to Borrower by
Wal-Mart/Sam’s Club and its Affiliates exceed 20% (such percentage, as applied
to Wal-Mart/Sam’s Club and its Affiliates, being subject to reduction by Agent
in its Permitted Discretion if the creditworthiness of Wal-Mart/Sam’s Club and
its Affiliates deteriorates) of all Eligible Accounts, to the extent of the
obligations owing by Wal-Mart/Sam’s Club and its Affiliates in excess of such
percentage; Accounts owing by Costco and its Affiliates if the total obligations
owing to Borrower by Costco and its Affiliates exceed 15% (such percentage, as
applied to Costco and its Affiliates, being subject to reduction by Agent in its
Permitted Discretion if the creditworthiness of Costco and its Affiliates
deteriorates) of all Eligible Accounts, to the extent of the obligations owing
by Costco and its Affiliates in excess of such percentage; Accounts owing by
Fry’s Electronics and its Affiliates if the total obligations owing to Borrower
by Fry’s Electronics and its Affiliates exceed 15% (such percentage, as applied
to Fry’s Electronics and its Affiliates, being subject to reduction by Agent in
its Permitted Discretion if the creditworthiness of Fry’s Electronics and its
Affiliates deteriorates) of

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all Eligible Accounts, to the extent of the obligations owing by Fry’s
Electronics and its Affiliates in excess of such percentage; Accounts owing by
Staples and its Affiliates if the total obligations owing to Borrower by Staples
and its Affiliates exceed 15% (such percentage, as applied to Staples and its
Affiliates, being subject to reduction by Agent in its Permitted Discretion if
the creditworthiness of Staples and its Affiliates deteriorates) of all Eligible
Accounts, to the extent of the obligations owing by Staples and its Affiliates
in excess of such percentage; Accounts owing by Anderson Merchandisers and its
Affiliates if the total obligations owing to Borrower by Anderson Merchandisers
and its Affiliates exceed 15% (such percentage, as applied to Anderson
Merchandisers and its Affiliates, being subject to reduction by Agent in its
Permitted Discretion if the creditworthiness of Anderson Merchandisers and its
Affiliates deteriorates) of all Eligible Accounts, to the extent of the
obligations owing by Anderson Merchandisers and its Affiliates in excess of such
percentage; provided, however, that, in each case, the amount of Eligible
Accounts that are excluded because they exceed the foregoing percentages shall
be determined by Agent based on all of the otherwise Eligible Accounts prior to
giving effect to any eliminations based upon the foregoing concentration limits,
          (j) Accounts with respect to which the Account Debtor is subject to an
Insolvency Proceeding, is not Solvent, has gone out of business, or as to which
Borrower has received notice of an imminent Insolvency Proceeding or a material
impairment of the financial condition of such Account Debtor,
          (k) Accounts, the collection of which, Agent, in its Permitted
Discretion, believes to be doubtful by reason of the Account Debtor’s financial
condition,
          (l) Accounts that are not subject to a valid and perfected first
priority Agent’s Lien,
          (m) Accounts with respect to which (i) the goods giving rise to such
Account have not been shipped, title with respect to the goods giving rise to
such Account has not yet passed (unless, in the case of title not passing, with
respect to any Accounts arising and reported to Agent within the 5 Business Day
period ending on any date of determination, (A) such Accounts are supported by
applicable bills of lading and insurance, and (B) title is scheduled to pass
within 5 Business Days following such date of determination), or such Accounts
have not been billed to the Account Debtor, or (ii) the services giving rise to
such Account have not been performed and billed to the Account Debtor,
          (n) Accounts with respect to which the Account Debtor is a Sanctioned
Person or Sanctioned Entity,
          (o) Accounts owing to BCI,
          (p) Accounts owing to a Loan Party with respect to the “Best Buy
Software as a Service (S2) Program”, or
          (p) Accounts that represent the right to receive progress payments or
other advance billings that are due prior to the completion of performance by a
Loan Party of the subject contract for goods or services.

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          “Eligible Inventory” means Inventory consisting of first quality
finished goods held for sale in the ordinary course of Loan Parties’ business,
that complies with each of the representations and warranties respecting
Eligible Inventory made in the Loan Documents, and that is not excluded as
ineligible by virtue of one or more of the excluding criteria set forth below;
provided, however, that such criteria may be revised from time to time by Agent
in Agent’s Permitted Discretion to address the results of any audit or appraisal
performed by Agent from time to time after the Closing Date. In determining the
amount to be so included, Inventory shall be valued at the lower of cost or
market on a basis consistent with Loan Parties’ historical accounting practices.
An item of Inventory shall not be included in Eligible Inventory if:
          (a) a Loan Party does not have good, valid, and marketable title
thereto,
          (b) a Loan Party does not have actual and exclusive possession thereof
(either directly or through a bailee or agent of such Loan Party),
          (c) it is not located at one of the locations in the continental
United States set forth on Schedule E-1,
          (d) it is in-transit to or from a location of a Loan Party (other than
in-transit from one location set forth on Schedule E-1 to another location set
forth on Schedule E-1),
          (e) it is located on real property leased by a Loan Party or in a
contract warehouse, in each case, unless it is subject to a Collateral Access
Agreement executed by the lessor or warehouseman, as the case may be, and unless
it is segregated or otherwise separately identifiable from goods of others, if
any, stored on the premises,
          (f) it is the subject of a bill of lading or other document of title,
          (g) it is not subject to a valid and perfected first priority Agent’s
Lien,
          (h) it consists of goods returned or rejected by a Loan Party’s
customers,
          (i) it is Inventory of BCI,
          (j) it consists of goods that are obsolete or slow moving (provided,
however, that Inventory shall not be excluded from Eligible Inventory because it
is obsolete or slow moving so long as (a) Agent has received a satisfactory
appraisal with respect to such Inventory that is not more than 6 months old as
of any date of determination which incorporates slow moving and obsolete
inventory into the net orderly liquidation value recovery described in such
appraisal, and (b) the obsolete and slow moving Inventory of the Loan Parties
that is included in Eligible Inventory at any date of determination does not
exceed 25% of overall Eligible Inventory), delisted titles, restrictive or
custom items, work-in-process, raw materials, or goods that constitute spare
parts, packaging and shipping materials, supplies used or consumed in Loan
Parties’ business, bill and hold goods, defective goods, or “seconds”,
          (k) it consists of goods that are on consignment to a Loan Party or
that have been consigned by a Loan Party to another Person,
          (l) it is music related or consists of owned independent music, or

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          (m) it consists of goods that are acquired under a license agreement
(as opposed to a sale agreement) unless Agent has obtained an agreement from the
vendor thereof, in form and substance satisfactory to Agent, permitting Agent to
dispose of such Inventory, it consists of goods that are not freely transferable
by Agent without the need for a license, sublicense or other agreement which has
not been obtained by Agent, it consists of goods that were required to be
acquired, produced or sold in compliance with a licensing arrangement with
respect to which the applicable Loan Party has not complied, or it consists of
goods that were acquired or produced under a licensing arrangement which has
terminated.
          “Eligible Last Day Sales Accounts” means any Eligible Account with
respect to which title to the Inventory sold that gave rise to such Account has
not passed to the applicable Account Debtor.
          “Environmental Action” means any written complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter, or other written communication from
any Governmental Authority, or any third party involving violations of
Environmental Laws or releases of Hazardous Materials (a) from any assets,
properties, or businesses of any Loan Party, any Subsidiary of a Loan Party, or
any of their predecessors in interest, (b) from adjoining properties or
businesses, or (c) from or onto any facilities which received Hazardous
Materials generated by any Loan Party, any Subsidiary of a Loan Party, or any of
their predecessors in interest.
          “Environmental Law” means any applicable federal, state, provincial,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy, or rule of common
law now or hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, in each case, to the extent binding on
Borrower or its Subsidiaries, relating to the environment, the effect of the
environment on employee health, or Hazardous Materials, in each case as amended
from time to time.
          “Environmental Liabilities” means all liabilities, monetary
obligations, losses, damages, punitive damages, consequential damages, treble
damages, costs and expenses (including all reasonable fees, disbursements and
expenses of counsel, experts, or consultants, and costs of investigation and
feasibility studies), fines, penalties, sanctions, and interest incurred as a
result of any claim or demand, or Remedial Action required, by any Governmental
Authority or any third party, and which relate to any Environmental Action.
          “Environmental Lien” means any Lien in favor of any Governmental
Authority for Environmental Liabilities.
          “Equipment” means equipment (as that term is defined in the Code).
          “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto.
          “ERISA Affiliate” means (a) any Person subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower or its Subsidiaries under IRC Section 414(b), (b) any trade or business
subject to ERISA whose employees are

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treated as employed by the same employer as the employees of Borrower or its
Subsidiaries under IRC Section 414(c), (c) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any organization subject to ERISA that is a
member of an affiliated service group of which Borrower or any of its
Subsidiaries is a member under IRC Section 414(m), or (d) solely for purposes of
Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA
that is a party to an arrangement with Borrower or any of its Subsidiaries and
whose employees are aggregated with the employees of Borrower or its
Subsidiaries under IRC Section 414(o).
          “Event of Default” has the meaning specified therefor in Section 8 of
the Agreement.
          “Excess Availability” means, as of any date of determination, the
amount equal to Availability minus the aggregate amount, if any, of all trade
payables of Borrower and its Subsidiaries aged in excess of historical levels
with respect thereto and all book overdrafts of Borrower and its Subsidiaries in
excess of historical practices with respect thereto, in each case as determined
by Agent in its Permitted Discretion.
          “Excess Eligible Last Day Sales Accounts” means as of any date of
determination the portion, if any, of the aggregate amount of Eligible Last Day
Sales Accounts which exceeds the Last Day Sales Sublimit.
          “Exchange Act” means the Securities Exchange Act of 1934, as in effect
from time to time.
          “Existing Credit Facility” means the Indebtedness evidenced by that
certain Fourth Amended and Restated Credit Agreement dated as of March 22, 2007
among Borrower, certain Subsidiaries of Borrower, General Electric Capital
Corporation, as agent, and the lenders party thereto.
          “Extraordinary Receipts” means any cash received by Borrower or any of
its Subsidiaries not in the ordinary course of business (and not consisting of
proceeds described in Section 2.4(e)(ii) of the Agreement) consisting of
(a) proceeds of judgments, proceeds of settlements or other consideration of any
kind in connection with any cause of action, (b) indemnity payments (other than
to the extent such indemnity payments are (i) immediately payable to a Person
that is not an Affiliate of Borrower or any of its Subsidiaries, or
(ii) received by Borrower or any of its Subsidiaries as reimbursement for any
payment previously made to such Person), and (c) any purchase price adjustment
(other than a working capital adjustment) received in connection with any
purchase agreement. So long as no Event of Default has occurred and is
continuing, the following amounts shall be deducted from Extraordinary Receipts:
(i) reasonable fees, commissions and expenses required to be paid by Borrower in
connection with such Extraordinary Receipts, and (ii) taxes paid or payable to
any taking authorities by Borrower or such Subsidiary in connection with such
Extraordinary Receipts, but only to the extent that the amounts so deducted are,
at the time of receipt of such cash, actually paid or payable to a Person that
is not an Affiliate of Borrower or any of its Subsidiaries, and are properly
attributable to the receipt of such cash.
          “Fee Letter” means that certain fee letter between Borrower and Agent,
in form and substance reasonably satisfactory to Agent.

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          “Federal Funds Rate” means, for any period, a fluctuating interest
rate per annum equal to, for each day during such period, the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by Agent from three
Federal funds brokers of recognized standing selected by it.
          “Fixed Charges” means, with respect to any fiscal period and with
respect to Borrower determined on a consolidated basis in accordance with GAAP,
the sum, without duplication, of (a) Interest Expense accrued during such
period, (b) principal payments in respect of Indebtedness (including Capital
Leases) that are required to be paid during such period, (c) all federal, state,
and local income taxes paid during such period, and (d) all Restricted Junior
Payments paid (whether in cash or other property, other than common Stock)
during such period.
          “Fixed Charge Coverage Ratio” means, with respect to Borrower for any
period, the ratio of (i) EBITDA for such period minus the sum of Capital
Expenditures, Net Production Costs and Net Vendor Advances made (to the extent
not already incurred in a prior period) or incurred during such period, to
(ii) Fixed Charges for such period.
          “Foreign Lender” means any Lender or Participant that is not a United
States person within the meaning of IRC section 7701(a)(30).
          “Funding Date” means the date on which a Borrowing occurs.
          “Funding Losses” has the meaning specified therefor in
Section 2.12(b)(ii) of the Agreement.
          “GAAP” means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
          “Governing Documents” means, with respect to any Person, the
certificate or articles of incorporation, by-laws, or other organizational
documents of such Person.
          “Governmental Authority” means any federal, state, local, or other
governmental or administrative body, instrumentality, board, department, or
agency or any court, tribunal, administrative hearing body, arbitration panel,
commission, or other similar dispute-resolving panel or body.
          “Guarantors” means (a) each Subsidiary of Borrower that has guarantied
any of the Obligations, and (b) each other Person that becomes a guarantor after
the Closing Date pursuant to Section 5.11 of the Agreement, and “Guarantor”
means any one of them.
          “Guaranty” means that certain general continuing guaranty executed and
delivered by each Guarantor in favor of Agent, for the benefit of the Lender
Group and the Bank Product Providers, in form and substance reasonably
satisfactory to Agent.
          “Hazardous Materials” means (a) substances that are defined or listed
in, or otherwise classified pursuant to, any applicable laws or regulations as
“hazardous substances,”

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“hazardous materials,” “hazardous wastes,” “toxic substances,” or any other
formulation intended to define, list, or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity, or “EP toxicity”, (b) oil, petroleum, or
petroleum derived substances, natural gas, natural gas liquids, synthetic gas,
drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas, or geothermal
resources, (c) any flammable substances or explosives or any radioactive
materials, and (d) asbestos in any form or electrical equipment that contains
any oil or dielectric fluid containing levels of polychlorinated biphenyls in
excess of 50 parts per million.
          “Hedge Agreement” means any and all agreements or documents now
existing or hereafter entered into by Borrower or any of its Subsidiaries that
provide for an interest rate, credit, commodity or equity swap, cap, floor,
collar, forward foreign exchange transaction, currency swap, cross currency rate
swap, currency option, or any combination of, or option with respect to, these
or similar transactions, for the purpose of hedging Borrower’s or any of its
Subsidiaries’ exposure to fluctuations in interest or exchange rates, loan,
credit exchange, security, or currency valuations or commodity prices.
          “Holdout Lender” has the meaning specified therefor in Section 14.2(a)
of the Agreement.
          “Indebtedness” means (a) all obligations for borrowed money, (b) all
obligations evidenced by bonds, debentures, notes, or other similar instruments
and all reimbursement or other obligations in respect of letters of credit,
bankers acceptances, or other financial products, (c) all obligations as a
lessee under Capital Leases, (d) all obligations or liabilities of others
secured by a Lien on any asset of a Person, irrespective of whether such
obligation or liability is assumed, (e) all obligations to pay the deferred
purchase price of assets (other than trade payables incurred in the ordinary
course of business and repayable in accordance with customary trade practices),
(f) all obligations owing under Hedge Agreements (which amount shall be
calculated based on the amount that would be payable by such Person if the Hedge
Agreement were terminated on the date of determination), (g) any Prohibited
Stock, and (h) any obligation guaranteeing or intended to guarantee (whether
directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with
recourse) any obligation of any other Person that constitutes Indebtedness under
any of clauses (a) through (g) above. For purposes of this definition, (i) the
amount of any Indebtedness represented by a guaranty or other similar instrument
shall be the lesser of the principal amount of the obligations guaranteed and
still outstanding and the maximum amount for which the guaranteeing Person may
be liable pursuant to the terms of the instrument embodying such Indebtedness,
and (ii) the amount of any Indebtedness described in clause (d) above shall be
the lower of the amount of the obligation and the fair market value of the
assets securing such obligation.
          “Indemnified Liabilities” has the meaning specified therefor in
Section 10.3 of the Agreement.
          “Indemnified Person” has the meaning specified therefor in
Section 10.3 of the Agreement.

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          “Insolvency Proceeding” means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other state
or federal bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.
          “Intercompany Subordination Agreement” means a subordination agreement
executed and delivered by Borrower, each of its Subsidiaries, and Agent, the
form and substance of which is reasonably satisfactory to Agent.
          “Interest Expense” means, for any period, the aggregate of the
interest expense of Borrower for such period, determined on a consolidated basis
in accordance with GAAP.
          “Interest Period” means, with respect to each LIBOR Rate Loan, a
period commencing on the date of the making of such LIBOR Rate Loan (or the
continuation of a LIBOR Rate Loan or the conversion of a Base Rate Loan to a
LIBOR Rate Loan) and ending 1, 2, or 3 months thereafter; provided, however,
that (a) interest shall accrue at the applicable rate based upon the LIBOR Rate
from and including the first day of each Interest Period to, but excluding, the
day on which any Interest Period expires, (b) any Interest Period that would end
on a day that is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Business Day, (c) with
respect to an Interest Period that begins on the last 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 Interest Period), the Interest Period shall
end on the last Business Day of the calendar month that is 1, 2, or 3 months
after the date on which the Interest Period began, as applicable, and
(d) Borrower may not elect an Interest Period which will end after the Maturity
Date.
          “Inventory” means inventory (as that term is defined in the Code).
          “Investment” means, with respect to any Person, any investment by such
Person in any other Person (including Affiliates) in the form of loans,
guarantees, advances, capital contributions (excluding (a) commission, travel,
and similar advances to officers and employees of such Person made in the
ordinary course of business, and (b) bona fide Accounts arising in the ordinary
course of business consistent with past practice), or acquisitions of
Indebtedness, Stock, or all or substantially all of the assets of such other
Person (or of any division or business line of such other Person), including any
Acquisition, and any other items that are or would be classified as investments
on a balance sheet prepared in accordance with GAAP.
          “IRC” means the Internal Revenue Code of 1986, as in effect from time
to time.
          “Issuing Lender” means WFF or any other Lender that, at the request of
Borrower and with the consent of Agent, agrees, in such Lender’s sole
discretion, to become an Issuing Lender for the purpose of issuing Letters of
Credit or Reimbursement Undertakings pursuant to Section 2.11 of the Agreement.
          “Last Day Sales Sublimit” means (i) as of any date of determination
during any month other than during the month of October of any year, 10% of all
Accounts created by any

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Loan Party in the ordinary course of its business, that arise out of a Loan
Party’s sale of Inventory or rendition of services, as reported to Agent in the
most recently delivered accounts receivable reporting delivered pursuant to
Section 5.2 of the Agreement, and (ii) as of any date of determination during
the month of October of any year, 15% of Accounts created by a Loan Party in the
ordinary course of its business, that arise out of a Loan Party’s sale of
Inventory or rendition of services, as reported to Agent in the most recently
delivered accounts receivable reporting delivered pursuant to Section 5.2 of the
Agreement.
          “Lender” and “Lenders” have the respective meanings set forth in the
preamble to the Agreement, and shall include any other Person made a party to
the Agreement in accordance with the provisions of Section 13.1 of the
Agreement.
          “Lender Group” means each of the Lenders (including the Issuing
Lender) and Agent, or any one or more of them.
          “Lender Group Expenses” means all (a) costs or expenses (including
taxes, and insurance premiums) required to be paid by Borrower or its
Subsidiaries under any of the Loan Documents that are paid, advanced, or
incurred by the Lender Group, (b) out-of-pocket fees or charges paid or incurred
by Agent in connection with the Lender Group’s transactions with Borrower or its
Subsidiaries under any of the Loan Documents, including, fees or charges for
photocopying, notarization, couriers and messengers, telecommunication, public
record searches (including tax lien, litigation, and UCC searches and including
searches with the patent and trademark office, the copyright office, or the
department of motor vehicles), filing, recording, publication, appraisal
(including periodic collateral appraisals or business valuations to the extent
of the fees and charges (and up to the amount of any limitation) contained in
the Agreement or the Fee Letter), real estate surveys, real estate title
policies and endorsements, and environmental audits, (c) out-of-pocket costs and
expenses incurred by Agent in the disbursement of funds to Borrower or other
members of the Lender Group (by wire transfer or otherwise), (d) out-of-pocket
charges paid or incurred by Agent resulting from the dishonor of checks payable
by or to any Loan Party, (e) reasonable out-of-pocket costs and expenses paid or
incurred by the Lender Group to correct any default or enforce any provision of
the Loan Documents, or during the continuance of an Event of Default, in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Collateral, or any portion
thereof, irrespective of whether a sale is consummated, (f) reasonable
out-of-pocket audit fees and expenses (including travel, meals, and lodging) of
Agent related to any inspections or audits to the extent of the fees and charges
(and up to the amount of any limitation) contained in the Agreement or the Fee
Letter, (g) reasonable out-of-pocket costs and expenses of third party claims or
any other suit paid or incurred by the Lender Group in enforcing or defending
the Loan Documents or in connection with the transactions contemplated by the
Loan Documents or the Lender Group’s relationship with Borrower or any of its
Subsidiaries, (h) Agent’s reasonable costs and expenses (including reasonable
attorneys fees) incurred in advising, structuring, drafting, reviewing,
administering (including travel, meals, and lodging), syndicating, or amending
the Loan Documents, and (i) Agent’s and each Lender’s reasonable costs and
expenses (including reasonable attorneys, accountants, consultants, and other
advisors fees and expenses) incurred in terminating, enforcing (including
attorneys, accountants, consultants, and other advisors fees and expenses
incurred in connection with a “workout,” a “restructuring,” or an Insolvency
Proceeding concerning Borrower or any of its Subsidiaries or in exercising
rights or

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remedies under the Loan Documents), or defending the Loan Documents,
irrespective of whether suit is brought, or in taking any Remedial Action
concerning the Collateral.
          “Lender Group Representatives” has the meaning specified therefor in
Section 17.9 of the Agreement.
          “Lender-Related Person” means, with respect to any Lender, such
Lender, together with such Lender’s Affiliates, officers, directors, employees,
attorneys, and agents.
          “Letter of Credit” means a letter of credit issued by Issuing Lender
or a letter of credit issued by Underlying Issuer, as the context requires.
          “Letter of Credit Collateralization” means either (a) providing cash
collateral (pursuant to documentation reasonably satisfactory to Agent,
including provisions that specify that the Letter of Credit fee and all usage
charges set forth in the Agreement will continue to accrue while the Letters of
Credit are outstanding) to be held by Agent for the benefit of those Lenders
with a Revolver Commitment in an amount equal to 105% of the then existing
Letter of Credit Usage, (b) causing the Letters of Credit to be returned to the
Issuing Lender, or (c) providing Agent with a standby letter of credit, in form
and substance reasonably satisfactory to Agent, from a commercial bank
acceptable to Agent (in its sole discretion) in an amount equal to 105% of the
then existing Letter of Credit Usage (it being understood that the Letter of
Credit fee and all usage charges set forth in the Agreement will continue to
accrue while the Letters of Credit are outstanding and that any such fees that
accrue must be an amount that can be drawn under any such standby letter of
credit).
          “Letter of Credit Disbursement” means a payment made by Issuing Lender
or Underlying Issuer pursuant to a Letter of Credit.
          “Letter of Credit Usage” means, as of any date of determination, the
aggregate undrawn amount of all outstanding Letters of Credit.
          “LIBOR Deadline” has the meaning specified therefor in
Section 2.12(b)(i) of the Agreement.
          “LIBOR Notice” means a written notice in the form of Exhibit L-1.
          “LIBOR Option” has the meaning specified therefor in Section 2.12(a)
of the Agreement.
          “LIBOR Rate” means, for each Interest Period for each LIBOR Rate Loan,
the rate per annum determined by Agent by dividing (a) the Base LIBOR Rate for
such Interest Period, by (b) 100% minus the Reserve Percentage. The LIBOR Rate
shall be adjusted on and as of the effective day of any change in the Reserve
Percentage.
          “LIBOR Rate Loan” means each portion of an Advance that bears interest
at a rate determined by reference to the LIBOR Rate.
          “LIBOR Rate Margin” means, as of any date of determination (with
respect to any portion of the outstanding Advances on such date that is a LIBOR
Rate Loan), the applicable

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margin set forth in the following table that correspond to the most recent TTM
EBITDA Calculation delivered to Agent pursuant to Section 5.1 of the Agreement;
provided, however, that for the period from the Closing Date through the date
Agent receives the TTM EBITDA Calculation in respect of the testing period
ending June 30, 2010, the LIBOR Rate Margin shall be at the margin in the row
styled “Level II”:

          Level   TTM EBITDA Calculation   LIBOR Rate Margin
I
  If TTM EBITDA is greater than or equal to $23,000,000   3.75 percentage points
 
       
II
  If TTM EBITDA is less than $23,000,000 but greater than or equal to
$18,500,000   4.00 percentage points
 
       
III
  If TTM EBITDA is less than $18,500,000   4.25 percentage points

          Except as set forth in the foregoing proviso, the LIBOR Rate Margin
shall be based upon the most recent TTM EBITDA Calculation, which will be
calculated as of the end of each fiscal quarter. Except as set forth in the
foregoing proviso, the LIBOR Rate Margin shall be re-determined quarterly on the
first day of the month following the date of delivery to Agent of the certified
calculation of the TTM EBITDA pursuant to Section 5.1 of the Agreement for the
most recently ended fiscal quarter; provided, however, that if Borrower fails to
provide such certification when such certification is due, the LIBOR Rate Margin
shall be set at the margin in the row styled “Level III” as of the first day of
the month following the date on which the certification was required to be
delivered until the date on which such certification is delivered (on which date
(but not retroactively), without constituting a waiver of any Default or Event
of Default occasioned by the failure to timely deliver such certification, the
LIBOR Rate Margin shall be set at the margin based upon the calculations
disclosed by such certification. In the event that the information regarding the
TTM EBITDA contained in any certificate delivered pursuant to Section 5.1 of the
Agreement is shown to be inaccurate, and such inaccuracy, if corrected, would
have led to the application of a higher LIBOR Rate Margin for any period (a
“LIBOR Rate Period”) than the LIBOR Rate Margin actually applied for such LIBOR
Rate Period, then (i) Borrower shall immediately deliver to Agent a correct
certificate for such LIBOR Rate Period, (ii) the LIBOR Rate Margin shall be
determined as if the correct LIBOR Rate Margin (as set forth in the table above)
were applicable for such LIBOR Rate Period, and (iii) Borrower shall immediately
deliver to Agent full payment in respect of the accrued additional interest and
Letter of Credit fees as a result of such increased LIBOR Rate Margin for such
LIBOR Rate Period, which payment shall be promptly applied by Agent to the
affected Obligations.
          “License Agreements” means each of (i) that certain Videogram License
Agreement dated April 1, 2009 between FUNimation Productions, Ltd. and TOEI
Animation Co., Ltd., (ii) that certain Distribution Agreement dated April 18,
2008 between FUNimation Productions, Ltd. and Geneon Entertainment (USA) Inc.,
(iii) that certain License Agreement dated April 4, 2004 between FUNimation
Productions, Ltd. and Aniplex Inc., (iv) that certain License Agreement
effective March 27, 2009 between FUNimation Productions, Ltd. and Anixplex Inc.,
(v) that certain Channel License Agreement dated July 1, 2008 among Riverdeep

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Inc., A Limited Liability Company, HMH Consumer Company and Encore Software,
Inc., (vi) that certain License and Distribution Agreement (Manufacturing
Rights) dated July 1, 2008 between Riverdeep Inc., A Limited Liability Company
and Encore Software, Inc., and (vii) that certain Licensing and Distribution
Agreement dated December 17, 2004 between Encore Software, Inc. and United
States Playing Card Company, each together with any and all renewals,
extensions, amendments, modifications, substitutions and replacements thereof.
          “Lien” means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge, deposit arrangement, encumbrance, easement, lien (statutory
or other), security interest, or other security arrangement and any other
preference, priority, or preferential arrangement of any kind or nature
whatsoever, including any conditional sale contract or other title retention
agreement, the interest of a lessor under a Capital Lease and any synthetic or
other financing lease having substantially the same economic effect as any of
the foregoing.
          “Loan Account” has the meaning specified therefor in Section 2.9 of
the Agreement.
          “Loan Documents” means the Agreement, the Bank Product Agreements, any
Borrowing Base Certificate, the Collateral Access Agreements, the Controlled
Account Agreements, the Control Agreements, the Copyright Security Agreement,
the Fee Letter, the Guaranty, the Intercompany Subordination Agreement, the
Letters of Credit, the Patent Security Agreement, the Security Agreement, the
Trademark Security Agreement, any note or notes executed by Borrower in
connection with the Agreement and payable to any member of the Lender Group, any
letter of credit application entered into by Borrower in connection with the
Agreement, and any other agreement entered into, now or in the future, by
Borrower or any of its Subsidiaries and any member of the Lender Group in
connection with the Agreement.
          “Loan Party” means Borrower or any Guarantor.
          “Margin Stock” as defined in Regulation U of the Board of Governors of
the Federal Reserve System as in effect from time to time.
          “Material Adverse Change” means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower and its Subsidiaries, taken as a
whole, (b) a material impairment of Borrower’s and its Subsidiaries ability to
perform their obligations under the Loan Documents to which they are parties or
of the Lender Group’s ability to enforce the Obligations or realize upon the
Collateral, or (c) a material impairment of the enforceability or priority of
Agent’s Liens with respect to the Collateral as a result of an action or failure
to act on the part of Borrower or its Subsidiaries.
          “Material Contract” means, with respect to any Person, (i) each
contract or agreement to which such Person or any of its Subsidiaries is a party
involving aggregate consideration payable to or by such Person or such
Subsidiary of $1,000,000 or more (other than (A) purchase orders in the ordinary
course of the business of such Person or such Subsidiary, (B) contracts that by
their terms may be terminated by such Person or Subsidiary in the ordinary
course of its business upon less than 60 days notice without penalty or premium,
and (C) license agreements pertaining to the Publishing Business (except for the
license agreements described in clauses (ii) and (iii) below)), (ii) each
License Agreement, (iii) license agreements pertaining to

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the Publishing Business (other than the License Agreements) involving aggregate
Vendor Advances payable to or by such Person or any of its Subsidiaries of at
least $1,000,000, and (iv) all other contracts or agreements, the loss of which
could reasonably be expected to result in a Material Adverse Change.
          “Maturity Date” has the meaning specified therefor in Section 3.3 of
the Agreement.
          “Maximum Revolver Amount” means $65,000,000, decreased by the amount
of reductions in the Revolver Commitments made in accordance with Section 2.4(c)
of the Agreement.
          “Moody’s” has the meaning specified therefor in the definition of Cash
Equivalents.
          “Navarre CP” means Navarre CP, LLC, a Minnesota limited liability
company.
          “Navarre CLP” means Navarre CLP, LLC, a Minnesota limited liability
company.
          “Navarre CS” means Navarre CS, LLC, a Minnesota limited liability
company.
          “Net Cash Proceeds” means:
          (a) with respect to any sale or disposition by Borrower or any of its
Subsidiaries of assets, the amount of cash proceeds received (directly or
indirectly) from time to time (whether as initial consideration or through the
payment of deferred consideration) by or on behalf of Borrower or its
Subsidiaries, in connection therewith after deducting therefrom only (i) the
amount of any Indebtedness secured by any Permitted Lien on any asset (other
than (A) Indebtedness owing to Agent or any Lender under the Agreement or the
other Loan Documents and (B) Indebtedness assumed by the purchaser of such
asset) which is required to be, and is, repaid in connection with such sale or
disposition, (ii) reasonable fees, commissions, and expenses related thereto and
required to be paid by Borrower or such Subsidiary in connection with such sale
or disposition and (iii) taxes paid or payable to any taxing authorities by
Borrower or such Subsidiary in connection with such sale or disposition, in each
case to the extent, but only to the extent, that the amounts so deducted are, at
the time of receipt of such cash, actually paid or payable to a Person that is
not an Affiliate of Borrower or any of its Subsidiaries, and are properly
attributable to such transaction; and
          (b) with respect to the issuance or incurrence of any Indebtedness by
Borrower or any of its Subsidiaries, or the issuance by Borrower or any of its
Subsidiaries of any shares of its Stock, the aggregate amount of cash received
(directly or indirectly) from time to time (whether as initial consideration or
through the payment or disposition of deferred consideration) by or on behalf of
Borrower or such Subsidiary in connection with such issuance or incurrence,
after deducting therefrom only (i) reasonable fees, commissions, and expenses
related thereto and required to be paid by Borrower or such Subsidiary in
connection with such issuance or incurrence, (ii) taxes paid or payable to any
taxing authorities by Borrower or such Subsidiary in connection with such
issuance or incurrence, in each case to the extent, but only to the extent, that
the amounts so deducted are, at the time of receipt of such cash, actually paid
or

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payable to a Person that is not an Affiliate of Borrower or any of its
Subsidiaries, and are properly attributable to such transaction.
          “Net Liquidation Percentage” means the percentage of the book value of
Loan Parties’ Inventory that is estimated to be recoverable in an orderly
liquidation of such Inventory net of all associated costs and expenses of such
liquidation, such percentage to be as determined from time to time by an
appraisal company selected by Agent. At Agent’s option, Net Liquidation
Percentage may be calculated separately for different categories of Inventory.
          “Net Production Costs” means for any period the difference, whether
positive or negative, if any, between (i) the balance of Production Costs as of
the last day of such period minus (ii) the balance of Production Costs as of the
first day of such period. For the avoidance of doubt, if the balance of
Production Costs as of the last day of a period is greater than the balance of
Production Costs as of the first day of such period, Net Production Costs shall
be a positive number, and if the balance of Production Costs as of the last day
of a period is less than the balance of Production Costs as of the first day of
such period, Production Costs shall be a negative number.
          “Net Vendor Advances” means for any period the difference, whether
positive or negative, if any, between (i) the balance of Vendor Advances as of
the last day of such period minus (ii) the balance of Vendor Advances as of the
first day of such period. For the avoidance of doubt, if the balance of Vendor
Advances as of the last day of a period is greater than the balance of Vendor
Advances as of the first day of such period, Net Vendor Advances shall be a
positive number, and if the balance of Vendor Advances as of the last day of a
period is less than the balance of Vendor Advances as of the first day of such
period, Net Vendor Advances shall be a negative number.
          “Obligations” means (a) all loans, Advances, debts, principal,
interest (including any interest that accrues after the commencement of an
Insolvency Proceeding, regardless of whether allowed or allowable in whole or in
part as a claim in any such Insolvency Proceeding), contingent reimbursement or
indemnification obligations with respect to Reimbursement or with respect to
Letters of Credit, premiums, liabilities (including all amounts charged to the
Loan Account pursuant to the Agreement), obligations (including indemnification
obligations), fees (including the fees provided for in the Fee Letter), Lender
Group Expenses (including any fees or expenses that accrue after the
commencement of an Insolvency Proceeding, regardless of whether allowed or
allowable in whole or in part as a claim in any such Insolvency Proceeding),
guaranties, covenants, and duties of any kind and description owing by Borrower
to the Lender Group pursuant to or evidenced by the Loan Documents and
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
and including all interest not paid when due and all other expenses or other
amounts that Borrower is required to pay or reimburse by the Loan Documents or
by law or otherwise in connection with the Loan Documents, and (b) all Bank
Product Obligations. Any reference in the Agreement or in the Loan Documents to
the Obligations shall include all or any portion thereof and any extensions,
modifications, renewals, or alterations thereof, both prior and subsequent to
any Insolvency Proceeding.
          “OFAC” means The Office of Foreign Assets Control of the U.S.
Department of the Treasury.

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          “Originating Lender” has the meaning specified therefor in
Section 13.1(e) of the Agreement.
          “Overadvance” has the meaning specified therefor in Section 2.5 of the
Agreement.
          “Participant” has the meaning specified therefor in Section 13.1(e) of
the Agreement.
          “Patent Security Agreement” has the meaning specified therefor in the
Security Agreement.
          “Patriot Act” has the meaning specified therefor in Section 4.18 of
the Agreement.
          “Payoff Date” means the first date on which all of the Obligations are
paid in full and the Commitments of the Lenders are terminated.
          “Permitted Discretion” means a determination made in the exercise of
reasonable (from the perspective of a secured lender) business judgment.
          “Permitted Dispositions” means:
          (a) sales, abandonment, or other dispositions of Equipment that is
substantially worn, damaged, or obsolete in the ordinary course of business,
          (b) sales of Inventory to buyers in the ordinary course of business,
          (c) the use or transfer of money or Cash Equivalents in a manner that
is not prohibited by the terms of the Agreement or the other Loan Documents,
          (d) the licensing of patents, trademarks, copyrights, and other
intellectual property rights in the ordinary course of business consistent with
past practices,
          (e) the granting of Permitted Liens,
          (f) the sale or discount, in each case without recourse, of Accounts
arising in the ordinary course of business, but only in connection with the
compromise or collection thereof,
          (g) any involuntary loss, damage or destruction of property,
          (h) any involuntary condemnation, seizure or taking, by exercise of
the power of eminent domain or otherwise, or confiscation or requisition of use
of property,
          (i) the leasing or subleasing of assets of Borrower or its
Subsidiaries in the ordinary course of business,
          (j) the sale or issuance of Stock (other than Prohibited Stock) of
Borrower,

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          (k) the lapse of registered patents, trademarks and other intellectual
property of Borrower and its Subsidiaries so long as such lapse is not
materially adverse to the interests of the Lenders,
          (l) the making of a Restricted Junior Payment that is expressly
permitted to be made pursuant to the Agreement,
          (m) the making of a Permitted Investment, and
          (n) dispositions of Equipment not otherwise permitted in clauses (a)
through (m) above so long as no Event of Default exists and made at fair market
value and the aggregate fair market value of all assets disposed of in all such
dispositions during any fiscal year (including the proposed disposition) would
not exceed $500,000.
          “Permitted Indebtedness” means:
          (a) Indebtedness evidenced by the Agreement and the other Loan
Documents, together with Indebtedness owed to Underlying Issuers with respect to
Underlying Letters of Credit,
          (b) Indebtedness not otherwise permitted under this definition of
Permitted Indebtedness and set forth on Schedule P-3 and, any Refinancing
Indebtedness in respect of such Indebtedness,
          (c) Permitted Purchase Money Indebtedness and any Refinancing
Indebtedness in respect of such Indebtedness,
          (d) endorsement of instruments or other payment items for deposit,
          (e) Indebtedness consisting of (i) unsecured guarantees incurred in
the ordinary course of business with respect to surety and appeal bonds,
performance bonds, bid bonds, appeal bonds, completion guarantee and similar
obligations; (ii) unsecured guarantees arising with respect to customary
indemnification obligations to purchasers in connection with Permitted
Dispositions; and (iii) unsecured guarantees with respect to Indebtedness of
Borrower or one of its Subsidiaries, to the extent that the Person that is
obligated under such guaranty could have incurred such underlying Indebtedness,
          (f) Indebtedness incurred in the ordinary course of business under
performance, surety, statutory, and appeal bonds,
          (g) Indebtedness owed to any Person providing property, casualty,
liability, or other insurance to Borrower or any of its Subsidiaries, so long as
the amount of such Indebtedness is not in excess of the amount of the unpaid
cost of, and shall be incurred only to defer the cost of, such insurance for the
year in which such Indebtedness is incurred and such Indebtedness is outstanding
only during such year,
          (h) the incurrence by Borrower or its Subsidiaries of Indebtedness
under Hedge Agreements that are incurred for the bona fide purpose of hedging
the interest rate or

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foreign currency risk associated with Borrower’s and its Subsidiaries’
operations and not for speculative purposes,
          (i) unsecured Indebtedness incurred in respect of netting services,
overdraft protection, and other like services, in each case, incurred in the
ordinary course of business, and
          (j) Indebtedness composing Permitted Investments.
          “Permitted Intercompany Advances” means loans made by (a) a Loan Party
to another Loan Party, (b) a non-Loan Party to another non-Loan Party, (c) a
non-Loan Party to a Loan Party, so long as the parties thereto are party to the
Intercompany Subordination Agreement, and (d) a Loan Party to a non-Loan Party
so long as (i) the amount of such loans does not exceed $250,000 outstanding at
any one time, (ii) no Event of Default has occurred and is continuing or would
result therefrom, and (iii) Borrower has Excess Availability plus Qualified Cash
of $7,500,000 or greater immediately after giving effect to each such loan.
          “Permitted Investments” means:
          (a) Investments in cash and Cash Equivalents,
          (b) Investments in negotiable instruments deposited or to be deposited
for collection in the ordinary course of business,
          (c) advances made in connection with purchases of goods or services in
the ordinary course of business,
          (d) Investments received in settlement of amounts due to any Loan
Party or any of its Subsidiaries effected in the ordinary course of business or
owing to any Loan Party or any of its Subsidiaries as a result of Insolvency
Proceedings involving an Account Debtor or upon the foreclosure or enforcement
of any Lien in favor of a Loan Party or its Subsidiaries,
          (e) Investments owned by any Loan Party or any of its Subsidiaries on
the Closing Date and set forth on Schedule P-1,
          (f) guarantees permitted under the definition of Permitted
Indebtedness,
          (g) Permitted Intercompany Advances,
          (h) Stock or other securities acquired in connection with the
satisfaction or enforcement of Indebtedness or claims due or owing to a Loan
Party or its Subsidiaries (in bankruptcy of customers or suppliers or otherwise
outside the ordinary course of business) or as security for any such
Indebtedness or claims,
          (i) deposits of cash made in the ordinary course of business to secure
performance of operating leases,
          (j) non-cash loans to employees, officers, and directors of Borrower
or any of its Subsidiaries for the purpose of purchasing Stock in Borrower so
long as the proceeds of such loans are used in their entirety to purchase such
stock in Borrower,

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          (k) so long as no Event of Default has occurred and is continuing or
would result therefrom, Vendor Advances, and
          (l) so long as no Event of Default has occurred and is continuing or
would result therefrom, any other Investments in an aggregate amount not to
exceed $500,000 during the term of the Agreement.
          “Permitted Liens” means:
          (a) Liens held by Agent to secure the Obligations,
          (b) Liens for unpaid taxes, assessments, or other governmental charges
or levies that either (i) are not yet delinquent, or (ii) do not have priority
over Agent’s Liens and the underlying taxes, assessments, or charges or levies
are the subject of Permitted Protests,
          (c) judgment Liens arising solely as a result of the existence of
judgments, orders, or awards that do not constitute an Event of Default under
Section 8.3 of the Agreement,
          (d) Liens set forth on Schedule P-2; provided, however, that to
qualify as a Permitted Lien, any such Lien described on Schedule P-2 shall only
secure the Indebtedness that it secures on the Closing Date and any Refinancing
Indebtedness in respect thereof,
          (e) the interests of lessors under operating leases and non-exclusive
licensors under license agreements,
          (f) purchase money Liens on Equipment or the interests of lessors
under Capital Leases of Equipment to the extent that such Liens or interests
secure Permitted Purchase Money Indebtedness and so long as (i) such Lien
attaches only to the asset purchased or acquired and the proceeds thereof, and
(ii) such Lien only secures the Indebtedness that was incurred to acquire the
asset purchased or acquired or any Refinancing Indebtedness in respect thereof,
          (g) Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in
the ordinary course of business and not in connection with the borrowing of
money, and which Liens either (i) are for sums not yet delinquent, or (ii) are
the subject of Permitted Protests,
          (h) Liens on amounts deposited to secure Borrower’s and its
Subsidiaries obligations in connection with worker’s compensation or other
unemployment insurance,
          (i) Liens on amounts deposited to secure Borrower’s and its
Subsidiaries obligations in connection with the making or entering into of bids,
tenders, or leases in the ordinary course of business and not in connection with
the borrowing of money,
          (j) Liens on amounts deposited to secure Borrower’s and its
Subsidiaries reimbursement obligations with respect to surety or appeal bonds
obtained in the ordinary course of business,
          (k) with respect to any Real Property, easements, rights of way, and
zoning restrictions that do not materially interfere with or impair the use or
operation thereof,

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          (l) licenses of patents, trademarks, copyrights, and other
intellectual property rights in the ordinary course of business consistent with
past practices,
          (m) Liens that are replacements of Permitted Liens to the extent that
the original Indebtedness is the subject of permitted Refinancing Indebtedness
and so long as the replacement Liens only encumber those assets that secured the
original Indebtedness,
          (n) rights of setoff or bankers’ liens upon deposits of cash in favor
of banks or other depository institutions, solely to the extent incurred in
connection with the maintenance of such deposit accounts in the ordinary course
of business,
          (o) Liens granted in the ordinary course of business on the unearned
portion of insurance premiums securing the financing of insurance premiums to
the extent the financing is permitted under the definition of Permitted
Indebtedness, and
          (p) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods.
          “Permitted Protest” means the right of Borrower or any of its
Subsidiaries to protest any Lien (other than any Lien that secures the
Obligations), taxes (other than payroll taxes or taxes that are the subject of a
United States federal tax lien), or rental payment, provided that (a) a reserve
with respect to such obligation is established on Borrower’s or its
Subsidiaries’ books and records in such amount as is required under GAAP,
(b) any such protest is instituted promptly and prosecuted diligently by
Borrower or its Subsidiary, as applicable, in good faith, and (c) Agent is
satisfied that, while any such protest is pending, there will be no impairment
of the enforceability, validity, or priority of any of Agent’s Liens.
          “Permitted Purchase Money Indebtedness” means, as of any date of
determination, Purchase Money Indebtedness incurred after the Closing Date in an
aggregate principal amount outstanding at any one time not in excess of
$500,000.
          “Person” means natural persons, corporations, limited liability
companies, limited partnerships, general partnerships, limited liability
partnerships, joint ventures, trusts, land trusts, business trusts, or other
organizations, irrespective of whether they are legal entities, and governments
and agencies and political subdivisions thereof.
          “Production Costs” means all direct and allocated costs capitalized
subsequent to establishing technological feasibility of internally developed
computer software product (including voice work) to be sold, leased, or
otherwise marketed in accordance with GAAP as defined in FAS 86, including but
not limited to, materials, payroll and payroll-related employee costs, purchased
software to be sold, leased or otherwise marketed that has an alternative future
use, and third party contract services.
          “Prohibited Stock” means any Stock that by its terms is mandatorily
redeemable or subject to any other payment obligation (including any obligation
to pay dividends, other than dividends of shares of Stock of the same class and
series payable in kind or dividends of shares of common stock) on or before a
date that is less than 1 year after the Maturity Date, or, on or before the date
that is less than 1 year after the Maturity Date, is redeemable at the option of
the

Schedule 1.1 - Page 30

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holder thereof for cash or assets or securities (other than distributions in
kind of shares of Stock of the same class and series or of shares of common
stock).
          “Projections” means Borrower’s forecasted (a) balance sheets,
(b) profit and loss statements, and (c) cash flow statements, all prepared on a
basis consistent with Borrower’s historical financial statements, together with
appropriate supporting details and a statement of underlying assumptions.
          “Pro Rata Share” means, as of any date of determination:
          (a) with respect to a Lender’s obligation to make Advances and right
to receive payments of principal, interest, fees, costs, and expenses with
respect thereto, (i) prior to the Revolver Commitments being terminated or
reduced to zero, the percentage obtained by dividing (y) such Lender’s Revolver
Commitment, by (z) the aggregate Revolver Commitments of all Lenders, and (ii)
from and after the time that the Revolver Commitments have been terminated or
reduced to zero, the percentage obtained by dividing (y) the outstanding
principal amount of such Lender’s Advances by (z) the outstanding principal
amount of all Advances,
          (b) with respect to a Lender’s obligation to participate in Letters of
Credit and Reimbursement Undertakings, to reimburse the Issuing Lender, and
right to receive payments of fees with respect thereto, (i) prior to the
Revolver Commitments being terminated or reduced to zero, the percentage
obtained by dividing (y) such Lender’s Revolver Commitment, by (z) the aggregate
Revolver Commitments of all Lenders, and (ii) from and after the time that the
Revolver Commitments have been terminated or reduced to zero, the percentage
obtained by dividing (y) the outstanding principal amount of such Lender’s
Advances by (z) the outstanding principal amount of all Advances; provided,
however, that if all of the Advances have been repaid in full and Letters of
Credit remain outstanding, Pro Rata Share under this clause shall be determined
based upon subclause (i) of this clause as if the Revolver Commitments had not
been terminated or reduced to zero and based upon the Revolver Commitments as
they existed immediately prior to their termination or reduction to zero, and
          (c) with respect to all other matters as to a particular Lender
(including the indemnification obligations arising under Section 15.7 of the
Agreement), (i) prior to the Revolver Commitments being terminated or reduced to
zero, the percentage obtained by dividing (y) such Lender’s Revolver Commitment,
by (z) the aggregate amount of Revolver Commitments of all Lenders, and
(ii) from and after the time that the Revolver Commitments have been terminated
or reduced to zero, the percentage obtained by dividing (y) the outstanding
principal amount of such Lender’s Advances, by (z) the outstanding principal
amount of all Advances; provided, however, that if all of the Advances have been
repaid in full and Letters of Credit remain outstanding, Pro Rata Share under
this clause shall be determined based upon subclause (i) of this clause as if
the Revolver Commitments had not been terminated or reduced to zero and based
upon the Revolver Commitments as they existed immediately prior to their
termination or reduction to zero.
          “Protective Advances” has the meaning specified therefor in
Section 2.3(d)(i) of the Agreement.

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          “Publishing Business” means the publishing business of BCI, Encore
Software, Inc., a Minnesota corporation, FUNimation Productions, Ltd., a Texas
limited partnership, and animeOnline, Ltd., a Texas limited partnership as
presently conducted and any similar business of any Loan Party that may be
conducted in the future.
          “Purchase Money Indebtedness” means Indebtedness (other than the
Obligations, but including Capitalized Lease Obligations), incurred at the time
of, or within 20 days after, the acquisition of any fixed assets for the purpose
of financing all or any part of the acquisition cost thereof.
          “Qualified Cash” means, as of any date of determination, the amount of
unrestricted cash and Cash Equivalents of Borrower and its Subsidiaries that is
in Deposit Accounts or in Securities Accounts, or any combination thereof, and
which such Deposit Account or Securities Account is the subject of a Control
Agreement and is maintained by a branch office of the bank or securities
intermediary located within the United States.
          “Real Property” means any estates or interests in real property now
owned or hereafter acquired by Borrower or its Subsidiaries and the improvements
thereto.
          “Real Property Collateral” means the Real Property identified on
Schedule R-1 and any Real Property hereafter acquired by Borrower or its
Subsidiaries.
          “Record” means information that is inscribed on a tangible medium or
that is stored in an electronic or other medium and is retrievable in
perceivable form.
          “Refinancing Indebtedness” means refinancings, renewals, or extensions
of Indebtedness so long as:
          (a) such refinancings, renewals, or extensions do not result in an
increase in the principal amount of the Indebtedness so refinanced, renewed, or
extended,
          (b) such refinancings, renewals, or extensions do not result in a
shortening of the average weighted maturity (measured as of the refinancing,
renewal, or extension) of the Indebtedness so refinanced, renewed, or extended,
nor are they on terms or conditions that, taken as a whole, are or could
reasonably be expected to be materially adverse to the interests of the Lenders,
          (c) if the Indebtedness that is refinanced, renewed, or extended was
subordinated in right of payment to the Obligations, then the terms and
conditions of the refinancing, renewal, or extension must include subordination
terms and conditions that are at least as favorable to the Lender Group as those
that were applicable to the refinanced, renewed, or extended Indebtedness, and
          (d) the Indebtedness that is refinanced, renewed, or extended is not
recourse to any Person that is liable on account of the Obligations other than
those Persons which were obligated with respect to the Indebtedness that was
refinanced, renewed, or extended.
          “Reimbursement Undertaking” has the meaning specified therefor in
Section 2.11(a) of the Agreement.

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          “Related Fund” means, with respect to any Lender that is an investment
fund, any other investment fund that invests in commercial loans and that is
managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
          “Remedial Action” means all actions taken to (a) clean up, remove,
remediate, contain, treat, monitor, assess, evaluate, or in any way address
Hazardous Materials in the indoor or outdoor environment, (b) prevent or
minimize a release or threatened release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, (c) restore or reclaim natural resources or the
environment, (d) perform any pre-remedial studies, investigations, or
post-remedial operation and maintenance activities, or (e) conduct any other
actions with respect to Hazardous Materials required by Environmental Laws.
          “Replacement Lender” has the meaning specified therefor in
Section 2.13(b) of the Agreement.
          “Report” has the meaning specified therefor in Section 15.16 of the
Agreement.
          “Required Availability” means that the sum of (a) Excess Availability,
plus (b) Qualified Cash exceeds $10,000,000.
          “Required Lenders” means, at any time, Lenders whose aggregate Pro
Rata Shares (calculated under clause (c) of the definition of Pro Rata Shares)
exceed 50%; provided, however, that at any time there are 2 or more Lenders,
“Required Lenders” must include at least 2 Lenders.
          “Reserve Percentage” means, on any day, for any Lender, the maximum
percentage prescribed by the Board of Governors of the Federal Reserve System
(or any successor Governmental Authority) for determining the reserve
requirements (including any basic, supplemental, marginal, or emergency
reserves) that are in effect on such date with respect to eurocurrency funding
(currently referred to as “eurocurrency liabilities”) of that Lender, but so
long as such Lender is not required or directed under applicable regulations to
maintain such reserves, the Reserve Percentage shall be zero.
          “Restricted Junior Payment” means to (a) declare or pay any dividend
or make any other payment or distribution on account of Stock issued by a Loan
Party (including any payment in connection with any merger or consolidation
involving a Loan Party) or to the direct or indirect holders of Stock issued by
Borrower in their capacity as such (other than dividends or distributions
payable in Stock (other than Prohibited Stock) issued by a Loan Party, or (b)
purchase, redeem, or otherwise acquire or retire for value (including in
connection with any merger or consolidation involving a Loan Party) any Stock
issued by a Loan Party.
          “Revolver Commitment” means, with respect to each Lender, its Revolver
Commitment, and, with respect to all Lenders, their Revolver Commitments, in
each case as such Dollar amounts are set forth beside such Lender’s name under
the applicable heading on Schedule C-1 or in the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder, as such amounts may be
reduced or increased from time to time pursuant to assignments made in
accordance with the provisions of Section 13.1 of the Agreement.

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          “Revolver Usage” means, as of any date of determination, the sum of
(a) the amount of outstanding Advances, plus (b) the amount of the Letter of
Credit Usage.
          “Sanctioned Entity” means (a) a country or a government of a country,
(b) an agency of the government of a country, (c) an organization directly or
indirectly controlled by a country or its government, (d) a Person resident in
or determined to be resident in a country, in each case, that is subject to a
country sanctions program administered and enforced by OFAC.
          “Sanctioned Person” means a person named on the list of Specially
Designated Nationals maintained by OFAC.
          “S&P” has the meaning specified therefor in the definition of Cash
Equivalents.
          “SEC” means the United States Securities and Exchange Commission and
any successor thereto.
          “Securities Account” means a securities account (as that term is
defined in the Code).
          “Securities Act” means the Securities Act of 1933, as amended from
time to time, and any successor statute.
          “Security Agreement” means a security agreement, in form and substance
reasonably satisfactory to Agent, executed and delivered by Borrower and
Guarantors to Agent.
          “Settlement” has the meaning specified therefor in Section 2.3(e)(i)
of the Agreement.
          “Settlement Date” has the meaning specified therefor in
Section 2.3(e)(i) of the Agreement.
          “Solvent” means, with respect to any Person on a particular date,
that, at fair valuations, the sum of such Person’s assets is greater than all of
such Person’s debts.
          “Specified Account Debtor” means TransWorld Entertainment.
          “Stock” means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
Person, 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 SEC under the Exchange Act).
          “Subsidiary” of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of Stock having ordinary voting power to elect a
majority of the board of directors (or appoint other comparable managers) of
such corporation, partnership, limited liability company, or other entity.

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          “Swing Lender” means WFF or any other Lender that, at the request of
Borrower and with the consent of Agent agrees, in such Lender’s sole discretion,
to become the Swing Lender under Section 2.3(b) of the Agreement.
          “Swing Loan” has the meaning specified therefor in Section 2.3(b) of
the Agreement.
          “Symantec Intercreditor Agreement” means that certain Intercreditor
Agreement dated as of the date hereof among Borrower, Navarre Distribution
Services, Inc., Symantec Corporation and Agent.
          “Taxes” means any taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature now or hereafter imposed by any jurisdiction or
by any political subdivision or taxing authority thereof or therein with respect
to such payments and all interest, penalties or similar liabilities with respect
thereto; provided, however, that Taxes shall exclude (i) any tax imposed on the
net income or net profits of any Lender or any Participant (including any branch
profits taxes), in each case imposed by the jurisdiction (or by any political
subdivision or taxing authority thereof) in which such Lender or such
Participant is organized or the jurisdiction (or by any political subdivision or
taxing authority thereof) in which such Lender’s or such Participant’s principal
office is located in each case as a result of a present or former connection
between such Lender or such Participant and the jurisdiction or taxing authority
imposing the tax (other than any such connection arising solely from such Lender
or such Participant having executed, delivered or performed its obligations or
received payment under, or enforced its rights or remedies under the Agreement
or any other Loan Document); (ii) taxes resulting from a Lender’s or a
Participant’s failure to comply with the requirements of Section 16(c) or (d) of
the Agreement, and (iii) any United States federal withholding taxes that would
be imposed on amounts payable to a Foreign Lender based upon the applicable
withholding rate in effect at the time such Foreign Lender becomes a party to
the Agreement (or designates a new lending office), except that Taxes shall
include (A) any amount that such Foreign Lender (or its assignor, if any) was
previously entitled to receive pursuant to Section 16(a) of the Agreement, if
any, with respect to such withholding tax at the time such Foreign Lender
becomes a party to the Agreement (or designates a new lending office), and
(B) additional United States federal withholding taxes that may be imposed after
the time such Foreign Lender becomes a party to the Agreement (or designates a
new lending office), as a result of a change in law, rule, regulation, order or
other decision with respect to any of the foregoing by any Governmental
Authority.
          “Tax Lender” has the meaning specified therefor in Section 14.2(a) of
the Agreement.
          “Total Commitment” means, with respect to each Lender, its Total
Commitment, and, with respect to all Lenders, their Total Commitments, in each
case as such Dollar amounts are set forth beside such Lender’s name under the
applicable heading on Schedule C-1 attached hereto or on the signature page of
the Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder, as such amounts may be reduced or increased from time to time
pursuant to assignments made in accordance with the provisions of Section 13.1
of the Agreement.

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          “Trademark Security Agreement” has the meaning specified therefor in
the Security Agreement.
          “TTM EBITDA” means, as of any date of determination, EBITDA of
Borrower determined on a consolidated basis in accordance with GAAP, for the
12 month period most recently ended.
          “Underlying Issuer” means Wells Fargo or one of its Affiliates.
          “Underlying Letter of Credit” means a Letter of Credit that has been
issued by an Underlying Issuer.
          “United States” means the United States of America.
          “Vendor” means a Person who (i) supplies goods to any Loan Party which
become Inventory of such Loan Party or (ii) provides a license to permit a Loan
Party to sell specific goods or for specified use of intellectual property.
          “Vendor Advances” means all prepayments, advances, licensing fees or
royalties (i) paid by one or more Loan Parties to one or more Vendors in respect
of goods or intellectual property not yet then provided to a Loan Party and
(ii) which are intended to be repaid or earned in the future upon a sale by a
Loan Party of the applicable goods or specified use of intellectual property.
          “Voidable Transfer” has the meaning specified therefor in Section 17.8
of the Agreement.
          “Wells Fargo” means Wells Fargo Bank, National Association, a national
banking association.
          “WFF” means Wells Fargo Foothill, LLC, a Delaware limited liability
company.

Schedule 1.1 - Page 36