exv10w1






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




 





 









 





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	 






-i-









 




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	 






-ii-









 




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	 






-iii-









 




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	 






-iv-









 




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	 






-v-









 





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






-vi-









 





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.




 









 








     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



-2-









 






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



-3-









 






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



-4-









 




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.



-5-









 





          (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.



-6-









 





               (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



-7-









 




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



-8-









 






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.



-9-









 





               (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



-10-









 





                    (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 



-11-









 




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



-12-









 




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.




-13-









 








     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.




-14-









 








          (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



-15-









 






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



-16-









 






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



-17-









 






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





-18-











 




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,


-19-









 






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



-20-









 







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



-21-









 







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



-22-









 






(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.




-23-









 








     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:




-24-









 








     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




-25-









 







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).




-26-









 








          (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




-27-









 







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.




-28-









 








     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




-29-









 







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




-30-









 







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.




-31-









 








     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:




-32-









 








     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




-33-









 







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,




-34-









 







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



-35-









 






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




-36-









 







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




-37-









 







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.




-38-









 








     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.



-39-









 





     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.




-40-









 








     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).




-41-









 








     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:




-42-









 








	 	 	 
	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



-43-









 







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



-44-









 







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.



-45-









 





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.




-46-









 








     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.




-47-









 








     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).




-48-









 








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,




-49-









 







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




-50-









 







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




-51-









 







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,



-52-









 





               (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,




-53-









 








          (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




-54-









 







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




-55-









 







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




-56-









 







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



-57-









 






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




-58-









 







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




-59-









 







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.




-60-









 








          (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.




-61-









 








     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.




-62-









 








     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:




-63-









 








               (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




-64-









 







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




-65-









 







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




-66-









 







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




-67-









 







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.




-68-









 








     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.]




-69-









 





          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




 









 





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









 





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









 








          “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









 








          “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-




Schedule 1.1 - Page 4









 







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,



Schedule 1.1 - Page 5









 






     (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




Schedule 1.1 - Page 6









 







(“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




Schedule 1.1 - Page 7









 







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



Schedule 1.1 - Page 8









 






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).




Schedule 1.1 - Page 9









 








          “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




Schedule 1.1 - Page 10









 







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),




Schedule 1.1 - Page 11









 








          (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



Schedule 1.1 - Page 12









 






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.




Schedule 1.1 - Page 13









 








          “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




Schedule 1.1 - Page 14









 








          (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




Schedule 1.1 - Page 15









 







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.




Schedule 1.1 - Page 16









 








          “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,”




Schedule 1.1 - Page 17









 







“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.




Schedule 1.1 - Page 18









 








          “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



Schedule 1.1 - Page 19









 






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



Schedule 1.1 - Page 20









 






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



Schedule 1.1 - Page 21









 






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




Schedule 1.1 - Page 22









 







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



Schedule 1.1 - Page 23









 






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



Schedule 1.1 - Page 24









 






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.




Schedule 1.1 - Page 25









 








          “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,




Schedule 1.1 - Page 26









 








          (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



Schedule 1.1 - Page 27









 






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,




Schedule 1.1 - Page 28









 








          (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,




Schedule 1.1 - Page 29









 








          (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









 






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.




Schedule 1.1 - Page 31









 








          “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.




Schedule 1.1 - Page 32









 








          “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.




Schedule 1.1 - Page 33









 








          “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.




Schedule 1.1 - Page 34









 








          “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.




Schedule 1.1 - Page 35









 








          “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