Document:

exv10w18

Exhibit 10.18

EXECUTION
COPY

June 21, 2007

Fingerhut Direct Marketing, Inc.

7777 Golden Triangle Drive

Eden Prairie, Minnesota 55344

Attn: Chief Financial Officer

Ladies and Gentlemen:

     Reference is made to that certain Securities Purchase Agreement, dated as of March 23, 2006
(the “Purchase Agreement”), between Fingerhut Direct Marketing, Inc., a Delaware corporation (the
“Company”), and the purchasers named on the Purchaser Schedule attached thereto (the “Purchasers”).
Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to
such terms in the Purchase Agreement.

     In order to provide financing for, among other things, the working capital needs of the
Company and its Subsidiaries in the ordinary course of business and to refinance certain existing
Indebtedness, the Company is about to enter into the Credit Agreement, dated as of the date hereof
(the “New Credit Agreement”), among the Company, the lenders from time to time party thereto (the
“Lenders”) and JPMorgan Chase Bank, N.A., as administrative agent for the Lenders (the “Agent”),
pursuant to which the Lenders will provide a revolving loan to the Company in the original
principal amount of $40,000,000.

     The Company has requested that the Purchasers agree to certain modifications to the Purchase
Agreement. Subject to the terms and conditions hereof, and effective upon the satisfaction of the
conditions set forth herein, and provided that the Company agrees to the modifications of the
Purchase Agreement set forth below, the Purchasers are willing to agree to such request.
Accordingly, and in accordance with the provisions of paragraph 12C of the Purchase Agreement, the
parties hereto agree as follows:

     SECTION
1. Amendments to the Purchase Agreement. Upon the Effective Date (as
defined in Section 3 hereof), each Purchaser and the Company agree that, the Purchase Agreement and
the Subordinated Notes shall be amended as follows:

     1.1 Clauses (iv), (v) and (vi) of Paragraph 3A of the Purchase Agreement are hereby amended
and restated in their entirety as follows:

          (iv) [Intentionally Omitted];

          (v) [Intentionally Omitted];

          (vi) [Intentionally Omitted];

 

 

     1.2 Paragraph 5A of the Purchase Agreement is amended and restated in its entirety as
follows:

     5A. Financial Statements and Other Information. The Company covenants that it will
deliver to the Subordinated Collateral Agent (and, to the extent
requested by the
Subordinated Collateral Agent, to any designee of the Subordinated Collateral Agent):

          (i) within 120 days after the end of each fiscal year of the Company, its audited
consolidated balance sheet and related statements of operations, stockholders’ equity and
cash flows as of the end of and for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, all reported on by
independent public
accountants acceptable to the Subordinated Collateral Agent (without a “going concern” or
like qualification or exception and without any qualification or exception as to the scope
of such audit) to the effect that such consolidated financial statements present fairly in
all material respects the financial condition and results of operations of the Company and
its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied, accompanied by any management letter prepared by said accountants;

          (ii) within 45 days after the end of each of the first three fiscal quarters of the
Company, its consolidated and consolidating balance sheet and related statements of
operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter
and the then elapsed portion of the fiscal year, setting forth in each case in comparative
form the figures for the corresponding period or periods of (or, in
the case of the balance
sheet, as of the end of) the previous fiscal year, all certified by one of its Responsible
Officers as presenting fairly in all material respects the financial condition and results
of operations of the Company and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit adjustments and
the absence of footnotes;

          (iii) within 20 days after the end of each fiscal month of the Company, its
consolidated and consolidating balance sheet and related statements of operations,
stockholders’ equity and cash flows as of the end of and for such fiscal month and the then
elapsed portion of the fiscal year, setting forth in each case in comparative form the
figures for the corresponding period or periods of (or, in the case of the balance sheet, as
of the end of) the previous fiscal year, all certified by one of its Responsible Officers as
presenting fairly in all material respects the financial condition and results of operations
of the Company and its consolidated Subsidiaries on a consolidated basis in accordance with
GAAP consistently applied, subject to normal year-end audit adjustments and the absence of
footnotes;

          (iv) concurrently with any delivery of financial statements under clause (i) or (ii) or
(iii) above, a certificate of a Responsible Officer of the Company in substantially the form
of Exhibit P (a) certifying, in the case of the financial statements delivered under clause
(ii) or (iii), as presenting fairly in all material respects the financial condition and
results of operations of the Company and its consolidated Subsidiaries on a

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consolidated
basis in accordance with GAAP consistently applied, subject to normal
year-end audit adjustments and the absence of footnotes, (b) certifying as to whether a
Default has occurred and, if a Default has occurred, specifying the details thereof and any
action taken or proposed to be taken with respect thereto, (c) setting forth
reasonably detailed calculations demonstrating compliance with paragraph 6J and (d) stating
whether any change in GAAP or in the application thereof has occurred since the date of the
audited financial statements referred to in Section 3.04 and, if any such change has
occurred, specifying the effect of such change on the financial statements accompanying such
certificate;

          (v)
concurrently with any delivery of financial statements under clause
(i) above, a
certificate of the accounting firm that reported on such financial statements stating
whether they obtained knowledge during the course of their examination of such financial
statements of any Event of Default (which certificate may be limited to the extent required
by accounting rules or guidelines);

          (vi)
as soon as available, but in any event not more than 30 days prior to the end of
each fiscal year of the Company and not later than the last day of
such fiscal year, a copy
of the plan and forecast (including a projected consolidated and consolidating balance
sheet, income statement and funds flow statement) of the Company for each fiscal month of
the upcoming fiscal year (the “Projections”) in form reasonably satisfactory to the
Subordinated Collateral Agent;

          (vii)
as soon as possible and in any event within 30 days of filing thereof, copies of
all tax returns filed by any Obligor with the U.S. Internal Revenue Service;

          (viii)
within 10 days of the first Business Day of each March and September, a
certificate of good standing for each Obligor from the appropriate governmental officer in
its jurisdiction of incorporation, formation, or organization;

          (ix) promptly after the same become publicly available, copies of all periodic and
other reports, proxy statements and other materials filed by the Company or any Subsidiary
with the Securities and Exchange Commission, or any Governmental Authority succeeding to any
or all of the functions of said Commission, or with any national securities exchange, as the
case may be; and

          (x) promptly following any request therefor, such other information regarding the
operations, business affairs and financial condition of the Company or any Subsidiary, or
compliance with the terms of this Agreement, as the Subordinated Collateral Agent or any
holder of the Subordinated Notes may reasonably request.

     1.3
Paragraph 5L through Paragraph 5P of the Purchase Agreement are amended and restated in
their entirety as follows:

     5L.
Payment Obligations. Each Obligor will, and will cause each Subsidiary to, pay or
discharge all Material Indebtedness (excluding the Senior Debt) and all other material
liabilities and obligations (excluding the Senior Debt), including Taxes, before

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the
same shall become delinquent or in default, except where (i) the validity or amount
thereof is being contested in good faith by appropriate proceedings, (ii) such Obligor or such
Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with
GAAP and (iii) such liabilities would not result in aggregate
liabilities in excess of $2,500,000
and none of the Collateral becomes subject to forfeiture or loss as a result of the contest.

     5M. Additional Collateral; Further Assurances. (i) Subject to applicable law, the Company and
each Subsidiary that is an Obligor shall cause (a) each of its domestic Subsidiaries formed or
acquired after the First Amendment Effective Date in accordance with the terms of this Agreement
and (b) each other Person which guarantees the Senior Debt, to execute and deliver to the
Subordinated Collateral Agent (1) either (y) the Subsidiary Guaranty or (z) a Joinder
Agreement to the Subsidiary Guaranty, as applicable, upon which such Person shall automatically
become a Subsidiary Guarantor thereunder and thereupon shall have all of the rights, benefits,
duties, and obligations in such capacity under the Transaction Documents and (2) either (y) the
Subsidiary Security Agreement or (z) a Joinder Agreement to the Subsidiary Security Agreement, as
applicable, upon which such Person will grant Liens to the Subordinated Collateral Agent, for the
benefit of the Subordinated Collateral Agent and the holders of the Subordinated Notes, in any
property of such Person which constitutes Collateral;

     (ii) the Company and each Subsidiary that is an Obligor will cause (i) 100% of the issued and
outstanding Equity Interests of each of its domestic Subsidiaries, including Equity Interests in
the Securitization SPE and (ii) 65% of the issued and outstanding Equity Interests entitled to vote
(within the meaning of Treas. Reg. Section 1.956-2(c)(2)) or such greater percentage that, due to a
change in applicable law after the date hereof, (1) could not reasonably be expected to
cause the undistributed earnings of such foreign Subsidiary as determined for U.S. federal income
tax purposes to be treated as a deemed dividend to such foreign Subsidiary’s U.S. parent and (2)
could not reasonably be expected to cause any material adverse tax consequences and 100% of the
issued and outstanding Equity Interests not entitled to vote (within the meaning of Treas. Reg.
Section 1.956-2(c)(2)) in each foreign Subsidiary directly owned by the Company or any domestic
Subsidiary to be subject at all times to a perfected Lien in favor of the Subordinated Collateral
Agent pursuant to the terms and conditions of the Security Documents or other security documents as
the Subordinated Collateral Agent shall reasonably request; and

     (iii) without limiting the foregoing, each Obligor will, and will cause each Subsidiary to,
execute and deliver, or cause to be executed and delivered, to the Subordinated Collateral Agent
such documents, agreements and instruments, and will take or cause to be taken such further actions
(including the filing and recording of financing statements, fixture filings, mortgages, deeds of
trust and other documents and such other actions or deliveries of the type required by paragraph
3A, as applicable), which may be required by law or which the Subordinated Collateral Agent may,
from time to time, reasonably request to carry out the terms and conditions of this Agreement and
the other Transaction Documents and to ensure perfection and priority of the Liens

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created or intended to be created by the Security Documents, all at the expense of the
Obligors.

     5N.
| Intentionally Omitted |.

     5O. Amendments to Credit Agreement. Upon entering into any amendment or other
modification of the Credit Agreement (or any other agreement relating to the Senior Debt) the
effect of which is to add or make more restrictive any event of default or any covenant contained
in the Credit Agreement (or any other agreement relating to the Senior Debt) or make any change to
any event of default or any covenant that would have the effect of making such event of default or
covenant more restrictive, the Company shall (1) promptly, and in any event within 3
Business Days provide written notice thereof to each holder of Subordinated Notes describing such
amendment in reasonable detail and (2) offer to enter into an amendment of this Agreement within 10
Business Days of consummating such amendment or modification to make corresponding changes or
additions herein in respect of such covenants and events of default; provided, that, as to
covenants or events of default which set forth any requisite ratio or compliance amounts such
ratios and compliance amounts may, if so required by the terms of the Credit Agreement or the
Intercreditor Agreement, be less restrictive on the Company to the same extent as the applicable
covenant or event of default is prior to the time of such change.

     5P. Notices of Material Events. The Company will furnish to the Subordinated Collateral Agent
and each holder of the Subordinated Notes prompt written notice of the following:

     (i) the occurrence of any Default or Event of Default;

     (ii) receipt of any notice of any governmental investigation or any litigation or proceeding
commenced or threatened against any Obligor that (a) seeks damages in excess of $2,500,000, (b)
seeks injunctive relief, (c) is asserted or instituted against any Plan, its fiduciaries or its
assets, (d) alleges criminal misconduct by any Obligor, (e) alleges the violation of any law
regarding, or seeks remedies in connection with, any Environmental Laws, (f) contests any tax, fee,
assessment, or other governmental charge in excess of $2,500,000, or (g) involves any product
recall;

     (iii) any Lien (other than Permitted Liens or Liens permitted under paragraph 6A) or claim
made or asserted against any of the Collateral;

     (iv) any loss, damage, or destruction to the Collateral in the amount of $2,500,000 or more,
whether or not covered by insurance;

     (v) any and all default notices received under or with respect to any leased location or
public warehouse where Collateral is located (which shall be delivered within two Business Days
after receipt thereof);

     (vi)
[Intentionally Omitted];

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     (vii) the fact that an Obligor has entered into a Swap Agreement or an amendment to a
Swap Agreement with a Person other than a Bank or the Bank Agent, together with copies of
all agreements evidencing such Swap Agreement or amendments thereto (which shall be
delivered within two Business Days);

     (viii) the occurrence of any ERISA Event that, alone or together with any other ERISA
Events that have occurred, could reasonably be expected to result in liability of the
Company and its Subsidiaries in an aggregate amount exceeding $2,500,000;

     (ix) any other development that results in, or could reasonably be expected to result
in, a Material Adverse Effect;

     (x) promptly upon, and in any event not later than the next Business Day after, receipt
thereof, a copy of any notice received from the Bank Agent or any holder of Senior Debt that
any default or event of default under the Credit Agreement has occurred or any notice of any
acceleration of any Senior Debt;

     (xi) simultaneously with the transmission thereof, copies of all notices, reports,
financial statements or other communications given to the Bank Agent or any holder of Senior
Debt under the Credit Agreement, excluding routine borrowing requests; and

     (xii) with reasonable promptness, such other information as the Subordinated Collateral
Agent may reasonably request.

Each notice delivered under this paragraph shall be accompanied by a statement of a
Responsible Officer or other executive officer of the Company setting forth the details of
the event or development requiring such notice and any action taken or proposed to be taken
with respect thereto.

     1.4 Paragraphs 5R and 5S are hereby deleted in their entirety.

     1.5 Paragraph 6 of the Purchase Agreement and all Schedules referenced therein are amended and
restated in their entirety as set forth in Exhibit 1 hereto.

     1.6 Paragraph 7A of the Purchase Agreement is amended and restated in its entirety as set
forth in Exhibit 2 hereto.

     1.7 Paragraph 8Q of the Purchase Agreement is amended and restated in its entirety as follows:

     8Q. Establishment of Security Interest. Schedule 8Q hereto sets forth as of
the First Amendment Effective Date a complete and accurate list of (i) the location of the
chief executive office of the Company and each of its Subsidiaries, (ii) all real property
owned or leased by the Company or any of its Subsidiaries, (iii) all locations at which any
property of the Company or any of its Subsidiaries is located (or at any time within
the last 6 months has been located) or at which the Company or any of its Subsidiaries
maintains a place of business or keeps any records (or at any time within the last 6 months
has maintained a place of business or kept records), (iv) all patents, trademarks,

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trade names, service marks, services names or copyrights owned or licensed by
the Company or any of its Subsidiaries, (v) the organizational identification number of the
Company and each of its Subsidiaries, and (vi) any name under which the Company or any
Subsidiary has conducted business at any time during the last 5 years. As of the First
Amendment Effective Date, all filings, assignments, pledges and deposits of documents or
instruments have been made, and all other actions have been taken, that are necessary or
advisable under applicable law and are required to be made or taken on or prior to the First
Amendment Effective Date under the provisions of this Agreement and the other Transaction
Documents to create and perfect a security interest in the Collateral in favor of the
Subordinated Collateral Agent to secure the Subordinated Notes, and each Subsidiary
Guarantor’s obligations under its Subsidiary Guaranty, subject to no Liens other than Liens
permitted under clause (i) of paragraph 6A. The Collateral and the Subordinated Collateral
Agent’s rights with respect to the Collateral are not subject to any setoff, claims,
withholdings or other defenses (except any such setoff, claim or defense which could not,
individually or in the aggregate, materially impair the rights of the Subordinated
Collateral Agent with respect to the Collateral). The Company or a Subsidiary is the owner
of the Collateral described in the Security Documents free from any Lien, security interest,
encumbrance and any other claim or demand, except for Liens permitted under paragraph 6A.

     1.8
Paragraph 8T of the Purchase Agreement is amended and restated in its entirety as follows:

     8T. Inventory Locations; Etc. Except for inventory drop shipped directly from a
supplier or vendor directly to a customer, all of the Company’s inventory is located at one
of the locations identified on Schedule 8T. Except to the extent such requirement has been
expressly waived by the Subordinated Collateral Agent in writing, the landlord with respect
to each inventory location has executed and delivered to the Subordinated Collateral Agent a
landlord lien waiver in a form approved by the Subordinated Collateral Agent.

     1.9
Paragraph 8 of the Purchase Agreement is amended by adding a new Paragraph 8U thereto as
follows:

     8U. Affiliate Transactions. Except as set forth on Schedule 6K, as of the First
Amendment Effective Date, there are no existing or proposed agreements, arrangements,
understandings, or transactions between any Obligor and any of the officers, directors,
Control Parties or Affiliates (other than Subsidiaries) of any Obligor.

     1.10 Paragraph 11 B of the Purchase Agreement is amended and restated in its entirety as set
forth in Exhibit 4 hereto.

     1.11
Paragraph 11C of the Purchase Agreement is amended and restated in its entirety as
follows:

     11C. Accounting and Legal Principles, Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all

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determinations with respect to accounting matters hereunder shall be made, and all unaudited
financial statements and certificates and reports as to financial matters required to be
furnished hereunder shall be prepared, in accordance with GAAP, applied on a basis
consistent with the most recent audited consolidated financial statements of the Company and
its Subsidiaries delivered pursuant to clause (i) of paragraph 5A or, if no such statements
have been so delivered, the most recent audited financial statements referred to in clause
(i) of paragraph 8B. Any reference herein to any specific citation, section or form of law,
statute, rule or regulation shall refer to such new, replacement or analogous citation,
section or form should citation, section or form be modified, amended or replaced.

     1.12 Exhibit G to the Purchase Agreement is amended and restated in its entirety to read as
set forth on Exhibit G attached to this letter agreement.

     1.13 The Purchase Agreement is amended to add the following new Exhibits P and Q to read as
set forth on Exhibits P and Q attached to this letter agreement.

     SECTION
2. Representations and Warranties. The Company represents and warrants to the
Purchasers that, after giving effect hereto (a) each representation and warranty set forth in
paragraph 8 of the Purchase Agreement is true and correct as of the date of the execution and
delivery of this letter by the Company with the same effect as if made on such date (except to the
extent such representations and warranties expressly refer to an earlier date, in which case they
were true and correct as of such earlier date) and (b) no Event of Default or Default exists.

     SECTION
3. Effectiveness. The amendments described in Section 1 above shall become effective
upon the date (the “Effective Date”) that each of the following conditions has been satisfied in a
manner satisfactory in form and substance to the Required Holder(s):

     (a) the Required Holder(s) have received the following documents:

     (i) a counterpart of this letter agreement duly executed by the
Company;

     (ii) certified copies of the New Credit Agreement duly executed by the Company,
the Bank Agent and the Banks, and all agreements, instruments and other documents
executed in connection therewith or delivered pursuant thereto, in form and
substance satisfactory to the Required Holder(s), and all conditions precedent to
the effectiveness of the New Credit Agreement shall have been satisfied and the
Company shall have applied the proceeds thereof in accordance with the terms of the
New Credit Agreement;

     (iii) a counterpart of the Security Agreement duly executed by the Company;

     (iv) a counterpart of the grant of security interest (trademarks) duly executed
by the Company;

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     (v)
counterparts of the landlord waivers with respect to the Company’s following
leased locations: (1) 7777 Golden Triangle Drive, Eden Prairie,
Minnesota and (2) 6250
Ridgewood Road, St. Cloud, Minnesota duly executed by all parties thereto;

     (vi) counterparts of the JPMorgan Chase Bank, N.A. account control agreement duly
executed by all parties thereto;

     (vii)
counterparts of the Intercrellitor Agreement duly executed by all parties
thereto;

     (viii) counterparts of the Securitization Intercreditor Agreement duly executed by all
parties thereto;

     (ix) payoff letter evidencing the payoff of the senior debt owing to CIGPF I Corp. and
the termination of all liens securing such debt and the subordination agreement related
thereto;

     (x) certified copies of all agreements evidencing the Securitization Facility;

     (xi) certified copies of the CIT Documents (as defined in the Security Agreement);

     (xii)
legal opinions of the Company’s in-house counsel and special counsel, in form and
substance satisfactory to the Required Holder(s);

     (xiii)
a Secretary’s Certificate of the Company certifying, among other things (1) as to
the name, titles and true signatures of the officers of the Company authorized to sign this
letter agreement and the other documents to be delivered in connection with this letter
agreement, (2) that attached thereto is a true, accurate and complete copy of the certificate
of incorporation or other formation document of the Company, certified by the Secretary of
State of the state of organization of the Company as of a recent date, (3) that attached
thereto is a true, accurate and complete copy of the by-laws, operating agreement or other
organizational document of the Company, (4) that attached thereto is a true, accurate and
complete copy of the resolutions of the board of directors or other managing body of the
Company, duly adopted at a meeting or by unanimous written consent of such board of directors
or other managing body, authorizing the execution, delivery and performance of this letter
agreement and the other documents to be delivered by the Company in connection with this
letter agreement, and that such resolutions have not been amended, modified, revoked or
rescinded, are in full force and effect and are the only resolutions of the shareholders,
partners or members of the Company or of such board of directors or other managing body or
any committee thereof relating to the subject matter thereof; and

     (xiv) a certificate of good standing for the Company from the Secretary of State of the
state of organization of the Company dated as of a recent date;

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     (b) all corporate and other proceedings in connection with the transactions
contemplated by this letter agreement shall be satisfactory to the
Required Holder(s) and
its counsel, and the Required Holder(s) shall have received all such counterpart originals
or certified or other copies of such documents as they may reasonably
request;

     (c)
the Purchasers have received payment of all costs and expenses of the Purchasers
(including reasonable fees and disbursements of special counsel to the Purchasers) in
connection with this letter agreement and the transactions
contemplated hereby;

     (d)
as of the date hereof and after giving effect to this letter
agreement, no Default
or Event of Default has occurred which is continuing; and

     (e)
all the representations and warranties contained in Paragraph 8 of the Purchase
Agreement are true and correct in all material respects with the same force and effect as if
made by the Company on and as of the date hereof, except to the extent such representation
and warranties, by their terms, specifically are made as of a certain date prior to the date
hereof.

     SECTION
4. Reference to and Effect on Purchase Agreement. Upon the effectiveness of this
letter agreement, each reference in the Purchase Agreement or any other document, instrument or
agreement to the “Purchase Agreement” shall mean and be a reference to the Purchase Agreement as
modified by this letter agreement. Except as specifically set forth in Section I hereof, the
Purchase Agreement shall remain in full force and effect and is hereby ratified and confirmed in
all respects.

     SECTION
5. Expenses. The Company hereby confirms its obligations under the Purchase Agreement,
whether or not the transactions hereby contemplated are consummated, to pay, promptly after request
by the Purchasers, all reasonable out-of-pocket costs and expenses, including attorneys’ fees and
expenses, incurred by the Purchasers in connection with this letter agreement or the transactions
contemplated hereby, in enforcing any rights under this letter agreement, or in responding to any
subpoena or other legal process or informal investigative demand issued in connection with this
letter agreement or the transactions contemplated hereby. The obligations of the Company under this
Section 5 shall survive transfer by the Purchasers of any Subordinated Note and payment of any
Subordinated Note.

     SECTION
6. Governing Law. THIS LETTER AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS
OF SUCH STATE WHICH WOULD OTHERWISE CAUSE THIS LETTER AGREEMENT TO BE CONSTRUED OR ENFORCED OTHER
THAN IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.

     SECTION
7. Counterparts; Section Titles. This letter agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same instrument. The section titles contained in this

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letter
agreement are and shall be without substance, meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.

     SECTION
8. Release. On the Effective Date, Fingerhut Fulfillment, Inc., a Delaware
corporation (“FFI”), shall be released from its
obligations under the Subsidiary Guaranty,
Subsidiary Security Agreement and IP Security Agreement (other than those obligations
which expressly by their terms survive termination or release of such agreements) and all Liens
granted by FFI on its assets pursuant to the foregoing agreements shall be released.

[signature page follows]

11

 

	 	 	 	 	 	 
	 	Very truly yours,

PRUDENTIAL CAPITAL PARTNERS II, L.P.

 	 
	 	 	By:  	Stetson Street Partners, L.P., its general partner
 	 
	 	 	 
	 	 	By:  	/s/ [ILLEGIBLE] 	 
	 	 	 	Vice President 	 
	 	 	 	 	 
	 	 	 	 	 	 
	 	PRUDENTIAL CAPITAL PARTNERS MANAGEMENT FUND II, L.P.

 	 
	 	 	By:  	Mulberry Street Holdings, LLC, its general partner
 
	 	 	 
	 	 	By:  	Prudential Investment Management, Inc., its managing member
 
	 	 	 
	 	 	By:  	/s/ [ILLEGIBLE] 	 
	 	 	 	Vice President 	 
	 	 	 	 	 
	 	 	 	 	 	 
	 	PRUDENTIAL CAPITAL PARTNERS (PARALLEL FUND) II, L.P.

 	 
	 	 	By:  	Stetson Street Partners, L.P., its general partner
 	 
	 	 	 
	 	 	By:  	/s/ [ILLEGIBLE] 	 
	 	 	 	Vice President 	 
	 	 	 	 	 
	 	 	 	 	 	 

	 	 	 	 	 
	 	AGREED AND ACCEPTED:

FINGERHUT DIRECT MARKETING, INC.

 	 
	 	By:  	 	 
	 	 	Title:   
	 
	 	 	 	 
	 

Signature Page

Letter Agreement to Securities Purchase Agreement

 

 

	 	 	 	 	 	 
	 	Very truly yours,

PRUDENTIAL CAPITAL PARTNERS II, L.P.

 	 
	 	 	By:  	Stetson Street Partners, L.P., its general partner
 	 
	 	 	 
	 	 	By:  	 	 
	 	 	 	Vice President 	 
	 	 	 	 	 
	 	 	 	 	 	 
	 	PRUDENTIAL CAPITAL PARTNERS MANAGEMENT FUND II, L.P.

 	 
	 	 	By:  	Mulberry Street Holdings, LLC, its general partner
 
	 	 	 
	 	 	By:  	Prudential Investment Management, Inc., its managing member
 
	 	 	 
	 	 	By:  	 	 
	 	 	 	Vice President 	 
	 	 	 	 	 
	 	 	 	 	 	 
	 	PRUDENTIAL CAPITAL PARTNERS (PARALLEL FUND) II, L.P.

 	 
	 	 	By:  	Stetson Street Partners, L.P., its general partner
 	 
	 	 	 
	 	 	By:  	 	 
	 	 	 	Vice President 	 
	 	 	 	 	 
	 	 	 	 	 	 

	 		 	 	 	 
	 		AGREED AND ACCEPTED:

FINGERHUT DIRECT MARKETING, INC.

 	 
	 		By:  	/s/ [ILLEGIBLE] 	 
	 		 	Title:	Executive Vice President and 

Chief Financial Officer 	 
	 		 	 	 
	 	

Signature Page

Letter Agreement to Securities Purchase Agreement

 

 

EXHIBIT 1

     6. NEGATIVE COVENANTS. The Company covenants that so long as any Subordinated Note is
outstanding the Company will not undertake or suffer to exist any of the following, unless the
Subordinated Collateral Agent, as agent for the Purchasers, otherwise consents in writing:

     6A. Liens and Other Interests. The Company will not, nor will it permit any Subsidiary to,
create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter
acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights
in respect of any thereof, except:

     (i) Liens on the Bank Collateral securing payment of the Senior Debt;

     (ii) Permitted Liens;

     (iii) any Lien on any property or asset of the Company or any Subsidiary existing on
the First Amendment Effective Date and set forth in Schedule 6A; provided that (a)
such Lien shall not apply to any other property or asset of the Company or Subsidiary and
(b) such Lien shall secure only those obligations which it secures on the date hereof and
extensions, renewals and replacements thereof that do not increase the outstanding
principal amount thereof;

     (iv) Liens on fixed or capital assets acquired, constructed or improved by the Company
or any Subsidiary; provided that (a) such security interests secure Indebtedness
permitted by clause (v) of paragraph 6B, (b) such security interests and the Indebtedness
secured thereby are incurred prior to or within 90 days after such acquisition or the
completion of such construction or improvement, (c) the Indebtedness secured thereby does
not exceed 100% of the cost of acquiring, constructing or improving such fixed or capital
assets and (d) such security interests shall not apply to any other property or assets of
the Company or Subsidiary;

     (v) any Lien existing on any property or asset (other than Accounts and Inventory)
prior to the acquisition thereof by the Company or any Subsidiary or existing on any
property or asset (other than Accounts and Inventory) of any Person that becomes an Obligor
after the date hereof prior to the time such Person becomes an Obligor; provided
that (i) such Lien is not created in contemplation of or in connection with such
acquisition or such Person becoming an Obligor, as the case may be, (ii) such Lien shall
not apply to any other property or assets of such Obligor and (iii) such Lien shall secure
only those obligations which it secures on the date of such acquisition or the date such
Person becomes an Obligor, as the case may be, and extensions, renewals and replacements
thereof that do not increase the outstanding principal amount thereof;

     (vi) Liens of a collecting bank arising in the ordinary course of business under
Section 4-208 of the Uniform Commercial Code in effect in the relevant jurisdiction covering
only the items being collected upon;

     (vii) Liens arising out of sale and leaseback transactions permitted by

E1-1

 

paragraph 6P;

     (viii) Liens granted by a Subsidiary that is not an Obligor in favor of the Company or
another Obligor in respect of Indebtedness owed by such Subsidiary;

     (ix) Liens on Securitization Receivables and other Purchased Assets (as defined in the
Securitization Documents) transferred by an Obligor to, and any property and assets of, the
Securitization SPE; and

     (x) Liens securing payment of the Subordinated Notes and the other Obligations.

Notwithstanding the foregoing, none of the Liens permitted pursuant to this paragraph 6A may at
any time attach to any Obligor’s Inventory, other than those permitted under clauses (i), (ii) and
(vii) of the definition of “Permitted Lien” and clauses (i) and (x) above.

     6B. Indebtedness. The Company will not, nor will it permit any Subsidiary to, create,
incur or suffer to exist any Indebtedness, except:

     (i) Indebtedness under the Subordinated Notes and the other Obligations;

     (ii) Indebtedness existing on the First Amendment Effective Date and set forth in
Schedule 6B and extensions, renewals and replacements of any such Indebtedness in
accordance with clause (vi) hereof;

     (iii) Indebtedness of the Company to any Subsidiary and Indebtedness of any Subsidiary
to the Company or any other Subsidiary, provided that (a) Indebtedness of any Subsidiary
that is not an Obligor to the Company or to any Subsidiary that is an Obligor shall be
subject to paragraph 6C and (b) Indebtedness of the Company to any Subsidiary and
Indebtedness of any Subsidiary that is an Obligor to any Subsidiary that is not an Obligor
shall be subordinated to the Obligations on terms reasonably satisfactory to the
Subordinated Collateral Agent;

     (iv) Guarantees by the Company of Indebtedness of any Subsidiary and by any Subsidiary
of Indebtedness of the Company or any other Subsidiary, provided that (a) the
Indebtedness so Guaranteed is permitted by this paragraph 6B, (b) Guarantees by the Company
or any Subsidiary that is an Obligor of Indebtedness of any Subsidiary that is not an
Obligor shall be subject to paragraph 6C and (c) Guarantees permitted under this clause
(iv) shall be subordinated to the Obligations of the applicable Subsidiary on the same
terms as the Indebtedness so Guaranteed is subordinated to the Obligations;

     (v) Indebtedness of the Company or any Subsidiary incurred to finance the acquisition,
construction or improvement of any fixed or capital assets (whether or not constituting
purchase money Indebtedness), including Capital Lease Obligations and any Indebtedness
assumed in connection with the acquisition of any such assets or secured by a Lien on any
such assets prior to the acquisition thereof, and extensions, renewals and replacements of
any such Indebtedness in accordance with clause (vi) hereof; provided that (a) such
Indebtedness is incurred prior to or within 90 days after such acquisition or

E1-2

 

the completion of such construction or improvement and (b) the aggregate principal amount
of Indebtedness permitted by this clause (v) shall not exceed $10,000,000 at any time
outstanding plus up to $25,000,000 to finance the acquisition of the warehouse the Company
currently leases in St. Cloud, Minnesota;

     (vi) Indebtedness which represents an extension, refinancing, or renewal of any of the
Indebtedness described in clauses (ii) and (v) and not clause (xii) hereof; provided that,
(a) the principal amount of such Indebtedness is not increased, (b) any Liens securing such
Indebtedness are not extended to any additional property of any Obligor, (c) no Obligor that
is not originally obligated with respect to repayment of such Indebtedness is required to
become obligated with respect thereto, (d) such extension, refinancing or renewal does not
result in a shortening of the average weighted maturity of the Indebtedness so extended,
refinanced or renewed, (e) the terms of any such extension, refinancing, or renewal are not
materially less favorable to the obligor thereunder than the original terms of such
Indebtedness and (f) 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 Indebtedness must include subordination terms and
conditions that are at least as favorable to the Subordinated Collateral Agent and the
holders of the Subordinated Notes as those that were applicable to the refinanced, renewed,
or extended Indebtedness;

     (vii) Indebtedness owed to any person providing workers’ compensation, health,
disability or other employee benefits or property, casualty or liability insurance,
pursuant to reimbursement or indemnification obligations to such person, in each case
incurred in the ordinary course of business;

     (viii) Indebtedness of the Company or any Subsidiary in respect of performance bonds,
bid bonds, appeal bonds, surety bonds and similar obligations, in each case provided in the
ordinary course of business;

     (ix) Indebtedness of any Person that becomes a Subsidiary after the date hereof;
provided that (a) such Indebtedness exists at the time such Person becomes a
Subsidiary and is not created in contemplation of or in connection with such Person
becoming a Subsidiary and (b) the aggregate principal amount of Indebtedness permitted by
this clause (ix) shall not exceed $2,500,000 at any time outstanding;

     (x) Senior Debt;

     (xi) other unsecured Indebtedness in an aggregate principal amount not exceeding
$10,000,000 at any time outstanding; provided that the aggregate principal amount
of Indebtedness of the Company’s Subsidiaries permitted by this clause (xi) shall not
exceed $2,500,000 at any time outstanding; and

     (xii) any Indebtedness in respect of any Securitization Facility.

     6C. Investments, Loans, Advances, Guarantees and Acquisitions. The Company will not, nor will
it permit any Subsidiary to, purchase, hold or acquire (including pursuant to any merger with any
Person that was not an Obligor and a Wholly-Owned Subsidiary prior to

E1-3

 

such merger) any capital stock, evidences of indebtedness or other securities (including any
option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any
loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or
any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a
series of transactions) any assets of any other Person constituting a business unit (whether
through purchase of assets, merger or otherwise), except:

     (i) Permitted Investments, subject to control agreements in favor of the Subordinated
Collateral Agent for the benefit of the holders of the Subordinated Notes or otherwise
subject to a perfected security interest in favor of the Subordinated Collateral Agent for
the benefit of the holders of the Subordinated Notes unless prohibited under the
Securitization Facility;

     (ii) investments in existence on the First Amendment Effective Date and described in
Schedule 6C;

     (iii) investments by the Company and the Subsidiaries in Equity Interests in their
respective Subsidiaries, provided that (a) any such Equity Interests held by an
Obligor shall be pledged pursuant to the Security Agreement or the Subsidiary Security
Agreement (subject to the limitations applicable to common stock of a foreign Subsidiary
referred to in paragraph 5M(ii)) and (b) the aggregate amount of investments by Obligors in
Subsidiaries that are not Obligors and are not Securitization SPEs (together with
outstanding intercompany loans permitted under clause (b) to the proviso to paragraph
6C(iv) and outstanding Guarantees permitted under the proviso to paragraph 6C(v)) shall not
exceed $2,500,000 at any time outstanding (in each case determined without regard to any
write-downs or write-offs);

     (iv) loans or advances made by the Company to any Subsidiary and made by any
Subsidiary to the Company or any other Subsidiary, provided that (a) any such loans
and advances by an Obligor shall not be evidenced by a promissory note and (b) the amount
of such loans and advances made by Obligors to Subsidiaries that are not Obligors and are
not Securitization SPEs (together with outstanding investments permitted under clause (b)
to the proviso to paragraph 6C(iii) and outstanding Guarantees permitted under the proviso
to paragraph 6C(v)) shall not exceed $2,500,000 at any time outstanding (in each case
determined without regard to any write-downs or write-offs);

     (v) Guarantees constituting Indebtedness permitted by paragraph 6B, provided
that the aggregate principal amount of Indebtedness of Subsidiaries that are not
Obligors that is Guaranteed by any Obligor shall (together with outstanding investments
permitted under clause (b) to the proviso to paragraph 6C(iii) and outstanding intercompany
loans permitted under clause (b) to the proviso to paragraph 6C(iv)) shall not exceed
$2,500,000 at any time outstanding (in each case determined without regard to any
write-downs or write-offs);

     (vi) loans or advances made by an Obligor to its employees on an arms-length basis in
the ordinary course of business consistent with past practices for travel and entertainment
expenses, relocation costs and similar purposes up to a maximum of

E1-4

 

$100,000 to any employee and up to a maximum of $1,000,000 in the aggregate at any one time
outstanding;

     (vii) subject to Sections 4.2(a) and 4.4 of the Security Agreement and Sections 5.1
and 5.2 of the Subsidiary Security Agreement, notes payable, or stock or other securities
issued by Account Debtors to an Obligor pursuant to negotiated agreements with respect to
settlement of such Account Debtor’s Accounts in the ordinary course of business, consistent
with past practices;

     (viii) investments in the form of Swap Agreements permitted by paragraph 6Q;

     (ix) investments of any Person existing at the time such Person becomes a Subsidiary of
the Company or consolidates or merges with the Company or any of the Subsidiaries (including
in connection with a permitted acquisition) so long as such investments were not made in
contemplation of such Person becoming a Subsidiary or of such merger;

     (x) investments received in connection with the dispositions of assets permitted by
paragraph 6E; and

     (xi) investments constituting deposits described in clauses (iii) and (iv) of the
definition of “Permitted Liens.”

     6D. Fundamental Changes. (i) The Company will not, nor will it permit any Subsidiary to,
merge into or consolidate with any other Person, or permit any other Person to merge into or
consolidate with it, or liquidate or dissolve, except that, if at the time thereof and immediately
after giving effect thereto no Event of Default shall have occurred and be continuing (a) any
Subsidiary of the Company may merge into the Company in a transaction in which the Company is the
surviving corporation, (b) any Obligor (other than the Company) may merge into any other Obligor
in a transaction in which the surviving entity is an Obligor and (c) any Subsidiary that is not an
Obligor may liquidate or dissolve if the Company determines in good faith that such liquidation or
dissolution is in the best interests of the Company and is not materially disadvantageous to the
holders of the Subordinated Notes; provided that any such merger involving a Person that
is not a Wholly-Owned Subsidiary immediately prior to such merger shall not be permitted unless
also permitted by paragraph 6C.

          (ii) The Company will not, nor will it permit any of its Subsidiaries to, engage to any
material extent in any business other than businesses of the type conducted by the Company and its
Subsidiaries on the First Amendment Effective Date and businesses reasonably related thereto.

          6E. Asset Sales. The Company will not, nor will it permit any Subsidiary to, sell, transfer,
lease or otherwise dispose of any asset, including any Equity Interest owned by it, nor will the
Company permit any Subsidiary to issue any additional Equity Interest in such Subsidiary (other
than to the Company or another Subsidiary in compliance with paragraph 6C), except:

E1-5

 

     (i) sales, transfers and dispositions of (a) inventory in the ordinary course of
business and (b) used, obsolete, worn out or surplus equipment or property in the ordinary
course of business;

     (ii) sales of Securitization Receivables and other Purchased Assets (as defined in the
Securitization Documents) to the Securitization SPE;

     (iii) sales, transfers and dispositions to the Company or any Subsidiary,
provided that any such sales, transfers or dispositions involving a Subsidiary that
is not an Obligor shall be made in compliance with paragraph 6K;

     (iv) sales, transfers and dispositions of accounts receivable in connection with the
compromise, settlement or collection thereof;

     (v) sales, transfers and dispositions of investments permitted by clauses (ix) and
(xi) of paragraph 6C;

     (vi) sale and leaseback transactions permitted by paragraph 6P;

     (vii) dispositions resulting from any casualty or other insured damage to, or any
taking under power of eminent domain or by condemnation or similar proceeding of, any
property or asset of the Company or any Subsidiary; and

     (viii) sales, transfers and other dispositions of assets (other than Equity Interests
in a Subsidiary unless all Equity Interests in such Subsidiary are sold) that are not
permitted by any other clause of this paragraph, provided that the aggregate fair
market value of all assets sold, transferred or otherwise disposed of in reliance upon this
clause (viii) shall not exceed $2,500,000 during any fiscal year of the Company;

provided that all sales, transfers, leases and other dispositions permitted hereby (other
than those permitted by clauses (ii) and (vi) above) shall be made for fair value and for at least
75% cash consideration.

     6F. Restricted Payments; Certain Payments of Indebtedness. (i) The Company will not, nor will
it permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any
Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except (a) the
Company may declare and pay dividends with respect to its common stock payable solely in additional
shares of its common stock, and, with respect to its preferred stock, payable solely in additional
shares of such preferred stock or in shares of its common stock, (b) Subsidiaries may declare and
pay dividends ratably with respect to their Equity Interests, (c) the Company may make Restricted
Payments, of up to $5,000,000 per fiscal year pursuant to and in accordance with equity incentive
plans of the Company and its Subsidiaries, or (d) the Company may pay cash dividends on its
Preferred Stock with proceeds of an initial public offering of its Common Stock upon the conversion
of such Preferred Stock to Common Stock, pursuant to Section 4.2.1 of the Company’s certificate of
incorporation.

     (ii) The Company will not, nor will it permit any Subsidiary to, make or agree to pay or
make, directly or indirectly, any payment or other distribution (whether in cash, securities or

E1-6

 

other property) of or in respect of principal of or interest on any Indebtedness, or any payment
or other distribution (whether in cash, securities or other property), including any sinking fund
or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation
or termination of any Indebtedness, except:

     (a) payment of Indebtedness created under the Transaction Documents;

     (b) payment of the Senior Debt;

     (c) payment of regularly scheduled interest and principal payments as and
when due in respect of any Indebtedness, other than payments in respect of the
Subordinated Indebtedness prohibited by the subordination provisions thereof;

     (d) refinancings of Indebtedness to the extent permitted by paragraph 6B; and

     (e) payment of secured Indebtedness that becomes due as a result of the
voluntary sale or transfer of the property or assets securing such Indebtedness.

     6G. Restrictive Agreements. The Company will not, nor will it permit any Subsidiary to,
directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement
that prohibits, restricts or imposes any condition upon (i) the ability of such Obligor or any of
its Subsidiaries to create, incur or permit to exist any Lien upon any of its property or assets,
or (ii) the ability of any Subsidiary to pay dividends or other distributions with respect to any
shares of its capital stock or to make or repay loans or advances to the Company or any other
Subsidiary or to Guarantee Indebtedness of the Company or any other Subsidiary; provided
that (a) the foregoing shall not apply to restrictions and conditions imposed by law or by this
Agreement, any Transaction Document or the Credit Agreement, (b) the foregoing shall not apply to
restrictions and conditions existing on the First Amendment Effective Date identified on Schedule
6K (but shall apply to any extension or renewal of, or any amendment or modification expanding the
scope of, any such restriction or condition), (c) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending
such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be
sold and such sale is permitted hereunder, (d) clause (i) of the foregoing shall not apply to
restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by
this Agreement if such restrictions or conditions apply only to the property or assets securing
such Indebtedness and (e) clause (i) of the foregoing shall not apply to customary provisions in
leases and other contracts restricting the assignment thereof.

     6H. Amendment of Material Documents. The Company will not, nor will it permit any Subsidiary
to, amend, modify or waive any of its rights under its certificate of incorporation, by-laws,
operating, management or partnership agreement or other organizational documents except after
reasonable prior notice to the Subordinated Collateral Agent.

E1-7

 

     61. Accounting Changes. The Company shall not suffer or permit any of its Subsidiaries to
make any significant change in accounting treatment or reporting practices, except as required by
GAAP, or change the fiscal year or method for determining fiscal quarters of any Obligor or any
of its Subsidiaries.

     6J. Financial Covenants.

     (i) Fixed Charge Coverage Ratio. The Company will not permit the Fixed Charge
Coverage Ratio, determined for any period of four consecutive fiscal quarters ending on
any date during any period set forth below, to be less than 1.0 to 1.0.

     (ii) Minimum EBITDA. The Company shall not permit EBITDA for any
fiscal year set forth below to be less than the amount set forth below for such fiscal year:

	 	 	 	 	 
	Fiscal Year	 	Amount
	2008
	 	$	33,250,000	 
	2009
	 	$	38,000,000	 
	2010
	 	$	47,500,000	 
	2011
	 	$	52,250,000	 
	2012 and each fiscal year
thereafter
	 	$	57,000,000	 

     6K. Transactions with Affiliates. The Company will not, nor will it permit any
Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or
otherwise acquire any property or assets from, or otherwise engage in any other transactions
with, any of its Affiliates, except (i) transactions that (a) are in the ordinary course of
business and (b) are at prices and on terms and conditions not less favorable to the Company or
such Subsidiary than could be obtained on an arm’s-length basis from unrelated third parties,
(ii) transactions between or among the Company and any Subsidiary that is an Obligor not
involving any other Affiliate, (iii) any investment permitted by paragraph 6C(iii) or 6C(iv),
(iv) any Indebtedness permitted under paragraph 6C(iii), (v) any Restricted Payment permitted by
paragraph 6F, (vi) loans or advances to employees permitted under paragraph 6C, (vii) the payment
of reasonable fees to directors of the Company or any Subsidiary who are not employees of the
Company or any Subsidiary, and compensation and employee benefit arrangements paid to, and
indemnities provided for the benefit of, directors, officers or employees of the Company or its
Subsidiaries in the ordinary course of business, including without limitation those paid pursuant
to matters described in Schedule 6K, (viii) transactions involving the transfer of Securitization
Receivables and other Purchased Assets (as defined in the Securitization Documents) to and by a
Securitization SPE in connection with a Securitization Facility, and (ix) any issuances of
securities or other payments, awards or grants in cash, securities or otherwise pursuant to, or
the funding of, employment agreements, stock options and stock ownership plans approved by the
Company’s board of directors.

E1-8

 

     6L. Issuance of Stock by Subsidiaries. The Company covenants that it will not permit any
Subsidiary to issue, sell or otherwise dispose of any shares of any class of its stock (either
directly or indirectly by the issuance of rights or options for, or securities convertible into,
such shares) except to the Company or another Wholly-Owned Subsidiary.

     6M. Limitation on Issuance of Other Subordinated Indebtedness Senior to the Subordinated
Notes. The Company shall not create, incur, assume, permit or exist, Guarantee, or in any other
manner become liable with respect to any Indebtedness, other than the Subordinated Notes, that is
contractually subordinate in right of payment to any Senior Debt unless such Indebtedness is
otherwise permitted by the terms hereof and is Indebtedness that is pari passu
with, or subordinate pursuant to provisions substantially similar to those contained in the
Intercreditor Agreement in right of payment to, the Subordinated Notes.

     6N. Payment Limitations. The Company covenants that it will not enter into or become subject
to any restriction on the payment of any Obligations which payment is required pursuant to the
terms of this Agreement other than the provisions of the Intercreditor Agreement.

     6O. Terrorism Sanctions Regulations. The Company covenants that it will not and will not
permit any Subsidiary to (i) become a Person described or designated in the Specially Designated
Nationals and Blocked Persons List of the Office of Foreign Assets Control or in Section 1 of the
Anti-Terrorism Order or (ii) engage in any dealings or transactions with any such Person.

     6P. Sale and Leaseback Transactions. The Company will not, nor will it permit any Subsidiary
to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any
property, real or personal, used or useful in its business, whether now owned or hereafter
acquired, and thereafter rent or lease such property or other property that it intends to use for
substantially the same purpose or purposes as the property sold or transferred, except for any
such sale of any fixed or capital assets by the Company or any Subsidiary that is made for cash
consideration in an amount not less than the fair value of such fixed or capital asset and is
consummated within 90 days after the Company or such Subsidiary acquires or completes the
construction of such fixed or capital asset.

     6Q. Swap Agreements. The Company will not, nor will it permit any Subsidiary to, enter into
any Swap Agreement, except (i) Swap Agreements entered into to hedge or mitigate risks to which the
Company or any Subsidiary has actual exposure (other than those in respect of Equity Interests of
the Company or any of its Subsidiaries), and (ii) Swap Agreements entered into in order to
effectively cap, collar or exchange interest rates (from fixed to floating rates, from one floating
rate to another floating rate or otherwise) with respect to any interest-bearing liability or
investment of the Company or any Subsidiary.

     6R. Fingerhut Fulfillment, Inc. The Company will not permit Fingerhut Fulfillment, Inc. at
any time to own or have any Inventory or material assets.

E1-9

 

SCHEDULE 6A

EXISTING LIENS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Debtor Searched	 	 	 	Clear?	 	 	 	 	 	 	 	Filing	 	 	 	 	 	Through
	[Debtor Found]	 	Jurisdiction	 	(Y/N)	 	Secured Party	 	Filing No.	 	Date	 	Lien Description	 	Date
	 

	 	Delaware	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fingerhut Direct

	 	Secretary of	 	UCC	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Marketing, Inc.

	 	State
	 	N
	 	 	 	 	 	 	 	 	 	 	 	 	 	04/24/07
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Prudential Capital
	 	 	 	 	 	 	 	All assets: liens are subordinated
to the
	 	 
	Fingerhut Direct

	 	 	 	 	 	Partners II, L.P., as
	 	 	 	 	 	 	 	liens of the Senior Agent as
defined in the
	 	 
	Marketing, Inc.

	 	 	 	 	 	Collateral Agent
	 	 	61046655	 	 	03/26/06
	 	Intercreditor Agreement dtd 3/23/06
	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Amendment
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	61481829	 	 	05/02/06
	 	Amends debtors address
	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	First American	 	 	 	 	 	 	 	 	 	 	 	 
	Fingerhut Direct

	 	 	 	 	 	Commercial Bancorp.
	 	 	 	 	 	 	 	All equipment under Master Lease No.
	 	 
	Marketing, Inc.

	 	 	 	 	 	Inc.
	 	 	2007 1028827	 	 	03/20/07
	 	 	2007145	 	 	 

					
	 	 	 	 	 
	Fingerhut — Schedules to First Amendment to Prudential SPA
	 	6A-1
	 	 

 

 

SCHEDULE 6B

EXISTING INDEBTEDNESS

None

					
	 	 	 	 	 
	Fingerhut — Schedules to First
	 	6B-1
	 	 
	Amendment to Prudential SPA	 	 	 	 

 

 

SCHEDULE 6C 

EXISTING INVESTMENTS

None, other than “loans/advances” to customers in the form of revolving credit accounts in the
ordinary course of business.

					
	 	 	 	 	 
	Fingerhut — Schedules to First
	 	6C-1
	 	 
	Amendment to Prudential SPA	 	 	 	 

 

 

SCHEDULE 6K 

AFFILIATE TRANSACTIONS

	1.	 	Amended and Restated Investor Rights Agreement, dated as of March 24, 2006,
among Company, certain investors and various other investors.
	 
	2.	 	Amended and Restated Stockholders Agreement, dated as of March 24, 2006, among
the Company and certain investors and stockholders.
	 
	3.	 	Stockholders Waiver, Consent and Amendment: Fingerhut Direct Marketing, Inc.
dated as of March 23, 2006.
	 
	4.	 	Fingerhut Direct Marketing, Inc.: Written Waiver and Consent of Holders of Series A
Preferred Stock dated as of April 2, 2007.
	 
	5.	 	Employment Agreement with Chief Executive Officer of the Company, effective as
of April 25, 2007.
	 
	6.	 	Executive Summary/Overview; Executive Life and Disability Benefits for Brian
Smith, CEO/President; Prepared by Jeffrey A. Azen; approved by Board on April 25,
2007.
	 
	7.	 	Independent Director — Total Compensation Summary
	 
	8.	 	Amended and Restated 2005 Non-Employee Directors Equity Compensation Plan
	 
	9.	 	2003 Equity Incentive Plan
	 
	10.	 	2007 Incentive Plan
	 
	11.	 	2007 Vision of Quality Growth Special Incentive Program
	 
	12.	 	Fingerhut Direct Marketing, Inc. conducts occasional sales of excess inventory,
returned merchandise, liquidation inventory and samples to related parties. In fiscal
2006 the total amount of sales did not exceed $10,000.

					
	 	 	 	 	 
	Fingerhut — Schedules to First
	 	6K-1
	 	 
	Amendment to Prudential SPA	 	 	 	 

 

 

SCHEDULE 8Q

	1.	 	Location of the chief executive office of the Company and each of its Subsidiaries

	 
	 	 	7777 Golden Triangle Drive, Eden Prairie, MN

	 
	2.	 	All real property owned or leased by the Company or any of its Subsidiaries and all
locations at which any property of the Company or any of its Subsidiaries is located
(or at any time within the last 6 months has been located) or at which the Company or
any of its Subsidiaries maintains a place of business or keeps any records (or at any
time within the last 6 months has maintained a place of business or kept records):

	 	(a)	 	Owned Real Property: None
	 
	 	(b)	 	Leased Real Property:

	 	(i)	 	Warehouse. That certain property leased pursuant
to the Building Lease dated as of November 26, 2003 by and between FAC
Acquisition, LLC, and Fingerhut Direct Marketing, Inc., and related to property
located at 6250 Ridgewood Road, St. Cloud, MN; and the Assignment and
Assumption of Lease dated June 14, 2006 between FAC Acquisition, LLC, as
Assignor, and Welsh Fingerhut MN, LLC, as Assignee, recorded in the office of
the County Recorder of Stearns County, MN on June 20, 2006, as Document
#1197732.
	 
	 	(ii)	 	Corporate Headquarters. That certain property
leased pursuant to the Lease Agreement dated as of March 6, 2006 by and between
Liberty Property Limited Partnership, as Landlord, and Fingerhut Direct
Marketing, Inc., as Tenant, and related to property located at 7777 Golden
Triangle Drive, Eden Prairie, MN, as amended by a First Amendment to Lease
dated March 28, 2006 between Landlord and Tenant.
	 
	 	(iii)	 	Data Center. That certain Time Warner Telecom Co-Location
Equipment Area Agreement effective as of July 15, 2005 by and between Time
Warner and FDM, Inc., related to property at 5480 Feltl Road, Minnetonka,
MN.
	 
	 	(iv)	 	Photo Studio. That certain property leased pursuant
to the Lease dated November 14, 2003 by and between The Trustees Under the Will
and of The Estate of James Campbell, Deceased, Landlord, and Fingerhut Direct
Marketing, Inc., Tenant, related to property at 14005 13th Avenue North,
Plymouth, MN, as amended by a First Amendment to Lease Agreement, dated as of
October 27, 2006, by and between James Campbell Company LLC and Tenant.

					
	 	 	 	 	 
	Fingerhut — Schedules to First
	 	 
	 	 
	Amendment to Prudential SPA	 	 	 	 

8Q - 1

 

	 	(v)	 	Call Center. That certain property leased pursuant to
the Lease dated February 1, 2005 by and between Sundance III, LLC and
FDM, Inc., related to property at 11 McLeland Road, St. Cloud, MN.
	 
	 	(vi)	 	Call Center. That certain property leased pursuant
to the Office Lease dated August 15, 2003 by and between Dante A. Tini, John D.
Tini and Donna Tini, collectively Landlord, and Fingerhut Direct Marketing,
Inc., Tenant, related to property at 1250 Industrial Park Road, Eveleth
Industrial Park, Eveleth, MN.

	3.	 	All patents, trademarks, trade names, service marks, services names or copyrights
owned or licensed by the Company or any of its Subsidiaries

	 	A.	 	Registered Intellectual Property:
	 
	 	 	 	See attachment “A” — current Registered Trademarks
	 
	 	 	 	See attachment “B” — current Patents
	 
	 	 	 	See attachment “C” — current Domain Names
	 
	 	 	 	See attachment “D” — current Copyrights

					
	 	 	 	 	 
	Fingerhut — Schedules to First
	 	 
	 	 
	Amendment to Prudential SPA	 	 	 	 

8Q - 2

 

	4.	 	Organizational identification number of the Company and each of its Subsidiaries

	 	 	 	 	 

	Fingerhut
Direct Marketing, Inc.
	 	 	3567832	 
	Fingerhut
Fulfillment, Inc.
	 	 	3572413	 
	Fingerhut
Funding, LLC
	 	 	4350399	 

	5.	 	Any name under which the Company or any Subsidiary has conducted business at any time
during the last 5 years
	 
	 	 	Fingerhut Direct Marketing, Inc.
	 
	 	 	Fingerhut Fulfillment, Inc.
	 
	 	 	Fingerhut Funding, LLC

8Q - 3

 

Attachment A

To

Schedule 8Q Registered Intellectual Properties

Current Registered Trademarks/Service Marks

FINGERHUT DIRECT MARKETING INC. US TRADE/SERVICE MARKS

	 	 	 	 	 
	Trademark / Servicemark	 	Reg. No.
	ACCESS TO BETTER LIVING
	 	 	3,020,977	 
	BACKYARD LIVING
	 	 	2,274,991	 
	CAREFREE LIVING
	 	 	1,505,333	 
	CHEF’S MARK
	 	 	2,489,361	 
	CHEF’S MARK
	 	 	2,645,988	 
	CHEF’S MARK PREFERRED QUALITY & DESIGN
	 	 	2,497,159	 
	CHEF’S MARK PREFERRED QUALITY & DESIGN
	 	 	2,659,758	 
	COUNTRY BEAR
	 	 	2,782,394	 
	DIGITAL ZONE
	 	 	2,398,630	 
	FALL BIG BOOK
	 	 	2,655,853	 
	FINGERHUT
	 	 	999,881	 
	FINGERHUT
	 	 	973,080	 
	FINGERHUT HOME
	 	 	2,523,477	 
	GATE ONE (AND DESIGN)
	 	 	1,724,645	 
	GATE ONE LUGGAGE (AND DESIGN)
	 	 	1,722,969	 
	GOOD DEALS, GREAT BUYS
	 	 	2,503,225	 
	HOLIDAY BIG BOOK
	 	 	2,386,204	 
	HOME DEALS
	 	 	2,967,344	 
	LIFE MAX
	 	 	2,099,973	 
	OUTDOOR SPIRIT
	 	 	2,540,809	 
	OUTDOOR SPIRIT
	 	 	2,358,444	 
	OUTDOOR SPIRIT
	 	 	2,513,010	 
	OUTDOOR SPIRIT
	 	 	2,476,139	 
	OUTDOOR SPIRIT
	 	 	2,366,241	 
	OUTDOOR SPIRIT
	 	 	2,444,758	 
	ROOMS FOR LIVING
	 	 	1,693,689	 
	SENSOMA
	 	 	2,601,356	 
	SPRING BIG BOOK
	 	 	2,476,310	 
	ST. CROIX COLORS
	 	 	2,579,749	 
	ST. CROIX COLORS
	 	 	2,681,467	 
	ST. CROIX COLORS AND DESIGN
	 	 	2,552,910	 
	SUITE LUXURIES
	 	 	2,496,775	 
	SUPER CHEF
	 	 	1,933,548	 

Fingerhut — Schedules to First

Amendment to Prudential SPA

8Q - 4

 

	 	 	 
	 	 	Registration
	Foreign Trademarks	 	Number
	Fingerhut

	 	Mexico 884685
	Fingerhut

	 	UK 2146029

	 	 	 
	Trademark Applications	 	Serial Number
	Country Bear

	 	78/552727
	Fingerhut

	 	78/533161
	Now You Can

	 	77/084311
	Yes You Can

	 	77/033016

	B.	 	Licensed Trademarks - from Petters Group Worldwide, LLC 

Master Craft

Master Craft Pro

Fingerhut — Schedules to First

Amendment to Prudential SPA

8Q - 5

 

Attachment B

To

Schedule 8Q Registered Intellectual Property

Patents

None

Fingerhut — Schedules to First

Amendment to Prudential SPA

8Q - 6

 

Attachment C

To

Schedule 8Q Registered Intellectual Property

Current Domain Names

www.fingerhut.biz

www.andysgarage.com

www.fingerhutdirect.com

www.fhutfill.com

www.fhutdirect.com

www.andysauction.com

www.fingerhut.com

www.birthdayhut.com

www.fhutfill.net

www.fhutdirect.net

www.fingerhut.net

www.fhutfill.org

www.fhutdirect.org

www.fingerhut.org

www.andysgaragesale.org

Fingerhut — Schedules 10 First

Amendment to Prudential SPA

8Q - 7

 

Attachment D

To

Schedule 8Q Registered Intellectual Property

Current Copyrights

	 	 	 
	Copyright Title	 	Registration Number
	Br-r-r bear
	 	VA-294-209
	Cameo floral: [no.] 87582
	 	VA-275-850
	Baroque floral: [no.] 87338.
	 	VA-275-849
	Rose Garden: [no.] 32466/32469
	 	VA-275-848
	Unicorn with rainbow
	 	VA-275-847
	Pastelle
	 	VA-275-846
	Choloe: [no.[ 90304]
	 	VA-275-845
	Rainbow clouds
	 	VA-275-844

8Q - 8

 

SCHEDULE 8T

INVENTORY LOCATIONS

	1.	 	Warehouse. 6250 Ridgewood Road, St. Cloud, MN

 

 

EXHIBIT 2

     7A. Acceleration. If any of the following events shall occur and be continuing for any reason
whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be
effected by operation of law or otherwise):

     (i) the Company defaults in the payment of any principal of or
Prepayment Amount or Specified Event Prepayment Amount payable with respect to any
Subordinated Note when the same shall become due, either by the terms thereof or
otherwise as herein provided; or

     (ii) the Company defaults in the payment of any interest on any Subordinated
Note for more than 5 days after the date due; or

     (iii) (a) the Company or any Subsidiary defaults in the payment or performance
of any term contained in the Credit Agreement (or if any other event thereunder
shall occur and be continuing) and the effect of such default or other event is to
cause (or the Banks cause) the loans under the Credit Agreement to become due prior
to stated maturity, (b) any Obligor or any Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in respect of
any Material Indebtedness (other than Indebtedness referred to in clause (a)
above), when and as the same shall become due and payable, which failure continues
beyond any period of grace therein provided or (c) any event or condition occurs
that results in any Material Indebtedness (other than Indebtedness referred to in
clause (a) above) becoming due prior to its scheduled maturity or that enables or
permits (with or without the giving of notice, the lapse of time or both) the
holder or holders of any Material Indebtedness (other than Indebtedness referred to
in clause (a) above) or any trustee or agent on its or their behalf to cause any
Material Indebtedness (other than Indebtedness referred to in clause (a) above) to
become due, or to require the prepayment, repurchase, redemption or defeasance
thereof, prior to its scheduled maturity; provided that this clause (c) shall not
apply to secured Indebtedness that becomes due as a result of the voluntary sale or
transfer of the property or assets securing such Indebtedness; or

     (iv) any representation or warranty made by the Company or any Subsidiary
herein or in any other Transaction Document or by the Company, any Subsidiary or
any of their respective officers in any writing furnished in connection with or
pursuant to this Agreement or any other Transaction Document shall be false or
misleading in any material respect on the date as of which made; or

     (v) the Company (a) fails to perform or observe any agreement contained in
paragraph 5I or paragraph 6 or (b) fails to give notice of a Default or Event of
Default as required by clause (i) of paragraph 5P; or

E2-1

 

     (vi) any Obligor shall fail to observe or perform any covenant, condition or agreement
contained in this Agreement (other than those which constitute a default under another
clause of this paragraph 7A), and such failure shall continue unremedied for a period of
(a) 5 Business Days after the earlier of knowledge of such breach or notice thereof from the
Subordinated Collateral Agent (which notice will be given at the request of any holder of
the Subordinated Notes) if such breach relates to terms or provisions of paragraph 5A, 5C,
5E, 5F, 5G, 5H, 5I, 5J, 5L or 5Q (other than paragraph 5Q(i)) of this Agreement or (b) 20
days after the earlier of knowledge of such breach or notice thereof from the Subordinated
Collateral Agent (which notice will be given at the request of any holder of the
Subordinated Notes) if such breach relates to terms or provisions of any other paragraph of
this Agreement; or

     (vii) the Company or any Subsidiary makes an assignment for the benefit of creditors or
is generally not paying its debts as such debts become due; or

     (viii) any decree or order for relief in respect of the Company or any Subsidiary is
entered under any bankruptcy, reorganization, compromise, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in
effect (herein called the “Bankruptcy Law”), of any jurisdiction; or

     (ix) the Company or any Subsidiary petitions or applies to any tribunal for, or consents
to, the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator
or similar official of the Company or any Subsidiary, or of any substantial part of the
assets of the Company or any Subsidiary, or commences a voluntary case under the Bankruptcy
Law of the United States or any proceedings (other than proceedings for the voluntary
liquidation and dissolution of a Subsidiary) relating to the Company or any Subsidiary under
the Bankruptcy Law of any other jurisdiction; or

     (x) any such petition or application described in clause (ix) of this paragraph 7A is
filed, or any such case or proceedings described in clause (ix) of this paragraph 7A are
commenced, against the Company or any Subsidiary and the Company or such Subsidiary by any
act indicates its approval thereof, consent thereto or acquiescence therein, or an order,
judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings, and such order, judgment
or decree remains unstayed and in effect for more than 60 days; or

     (xi) any order, judgment or decree is entered in any proceedings against the Company
decreeing the dissolution of the Company and such order, judgment or decree remains unstayed
and in effect for more than 60 days; or

     (xii) any order, judgment or decree is entered in any proceedings against the Company
or any Subsidiary decreeing a split-up of the Company or

E2-2

 

such Subsidiary which requires the divestiture of assets representing a
substantial part, or the divestiture of the stock of a Subsidiary whose assets
represent a substantial part, of the consolidated assets of the Company and its
Subsidiaries (determined in accordance with GAAP) or which requires the divestiture
of assets, or stock of a Subsidiary, which shall have contributed a substantial
part of the consolidated net income of the Company and its Subsidiaries (determined
in accordance with GAAP) for any of the three fiscal years then most recently
ended, and such order, judgment or decree remains unstayed and in effect for more
than 60 days; or

     (xiii) one or more judgments for the payment of money in an aggregate amount
in excess of $2,500,000 shall be rendered against any Obligor, any Subsidiary of
any Obligor or any combination thereof and the same shall remain undischarged for a
period of 30 consecutive days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to attach or
levy upon any assets of any Obligor or any Subsidiary of any Obligor to enforce any
such judgment or any Obligor or any Subsidiary of any Obligor shall fail within 30
days to discharge one or more non-monetary judgments or orders which, individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect, which judgments or orders, in any such case, are not stayed on appeal or
otherwise being appropriately contested in good faith by proper proceedings
diligently pursued; or

     (xiv) an ERISA Event shall have occurred that, in the opinion of the Required
Holder(s), when taken together with all other ERISA Events that have occurred,
could reasonably be expected to result in liability of the Company and its
Subsidiaries in an aggregate amount exceeding $2,500,000 in any year; or

     (xv) any Change of Control shall occur; or

     (xvi) the Subsidiary Guaranty or any Security Document shall cease to be in
full force and effect, or the Company or any Subsidiary Guarantor shall contest or
deny the validity or enforceability of, or deny that it has any liability or
obligations under, the Subsidiary Guaranty or any Security Document, or the
Subordinated Collateral Agent does not have or ceases to have a valid perfected
security interest (subject only to Liens permitted by clause (i) of paragraph 6A)
in any Collateral for the benefit of the holders of the Subordinated Notes; or

     (xvii) if the Securitization Facility is terminated and is not replaced by a
securitization facility reasonably satisfactory to the Subordinated Collateral
Agent within 30 days after termination;

then (a) if such event is an Event of Default specified in clause (i) or (ii) of this paragraph 7A, any holder of any Subordinated Note (other than the Company or any of its Subsidiaries or
Affiliates) may at its option, by notice in writing to the Company, declare all of the Subordinated
Notes held by such holder to be, and all of the Subordinated Notes held by such holder shall
thereupon be and become, immediately due and payable at par together with interest accrued

E2-3

 

thereon, without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Company, (b) if such event is an Event of Default specified in clause
(viii), (ix) or (x) of this paragraph 7A with respect to the Company, all of the Subordinated
Notes at the time outstanding shall automatically become immediately due and payable together with
interest accrued thereon and together with the Prepayment Amount, if any, (or, if less, the
Yield-Maintenance Amount) with respect to each Subordinated Note, without presentment, demand,
protest or notice of any kind, all of which are hereby waived by the Company, and (c) if such event
is not an Event of Default specified in clause (viii), (ix) or (x) of this paragraph 7A with
respect to the Company, the Required Holder(s) may at its or their option, by notice in writing to
the Company, declare all of the Subordinated Notes to he, and all of the Subordinated Notes shall
thereupon be and become, immediately due and payable together with interest accrued thereon and
together with (1) the Prepayment Amount (or, if less, the Yield-Maintenance Amount)
or (2) if such event is an Event of Default specified in clause (xv) which also constitutes a
Specified Event, the Specified Event Prepayment Amount (or, if less, the Yield-Maintenance Amount)
with respect to each Subordinated Note, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Company. The Company acknowledges, and the parties
hereto agree, that each holder of a Subordinated Note has the right to maintain its investment in
the Subordinated Notes free from repayment by the Company (except as herein specifically provided
for) and without the occurrence of an Event of Default and that the provision for payment of
Yield-Maintenance Amount, Prepayment Amount or Specified Event Prepayment Amount, as applicable, by
the Company in the event the Subordinated Notes are prepaid or are accelerated as a result of an
Event of Default is intended to provide compensation for the deprivation of such right under such
circumstances.

E2-4

 

EXHIBIT 4

11B. Other Terms.

     “Account”
shall have the meaning assigned to such term in the Security Agreement.

     “Account Debtor” shall mean any Person obligated on an Account.

     “Affiliate” shall mean, with respect to a specified Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by or is under common
Control with the Person specified.

     “Agreement” shall have the meaning given in paragraph 12C hereof.

     “Agreement to Subordinate” shall have the meaning given in paragraph 3A(xi) hereof.

     “Anti-Terrorism Order” shall mean Executive Order No. 13,224 of September 24, 2001, Blocking
Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit or Support
Terrorism, 66 U.S. Fed. Reg. 49, 079 (2001), as amended.

     “Bank Agent” shall mean JPMorgan Chase Bank, N.A., in its capacity as administrative agent
under the Credit Agreement, and its successors and assigns in that capacity.

     “Bank Collateral” shall mean the “Collateral” as such term is defined in the Intercreditor
Agreement (as in effect on the First Amendment Effective Date).

     “Banks” shall mean JPMorgan Chase Bank, N.A. and the other lending parties to the Credit
Agreement, other holders of the Senior Debt from time to time and their respective successors and
assigns.

     “Bankruptcy
Law” shall have the meaning given in clause (viii) of paragraph 7A.

     “Business Day” shall mean any day other than a Saturday, a Sunday or a day on which commercial
banks in New York City are required or authorized by law to remain closed.

     “Capital Expenditures” shall mean, without duplication, any expenditure or commitment to
expend money for any purchase or other acquisition of any asset which would be classified as a
fixed or capital asset on a consolidated balance sheet of the Company and its Subsidiaries prepared
in accordance with GAAP.

     “Capitalized Lease Obligation” of any Person shall mean the obligations of such Person to pay
rent or other amounts under any lease of (or other arrangement

E4-1

 

conveying the right to use) real or personal property, or a combination thereof, which obligations
are required to he classified and accounted for as capital leases on a balance sheet of such Person
under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined
in accordance with GAAP.

     “Change of Control” shall mean (a) the Control Parties shall cease to own, free and clear of
all Liens or other encumbrances, at least 51% of the outstanding voting Equity Interests
of the Company on a fully diluted basis; (b) occupation of a majority of the seats (other than
vacant seats) on the board of directors of the Company by Persons who were neither (i) appointed by
the board of directors of the Company nor (ii) appointed pursuant to the Company’s certificate of
incorporation or other organizational documents or agreements in effect on the date hereof; (c) the
acquisition of direct or indirect Control of the Company by any Person or group other than the
Control Parties; or (d) the occurrence of a “Change in Control” (or similar event) under the Credit
Agreement (or any replacement thereto) which has not been cured or waived pursuant to the terms
thereof. Notwithstanding the foregoing, an initial public offering of the Company’s Equity
Interests shall not constitute a change in control even if the offering results in the Control
Parties’ owning less than 51% of the outstanding voting Equity Interests.

     “closing”
or “date of closing” shall have the meaning given in paragraph 2 hereof.

     “Code” shall mean the Internal Revenue Code of 1986, as amended.

     “Collateral” shall mean all property and assets upon which Liens have been created or are
purported to have been created under or pursuant to any Security Document.

     “Collateral Agency Agreement” shall have the meaning given in paragraph 3A(xiii) hereof.

     “Common Stock” shall mean the Company’s Common Stock, par value $0.00001 per share.

     “Company” shall have the meaning given in the introductory paragraph hereof.

     “Company Sale” shall mean (i) the sale of all or substantially all of the Common Stock and
Preferred Stock to a Person or Persons (other than any Related Party) in the same transaction or
series of related transactions, or (ii) the sale of all or substantially all of the assets of the
Company and its Subsidiaries to a Person or Persons (other than any Related Party) in the same
transaction or series of related transactions, in each case on terms and conditions reasonably
acceptable to the Required Holder(s).

     “Control” shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether through the ability
to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings
correlative thereto.

E4-2

 

     “Control
Parties” shall mean one or more of: (i) Petters Group, Inc. or any Person(s)
Controlled by or Controlling Petters Group, Inc., (ii) Bain
Capital Venture Fund, L.P. or any
Person(s) Controlled by or Controlling Bain Capital Venture Fund,
L.P., and (iii) Battery Ventures VI
L.P. or any Person(s) Controlled by or Controlling Battery Ventures VI L.P.

     “Credit
Agreement” shall mean the Credit Agreement dated as of
June 21, 2007, among the
Company, the Bank Agent and the Banks, as amended, restated, supplemented or otherwise modified or
replaced from time to time in accordance with the terms of the Intercreditor Agreement.

     “Default”
shall mean any of the events specified in paragraph 7A, whether or not any
requirement for such event to become an Event of Default has been satisfied.

     “Default Rate” shall mean a rate per annum from time to time equal to the greater of (i)
23.00%, or (ii) 10% over the rate of interest publicly announced by JPMorgan Chase Bank from time
to time in New York City as its Prime Rate; provided, that in no event shall the Default Rate
exceed the maximum rate of interest allowed under applicable law.

     “EBITDA”
shall mean, for any period, Net Income for such period plus (a)
without duplication and to the extent deducted in determining Net
Income for such period, the sum
of (i) Interest Expense for such period, (ii) income tax expense for such period net of tax
refunds, (iii) all amounts attributable to depreciation and
amortization expense for such period,
(iv) any extraordinary non-cash charges for such period and (v) any other non-cash charges for such
period (but excluding any non-cash charge in respect of an item that was included in Net Income in
a prior period and any non-cash charge that relates to the write-down or write-off of inventory),
minus (b) without duplication and to the extent
included in Net Income, (i) any
cash payments made during such period in respect of non-cash charges described in clause (a)(v)
taken in a prior period and (ii) any extraordinary gains and any non-cash items of income for such
period, all calculated for the Company and its Subsidiaries on a consolidated basis in accordance
with GAAP.

     “Environmental Laws” shall mean all laws, rules, regulations, codes, ordinances, orders,
decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into
by any Governmental Authority, relating in any way to the environment, preservation or reclamation
of natural resources, the management, release or threatened release of any Hazardous Material or to
health and safety matters.

     “Equity Interests” shall mean shares of capital stock, partnership interests, membership
interests in a limited liability company, beneficial interests in a trust or other equity ownership
interests in a Person, and any warrants, options or other rights entitling the holder thereof to
purchase or acquire any such equity interest, but shall not include any such interest in the
Securitization Trust held by the Securitization SPE.

     “Equityholder Agreement” shall have the meaning given in paragraph 3A(viii) hereof.

E4-3

 

     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

     “ERISA Affiliate” shall mean any trade or business (whether or not incorporated) that,
together with the Company, is treated as a single employer under Section 414(b) or (c) of the Code
or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.

     “ERISA Event” shall mean (a) any “reportable event”, as defined in Section 4043 of ERISA or
the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day
notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding
deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived;
(c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application
for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the
Company or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the
termination of any Plan; (e) the receipt by the Company or any ERISA Affiliate from the PBGC or a
plan administrator of any notice relating to an intention to terminate any Plan or Plans or to
appoint a trustee to administer any Plan; (f) the incurrence by the Company or any of its
ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any
Plan or Multiemployer Plan; or (g) the receipt by the Company or any ERISA Affiliate of any notice,
or the receipt by any Multiemployer Plan from the Company or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is,
or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

     “Event of Default” shall mean any of the events specified in paragraph 7A, provided that
there has been satisfied any requirement in connection with such event for the giving of notice, or
the lapse of time, or the happening of any further condition, event or act.

     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

     “FAC” shall mean FAC Acquisition, LLC, a Delaware limited liability company.

     “First Amendment Effective Date” shall mean June 21, 2007.

     “Fixed Charge Coverage Ratio” shall mean, the ratio, determined as of the end of each of
fiscal quarter of the Company for the most-recently ended four fiscal quarters, of (a) EBITDA minus
the unfinanced portion of Capital Expenditures to (b) Fixed Charges, all calculated for the Company
and its Subsidiaries on a consolidated basis in accordance with GAAP.

     “Fixed Charges” shall mean, with reference to any period, without duplication, cash Interest
Expense, plus scheduled principal payments on Indebtedness made during
such period (not including principal payments on the Securitization Facility or under the
Credit Agreement), plus expense for income and franchise taxes paid in cash, plus

E4-4

 

dividends or distributions paid in cash, all calculated for the Company and its Subsidiaries
on a consolidated basis.

     “GAAP” shall mean generally accepted accounting principles in the United States of America.

     “Governmental Authority” shall mean the government of the United States of America, any other
nation or any political subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to
government.

     “Guarantee” of or by any Person (the “guarantor”) shall mean any obligation, contingent or
otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any
Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether
directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or
other obligation or to purchase (or to advance or supply funds for the purchase of) any security
for the payment thereof, (b) to purchase or lease property, securities or services for the purpose
of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to
maintain working capital, equity capital or any other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay such Indebtedness or other
obligation or (d) as an account party in respect of any letter of credit or letter of guaranty
issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not
include endorsements for collection or deposit in the ordinary course of business.

     “Hazardous Materials” shall mean all explosive or radioactive substances or wastes and all
hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum
distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas,
infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to
any Environmental Law.

     “including” shall mean, unless the context clearly requires otherwise, “including without
limitation”, whether or not so stated.

     “Indebtedness” of any Person shall mean, without duplication, (a) all obligations of such
Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations
of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of
such Person upon which interest charges are customarily paid, (d) all obligations of such Person
under conditional sale or other title retention agreements relating to property acquired by such
Person, (e) all obligations of such Person in respect of the deferred purchase price of property or
services (excluding current accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the Indebtedness secured thereby has been assumed, (g) all

E4-5

 

Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such
Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect
of letters of credit and letters of guaranty, (j) all obligations, contingent or otherwise, of such
Person in respect of bankers’ acceptances, (k) obligations
under any liquidated earn-out and
(l) any other Off-Balance Sheet Liability. The Indebtedness of any Person shall
include the Indebtedness of any other entity (including any partnership in which such Person is a
general partner) to the extent such Person is liable therefor as a result of such Person’s
ownership interest in or other relationship with such entity, except to the extent the terms of
such Indebtedness provide that such Person is not liable therefor.

     “Indenture Trustee” shall mean U.S. Bank National Association and any other
trustee under a Securitization Facility.

     “Institutional Investor” shall mean any insurance company, commercial, investment
or merchant bank, finance company, mutual fund, registered money or asset manager, savings and loan
association, credit union, registered investment advisor, pension fund, investment company,
licensed broker or dealer, “qualified institutional buyer” (as such term is defined under Rule 144A
promulgated under the Securities Act) or “accredited investor” (as such term is defined in
Regulation D promulgated under the Securities Act).

     “Intercreditor Agreement” shall mean the Subordination and Intercreditor
Agreement, dated as of June 21, 2007, among the Bank Agent and the Purchasers, as amended, restated
or otherwise modified from time to time in accordance with its terms.

     “Interest Expense” shall mean, with reference to any period, total interest
expense (including that attributable to Capital Lease Obligations) of the Company and its
Subsidiaries for such period with respect to all outstanding Indebtedness of the Company and its
Subsidiaries (including all commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers’ acceptance financing and net costs under Swap Agreements in respect
of interest rates to the extent such net costs are allocable to such period in accordance with
GAAP), calculated on a consolidated basis for the Company and its Subsidiaries for such period in
accordance with GAAP.

     “Inventory” shall have the meaning assigned to such term in the Security
Agreement.

     “Investor Rights Agreement” shall have the meaning given in paragraph 3A(iii)
hereof.

     “IP Security Agreement” shall have the meaning given in paragraph 3A(vii) hereof.

     “Lien” shall mean, with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b)
the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title
retention agreement (or any financing lease having substantially the same

E4-6

 

economic effect as any of the foregoing) relating to such asset and (c) in the case of
securities, any purchase option, call or similar right of a third party with respect to such
securities.

     “Material Adverse Effect” shall mean any event, development or circumstance that has or would
reasonably be expected to have a material adverse effect on (a) the business, assets, operations,
prospects or condition, financial or otherwise, of the Company and its Subsidiaries taken as a
whole (provided that if the event, development or circumstance is not unique to the Company, its
effect on the Company is materially more adverse than on the other entities or comparable lines of
business), (b) the ability of any Obligor to perform any of its obligations under the Transaction
Documents to which it is a party, (c) the Collateral, or the Subordinated Collateral Agent’s Liens
(on behalf of itself and the holders of the Subordinated Notes) on the Collateral or the priority
of such Liens or (d) the rights of or benefits available to the Subordinated Collateral Agent or
the holders of any of the Subordinated Notes or the Warrants under this Agreement.

     “Material Indebtedness” shall mean Indebtedness (other than the Obligations), or obligations
in respect of one or more Swap Agreements, of any one or more of the Company and its Subsidiaries in
an aggregate principal amount exceeding $5,000,000. For purposes of determining Material
Indebtedness, the “obligations” of the Company or any Subsidiary in respect of any Swap Agreement
at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that
the Company or such Subsidiary would be required to pay if such Swap Agreement were terminated at
such time.

     “Moody’s” shall mean Moody’s Investors Service, Inc., and its successors.

     “Multiemployer Plan” shall mean a multiemployer plan as defined in Section 4001(a)(3) of
ERISA.

     “Net Income” shall mean, for any period, the consolidated net income (or loss) of the Company
and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that
there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it
becomes a Subsidiary or is merged into or consolidated with the Company or any of its Subsidiaries,
(b) the income (or deficit) of any Person (other than a Subsidiary) in which the Company or any of
its Subsidiaries has an ownership interest, except to the extent that any such income is actually
received by the Company or such Subsidiary in the form of dividends or similar distributions and
(c) the undistributed earnings of any Subsidiary 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 (other than under the Credit Agreement) or Requirement of Law applicable
to such Subsidiary.

     “Obligations” shall mean (i) the unpaid principal and interest (including interest accruing at
the then-applicable Default Rate and interest accruing at the then-applicable
rate provided in the Subordinated Notes after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or similar proceeding, relating to

E4-7

 

Company whether or not a claim for post-filing or post-petition interest is allowed in such
proceeding) on the Subordinated Notes, when and as due, whether at maturity, by acceleration, upon
one or more dates set for prepayment or otherwise, and (ii) all other obligations and liabilities
of every nature of the Company from time to time owing to the Subordinated Collateral Agent or the
holders of Subordinated Notes, in each case whether direct or indirect, absolute or contingent, due
or to become due, or now existing or hereafter incurred (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding), which may arise under, out of, or
in connection with, this Agreement or any other Security Document or under any other document made,
delivered or given in connection with any of the foregoing (excluding the Warrants, the Investor
Rights Agreement, the Stockholders Agreement, the Equityholder Agreement and the VCOC Letter), in
each case whether on account of principal, premium, if any, interest, fees, indemnities, costs,
expenses or otherwise (including all fees and disbursements of counsel to such Persons) that are
required to be paid by the Company pursuant to the terms of this Agreement or any other Security
Document, including, without limitation, any contingent or unliquidated Obligations related to
unresolved claims, causes of action or liabilities which have been asserted or threatened against
the Subordinated Collateral Agent or any holder of a Subordinated Note or which otherwise can be
reasonably identified by the Subordinated Collateral Agent or any holder of a Subordinated Note
based on then known facts and circumstances.

     “Obligors” shall mean the Company, the Company’s domestic Subsidiaries other than the
Securitization SPE and any other Person that now or hereafter guarantees or grants a Lien in any of
its assets to secure any of the Obligations and their successors and assigns, provided further that
the Securitization Trust shall not be deemed an Obligor.

     “Off-Balance Sheet Liability” of a Person shall mean (a) any repurchase obligation or
liability of such Person with respect to accounts or notes receivable sold by such Person, (b) any
indebtedness, liability or obligation under any so-called “synthetic lease” transaction entered
into by such Person or (c) any indebtedness, liability or obligation arising with respect to any
other transaction which is the functional equivalent of or takes the place of borrowing but which
does not constitute a liability on the balance sheets of such Person (other than operating leases).

     “Officer’s Certificate” shall mean a certificate signed in the name of the Company by its
President, one of its Vice Presidents or its Treasurer.

     “PBGC” shall mean the Pension Benefit Guaranty Corporation, or any successor or replacement
entity thereto under ERISA.

     “Permitted Investments” shall mean, (i) direct obligations of, or obligations the principal of
and interest on which are unconditionally guaranteed by, the United States of America (or by any
agency thereof to the extent such obligations are backed by the full faith and credit of the United
States of America), in each case maturing within one year from the date of acquisition thereof;
(ii) investments in commercial paper maturing

E4-8

 

within 270 days from the date of acquisition thereof and having, at such date of
acquisition, the highest credit rating obtainable from Standard & Poor’s or from Moody’s;
(iii) investments in certificates of deposit, banker’s acceptances and time deposits maturing
within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and
money market deposit accounts issued or offered by, any domestic office of any commercial bank
organized under the laws of the United States of America or any State thereof which has a combined
capital and surplus and undivided profits of not less than $500,000,000; (iv) fully collateralized
repurchase agreements with a term of not more than 30 days for securities described in clause (i)
above and entered into with a financial institution satisfying the criteria described in clause
(iii) above; and (v) money market funds that (a) comply with the criteria set forth in Securities
and Exchange Commission Rule 2a-7 under the Investment Company Act of 1940, (b) are rated AAA by
Standard & Poor’s and Aaa by Moody’s and (c) have portfolio assets of at least
$5,000,000,000.

     “Permitted Liens” shall mean, (i) Liens imposed by law for taxes that are not yet due or are
being contested in compliance with paragraph 5L; (ii) carriers’, warehousemen’s, mechanics’,
materialmen’s, repairmen’s and other like Liens imposed by law, arising in the ordinary course of
business and securing obligations that are not overdue by more than 30 days or are being contested
in compliance with paragraph 5L; (iii) pledges and deposits made in the ordinary course of business
in compliance with workers’ compensation, unemployment insurance and other social security laws or
regulations; (iv) deposits to secure the performance of bids, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in
each case in the ordinary course of business; (v) judgment Liens in respect of judgments that do
not constitute an Event of Default under clause (xiii) of paragraph 7A; (vi) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in
the ordinary course of business that do not secure any monetary obligations and do not materially
detract from the value of the affected property or interfere with the ordinary conduct of business
of the Company or any Subsidiary; and (vii) unperfected Liens and reclamation rights of inventory
suppliers.

     “Person” shall mean any natural person, corporation, limited liability company, trust, joint
venture, association, company, partnership, Governmental Authority or other entity.

     “Plan” shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject
to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in
respect of which the Company or any ERISA Affiliate is (or, if such plan were terminated, would
under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

     “Preferred Stock” shall mean the Company’s Series A Convertible Preferred Stock, par value
0.00001 per share.

E4-9

 

     “Property” of a Person shall mean any and all property, whether real, personal, tangible,
intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person.

     “Projections” shall have the meaning given in paragraph 5A(vi) hereof.

     “Purchasers” shall have the meaning given in the introductory paragraph hereof.

     “Qualified IPO” shall mean the closing of a firm commitment underwritten initial public
offering pursuant to an effective registration statement filed under the Securities Act covering
the offer and sale of shares of the Company’s Common Stock at a public offering price reasonably
acceptable to the Required Holder(s).

     “Related Party” shall mean (i) any officer or director of the Company or any Subsidiary, (ii)
any Person directly or indirectly owning any shares of Equity Interests of the Company or any
Subsidiary, (iii) any Person who is related by blood, adoption or marriage to any Person described
in clause (i) or (ii), or (iv) any Affiliate of the Company or any Affiliate of any
Person described in clause (i), (ii) or (iii); provided, however, that the Company and
any Subsidiary of the Company shall not be Related Parties.

     “Required Holder(s)” shall mean the holder or holders of more than 50% of the aggregate
principal amount of the Subordinated Notes from time to time outstanding.

     “Requirement of Law” shall mean, as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental Authority, in each
case applicable to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.

     “Responsible Officer” shall mean the chief executive officer, chief operating officer, chief
financial officer or chief accounting officer of the Company or any other officer of the Company
involved principally in its financial administration or its controllership function.

     “Restated Certificate of Incorporation” shall have the meaning given in paragraph 3J
hereof.

     “Restricted Payment” shall mean any dividend or other distribution (whether in cash,
securities or other property) with respect to any Equity Interests in the Company or any
Subsidiary, or any payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such Equity Interests in the Company or of any option, warrant
or other right to acquire any such Equity Interests in the Company.

     “Securities” shall have the meaning given in paragraph 1B hereof.

     “Securities Act” shall mean the Securities Act of 1933, as amended.

E4-10

 

     “Securitization Documents” shall have the meaning ascribed thereto in the Security
Agreement.

     “Securitization Facility” shall mean the securitization facility governed by the
Securitization Documents.

     “Securitization Intercreditor Agreement” shall mean the Intercreditor Agreement dated as of
June 21, 2007 among the Subordinated Collateral Agent, the Indenture Trustee on behalf of
noteholders under the Securitization Facility, the Securitization SPE and the Company in the form
of Exhibit Q hereto, as amended, restated or otherwise modified from time to time in
accordance with its terms.

     “Securitization Receivables” shall have the meaning assigned to such term in the Security
Agreement.

     “Securitization SPE” shall mean Fingerhut Funding, LLC, a Delaware limited liability company,
or any other special purpose entity now or hereafter created to effect a Securitization Facility.

     “Securitization Trust” shall mean the Fingerhut Credit Account Master Note Trust created
effective as of June 13, 2007.

     “Security Agreement” shall mean that certain Amended and Restated Pledge and Security
Agreement dated as of June 21, 2007 by the Company for the benefit of the holders of the
Subordinated Notes in the form of Exhibit G hereto, as the same may be amended, modified, or
supplemented from time to time in accordance with the provisions thereof.

     “Security Documents” shall mean the Security Agreement, the IP Security Agreement, the
Subsidiary Guaranty, the Subsidiary Security Agreement and any other agreement, document or
instrument in effect on the date of closing or executed by the Company or any Subsidiary after the
date of closing under which the Company or such Subsidiary has granted a lien upon or security
interest in any property or assets to the Subordinated Collateral Agent to secure all or any part
of the obligations of the Company under this Agreement or the Subordinated Notes or of any
Subsidiary Guarantor under the Subsidiary Guaranty, and all financing statements, certificates,
documents and instruments relating thereto or executed or provided in connection therewith, each as
amended, restated, supplemented or otherwise modified from time to time.

     “Senior Debt” shall mean all Senior Debt under and as defined in the Intercreditor Agreement;
provided that “Senior Debt” shall not include any obligation owed to the Company or any Subsidiary
of the Company.

     “Significant Holder” shall mean (i) each Purchaser, so long as such Purchaser or one of its
Affiliates shall hold (or be committed under this Agreement to purchase) any Subordinated Note, or
(ii) any other Person which, together with its Affiliates, is the holder of at least 5% of the
aggregate principal amount of the Subordinated Notes from time to time outstanding.

E4-11

 

     “Specified Event” shall mean the consummation of (i) a Qualified IPO or (ii) a Company
Sale.

     “Standard & Poor’s” shall mean Standard & Poor’s, a Division of The McGraw-Hill Companies,
Inc., and its successors.

     “Stockholders Agreement” shall have the meaning given in paragraph 3A(iii) hereof.

     “Subordinated Collateral Agent” shall mean Prudential Capital Partners II, L.P.

     “Subordinated Indebtedness” of a Person shall mean any Indebtedness of such Person the payment
of which is subordinated to payment of the Secured Obligations to the written satisfaction of the
Subordinated Collateral Agent.

     “Subordinated
Notes” shall have the meaning given in paragraph 1A hereof.

     “subsidiary” shall mean, with respect to any Person (the “parent”) at any date, any
corporation, limited liability company, partnership, association or other entity the accounts of
which would be consolidated with those of the parent in the parent’s consolidated financial
statements if such financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership, association or other entity
of which securities or other ownership interests representing more than 50% of the equity or more
than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests are, as of such date, owned, controlled or held.

     “Subsidiary” shall mean any direct or indirect subsidiary of the Company or an Obligor, as
applicable.

     “Subsidiary Guarantors” shall mean each Subsidiary of the Company from time to time required
to enter into the Subsidiary Guaranty pursuant to paragraph 5M.

     “Subsidiary Guaranty” shall mean that certain Guarantor Agreement made by each Subsidiary
Guarantor in favor of the Subordinated Collateral Agent for the benefit of the holders of the
Subordinated Notes substantially in the form of Exhibit F hereto, as the same may be amended,
modified, or supplemented from time to time in accordance with the provisions thereof.

     “Subsidiary Security Agreement” shall mean that certain Security Agreement made by each
Subsidiary Guarantor in favor of the Subordinated Collateral Agent for the benefit of the holders
of the Subordinated Notes substantially in the form of Exhibit I hereto, as the same may be
amended, modified, or supplemented from time to time in accordance with the provisions thereof.

     “Swap Agreement” shall mean any agreement with respect to any swap, forward, future or
derivative transaction or option or similar agreement involving, or settled by reference to, one or
more rates, currencies, commodities, equity or debt

E4-12

 

instruments or securities, or economic, financial or pricing indices or measures of economic,
financial or pricing risk or value or any similar transaction or any combination of these
transactions: provided that no phantom stock or similar plan providing for payments only on account
of services provided by current or former directors, officers, employees or consultants of the
Company or the Subsidiaries shall be a Swap Agreement.

     “Taxes” shall mean any and all present or future taxes, levies, imposts, duties, deductions,
charges or withholdings imposed by any Governmental Authority.

     “Transaction Documents” shall mean this Agreement, the Subordinated Notes, the Warrants, the
Investor Rights Agreement, the Stockholders Agreement, the Equityholder Agreement, the VCOC Letter,
the Security Documents, the Agreement to Subordinate, the Collateral Agency Agreement and the other
agreements, documents, certificates and instruments now or hereafter executed or delivered by the
Company or any Subsidiary or Affiliate in connection with this Agreement.

     “Transfer and Servicing Agreement” shall mean the Transfer and Servicing Agreement among
Fingerhut Funding, LLC, the Company and Fingerhut Credit Account Master Note Trust, dated as of
June 21, 2007, as the same may be amended, restated or otherwise supplemented from time to time.

     “Transferee” shall mean any direct or indirect transferee of all or any part of any
Subordinated Note purchased by any Purchaser under this Agreement.

     “USA Patriot Act” shall mean United States Public Law 107-56, Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT
ACT) Act of 2001, as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.

     “VCOC Letter” shall have the meaning given in paragraph 3A(ix) hereof.

     “Warrants” shall have the meaning given in paragraph 1B hereof.

     “Wholly-Owned Subsidiary” shall mean any Subsidiary of the Company all of the outstanding
Equity Interests of every class of which is owned by the Company or another Wholly-Owned Subsidiary
of the Company, and which has outstanding no options, warrants, rights or other securities
entitling the holder thereof (other than the Company or a Wholly-Owned Subsidiary) to acquire
shares of Equity Interests of such Subsidiary.

     “Withdrawal Liability” shall mean liability to a Multiemployer Plan as a result of a complete
or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle
E of Title IV of ERISA.

E4-13

 

EXHIBIT G

FORM OF SECURITY AGREEMENT

See Attached.

 

 

EXECUTION COPY

AMENDED AND RESTATED

PLEDGE AND SECURITY AGREEMENT

     THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (as it may be amended, restated,
supplemented or otherwise modified from time to time, the “Security Agreement”) is entered
into as of June 21, 2007 by and between Fingerhut Direct Marketing, Inc., a Delaware corporation
(the “Grantor”), and Prudential Capital Partners II, L.P., as collateral agent for the
Holders referenced below (in such capacity, the “Subordinated Collateral Agent”).

PRELIMINARY STATEMENTS

     A. The Grantor entered into that certain Securities Purchase Agreement, dated as of March 23,
2006 (as amended by that certain letter agreement dated as of June 21,2007 (the “First
Amendment”) and as the same may from time to time hereafter be further amended, modified,
supplemented or restated, the “Purchase Agreement”), by and among the Grantor
and the purchasers party thereto (collectively, the “Purchasers” and, together with any
person who becomes a holder of any Subordinated Note (as defined below) the “Holders”),
pursuant to which the Purchasers, among other things, purchased $30,000,000 aggregate principal
amount of the 13.00% Senior Subordinated Secured Notes due March 24, 2013 (the “Subordinated
Notes”) of the Grantor on the terms and subject to the conditions, set forth in the Purchase
Agreement.

     B. Pursuant to the Purchase Agreement, the Grantor entered into that certain Security
Agreement, dated as of March 23, 2006 with the Subordinated Collateral Agent (the “Original
Security Agreement”) to secure the Secured Obligations in order to induce the Purchasers to
enter into the Purchase Agreement and purchase the Subordinated Notes.

     C. In order to induce the Purchasers to enter into the First Amendment and amend the Purchase
Agreement as set forth therein, the Grantor is willing to amend and restate the Original Security
Agreement pursuant to this Security Agreement.

     ACCORDINGLY, the Grantor and the Subordinated Collateral Agent, on behalf of the Holders,
hereby agree as follows:

ARTICLE I

DEFINITIONS

     1.1. Terms Defined in Purchase Agreement. All capitalized terms used herein and
not otherwise defined shall have the meanings assigned to such terms in the Purchase Agreement.

     1.2. Terms Defined in DCC. Terms defined in the DCC which are not otherwise defined in
this Security Agreement are used herein as defined in the DCC.

     1.3. Definitions of Certain Terms Used Herein. As used in this Security Agreement, in
addition to the terms defined in the Preliminary Statement, the following terms shall have the
following meanings:

     “2007-1 Supplemental Indenture” means the Series 2007-1 Indenture Supplement, dated
as of June 21, 2007, between Fingerhut Credit Account Master Note Trust, as Issuer, and D.S.
Bank National Association, as Indenture Trustee, as the same may be amended, modified or
supplemented from time to time.

     “Accounts” shall have the meaning set forth in Article 9 of the UCC.

G-1

 

     “Article” means a numbered article of this Security Agreement, unless another document
is specifically referenced.

     “Chattel Paper” shall have the meaning set forth in Article 9 of the UCC.

     “CIT Bank” means CIT Bank, a Utah Industrial Bank.

     “CIT Documents” means the Receivables Sale Agreement dated as of the date hereof~
by and between CIT Bank and Grantor (as it may be amended or modified from time to time) and
the Revolving Loan Product Program Agreement dated as of the date hereof, by and between CIT Bank
and Grantor (as it may be amended or modified from time to time).

     “Collateral” shall have the meaning set forth in Article II.

     “Collateral Access Agreement” means any landlord waiver or other agreement, in form
and substance satisfactory to the Subordinated Collateral Agent, between the Subordinated
Collateral Agent and any third party (including any bailee, consignee, customs broker, or other
similar Person) in possession of any Collateral or any landlord of the Grantor for any real
property where any Collateral is located, as such landlord waiver or other agreement may be
amended, restated, or otherwise modified from time to time.

     “Collateral Agent” means U.S. Bank National Association as Indenture Trustee pursuant
to the Master Indenture.

     “Collateral
Deposit Account” shall have the meaning set forth in Section 7.1(a).

     “Collateral Report” means any certificate, report or other document delivered by the
Grantor to the Subordinated Collateral Agent or any Holder with respect to the Collateral pursuant
to any Note Document.

     “Collection Account” means deposit account No. 758660021 of the Grantor maintained
with the Bank Agent.

     “Commercial Tort Claim” means any “commercial tort claim,” as such term is defined in
Section 9-102(a)(13) of the UCC (or any other then applicable provision of the UCC).

     “Contracts” means all contracts, undertakings, franchise agreements or other
agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under
which the Grantor may now or hereafter have any right, title or interest, including, without
limitation, with respect to an Account, any agreement relating to the terms of payment or the terms
of performance thereof.

     “Control” shall have the meaning set forth in Article 8 or, if applicable, in Section
9-104, 9-105, 9-106 or 9-107 of Article 9 of the UCC.

     “Default” means any event or condition which constitutes an Event of Default or which
upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

     “Deposit Account Control Agreement” means an agreement, in form and substance
satisfactory to the Subordinated Collateral Agent, among any Obligor, a banking institution holding
such Obligor’s funds, and the Subordinated Collateral Agent with respect to collection and control
of all deposits and balances held in a deposit account maintained by any Obligor with such banking
institution.

     “Deposit Accounts” shall have the meaning set forth in Article 9 of the UCC.

     “Documents” shall have the meaning set forth in Article 9 of the UCC.

G-2

 

     “Equipment” means any “equipment,” as such term is defined in Section 9-102(a)(33) of
the UCC(or any other then applicable provision of the UCC), now or hereafter owned or acquired
by the Grantor or in which the Grantor now holds or hereafter acquires any interest and, in any
event, shall include, without limitation, all machinery, equipment, fixtures, furniture,
furnishings, trade fixtures, vehicles, trucks, mainframe, personal and other computers, terminals
and printers and related components and accessories, all copiers, telephonic, video, electronic
data-processing, data storage equipment and other equipment of any nature whatsoever, and any and
all additions, substitutions and replacements of any of the foregoing, wherever located, together
with all attachments, components, parts, equipment and accessories installed thereon or affixed
thereto.

     “Event of Default” means an event described in Section 5.1.

     “Exhibit” refers to a specific exhibit to this Security Agreement, unless another
document is specifically referenced.

     “General Intangibles” shall have the meaning set forth in Article 9 of the
UCC.

     “Instruments” shall have the meaning set forth in Article 9 of the UCC.

     “Inventory”
shall have the meaning set forth in Article 9 of the UCC.

     “Investment Property” shall have the meaning set forth in Article 9 of the UCC.

     “Letter-of-Credit Rights” shall have the meaning set forth in Article 9 of the UCC.

     “Lock
Boxes” shall have the meaning set forth in Section 7.1(a).

     “Lock
Box Agreements” shall have
the meaning set forth in Section 7.1(a).

     “Master Indenture” means that certain Master Indenture dated as of the date hereof
between Fingerhut Credit Account Master Note Trust, as Issuer, and U.S. Bank National Association,
as Indenture Trustee, as the same may be amended, modified or supplemented from time to time.

     “Merchant Deposit Account” has the meaning ascribed thereto in Section 7.1 (a).

     “Note Documents” means Transaction Documents (as defined in the Purchase
Agreement).

     “Payment Intangibles” shall have the meaning set forth in Article 9 of the UCC.

     “Pledged Collateral” means all Securities consisting of Equity Interests of
Subsidiaries of the Grantor, whether or not physically delivered to the Subordinated Collateral
Agent pursuant to this Security Agreement.

     “Proceeds” means “proceeds,” as such term is defined in Section 9-102(a)(64) of the
UCC (or any other then applicable provision of the UCC), and, in any event, shall include, without
limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of money or
currency or other proceeds payable to the Grantor from time to time in respect of the Collateral,
(b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Grantor
from time to time with respect to any of the Collateral, (c) any and all payments (in any form
whatsoever) made or due and payable to the Grantor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral
by any governmental authority (or any Person acting under color of governmental
authority), (d) all certificates, dividends, cash, Instruments and other property received or
distributed in respect of or in exchange for any Investment Property, and (e) any and all other
amounts from time to time paid or payable under or in connection with any of the Collateral.

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     “Purchased Assets” means (i) Securitization Receivables and (ii) other “Purchased
Assets” (as such term is defined in Section 2.1(a) of the Receivables Purchase Agreement).

     “Receivables Purchase Agreement” means that certain Receivables Purchase Agreement
dated as of the date hereof among the Grantor and the Securitization SPE, as the same may be
amended, modified or supplemented from time to time.

     “Section” means a numbered section of this Security Agreement, unless another document
is specifically referenced.

     “Secured Obligations” shall mean and include (a) the Obligations and (b) all
liabilities and obligations, howsoever arising, owed by the Grantor to Subordinated Collateral
Agent or the Holders (excluding the Warrants, the Investor Rights Agreement, the Stockholders
Agreement, the Equityholder Agreement and the VCOC Letter) or anyone or more of them of
every kind and description (whether evidenced by any note or instrument and whether or not for the
payment of money), direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising pursuant to the terms of this Security Agreement.

     “Securities Account” means “securities account,” as such term is defined in Section
8-501(a) of the UCC (or any other then applicable provision of the UCC).

     “Securitization Account” means (a) on and after the Initial Cut-Off Date, each
Initial Account, (b) on and after the applicable Additional Cut-Off Date, each Additional Account
and (c) each Transferred Account, but shall exclude (i) each Securitization Account that has been
closed and terminated in accordance with the relevant Account Guidelines, (ii) each Deleted Account
and (iii) any Securitization Account all the Receivables in which have either been: (A) reassigned
to Grantor pursuant to Section 6.1 or 6.2 of the Receivables Purchase Agreement or (B) assigned and
transferred to Grantor pursuant to Section 3.03 of the Transfer and Servicing Agreement;
provided, however, that any group of consumer credit accounts designated as
Securitization Accounts in a notice regarding Additional Accounts given by the Securitization SPE
to Grantor pursuant to the Receivables Purchase Agreement shall cease to be treated as
Securitization Accounts if the purchase of receivables in such consumer credit accounts by the
Securitization SPE does not commence on or prior to the fifth Business Day following the date
originally specified in the notice for such addition as the expected addition date;
provided further, however, that, for the avoidance of doubt, in the event
any such designation of consumer credit accounts is not given effect by virtue of the preceding
proviso, nothing shall prevent Grantor from at any time thereafter again designating all or a
portion of such accounts to be included as Securitization Accounts and selling receivables in such
Securitization Accounts to the Securitization SPE. All of the defined terms in this definition have
the meanings ascribed thereto in the Securitization Documents, except for the terms “Securitization
SPE” and “Grantor.”

     “Securitization Documents” means the Receivables Purchase Agreement, the Transfer and
Servicing Agreement, the Master Indenture, the 2007-1 Supplemental Indenture and each additional
indenture supplement entered into from time to time.

     “Securitization Facility” means the securitization facility governed by the
Securitization Documents.

     “Securitization Property” means the Securitization Accounts, the Securitization
Receivables and the Purchased Assets.

     “Securitization Receivables” means all amounts payable by obligors on any
Securitization Account from time to time.

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     “Securitization Sales Receivables” means Payment Intangibles owing to Grantor and
arising from sales of Securitization Receivables and other Purchased Assets to the Securitization
SPE pursuant to the Securitization Documents.

     “Securitization SPE” means Fingerhut Funding, LLC.

     “Security”
has the meaning set forth in Article 8 of the UCC.

     “Servicing Accounts” means Accounts owing to Grantor and arising from services
provided by it under the Transfer and Servicing Agreement.

     “Supporting Obligations” shall have the meaning set forth in Article 9
of the UCC.

     “Transaction Documents” shall have the meaning set forth in the Master Indenture.

     “Transfer and Servicing Agreement” means that certain Transfer and Servicing Agreement
dated as of the date hereof among Fingerhut Funding, LLC, as Transferor, Grantor, as Servicer and
Fingerhut Credit Account Master Note Trust, as Issuer, as the same may be amended, modified or
supplemented from time to time.

     “UCC” means the Uniform Commercial Code, as in effect from time to time, of the State
of Illinois or of any other state the laws of which are required as a result thereof to be applied
in connection with the attachment, perfection or priority of, or remedies with respect to, the
Subordinated Collateral Agent’s or any Holder’s Lien on any Collateral.

     “Unsecuritized Receivables” means all rights to payment of any kind arising directly
or indirectly from the sale or other disposition of Inventory, including Accounts, Chattel Paper,
Instruments, Payment Intangibles, Letter of Credit Rights, Supporting Obligations, and general
intangibles related to the foregoing, but excluding Securitization Accounts and Securitization
Receivables.

     The foregoing definitions shall be equally applicable to both the singular and plural forms of
the defined terms.

ARTICLE II

GRANT OF SECURITY INTEREST

     To secure payment and performance of the Secured Obligations, the Grantor hereby confirms its
prior grant under the Original Security Agreement, as amended and restated hereby, and pledges,
assigns and grants to the Subordinated Collateral Agent, on behalf of and for the ratable benefit
of the Holders, a security interest in all of its right, title and interest in, to and under
certain personal property and other assets, whether now owned by or owing to, or hereafter acquired
by or arising in favor of the Grantor (including under any trade name or derivations thereof), and
whether owned or consigned by or to, or leased from or to, the Grantor, and regardless of where
located (all of which will be collectively referred to as the
“Collateral”), consisting of:

               (a) All Accounts;

               (b) All Chattel Paper;

               (c) All Commercial Tort Claims;

               (d) All Contracts;

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               (e) All Deposit Accounts;

               (f) All Documents;

               (g) All Equipment;

               (h) All General Intangibles (including Payment Intangibles);

               (i) All Instruments;

               (j) All Inventory;

               (k) All Investment Property;

               (l) All Letter-of-Credit Rights;

               (m) All Securities Accounts;

               (n) All Supporting Obligations;

               (o) All property of the Grantor held by Subordinated Collateral Agent or any
Holder, including, without limitation, all property of every description now or hereafter in the
possession or custody of or in transit to the Subordinated Collateral Agent or any Holder for any
purpose, including, without limitation, safekeeping, collection or pledge, for the account of the
Grantor, or as to which the Grantor may have any right or power;

               (p) All other goods and personal property of the Grantor whether tangible or
intangible and whether now or hereafter owned or existing, leased, consigned by or to, or acquired
by the Grantor and wherever located; and

               (q) To the extent not otherwise included, all Proceeds of each of the foregoing
and all accessions to, substitutions and replacements for, and rents, profits and products of each
of the foregoing;

excluding, however, in each case, the Securitization Accounts and the
Securitization Property now existing or hereafter arising and all books, records, ledger cards,
files, correspondence, computer programs, tapes, disks and related data that evidence or contain
information relating to the Securitization Property. To the extent that any security interest
arises in any Securitization Account or in any asset under this Security Agreement prior to its
becoming Securitization Property, such security interest is deemed to have terminated automatically
on the date it becomes a Securitization Account or Securitization Property; provided that such
security interest shall be automatically reinstated on the date when any such Securitization
Property is reconveyed to the Grantor and ceases to be Securitization Property pursuant to the
terms of the Securitization Documents.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

     The Grantor represents and warrants to the Subordinated Collateral Agent and each
Holder that:

     3.1. Title, Perfection and Priority. The Grantor has good and valid rights in or the
power to transfer the Collateral and title to the Collateral with respect to which it has purported
to grant a security interest hereunder, free and clear of all Liens except for Liens permitted
under Section 4.1(e), and has full power and authority to grant to the Subordinated Collateral
Agent the security interest in such Collateral pursuant hereto.

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When financing statements have been filed in the appropriate offices against the Grantor in
the locations listed on Exhibit E, the Subordinated Collateral Agent will have a fully perfected
security interest in that Collateral in which a security interest may be perfected by filing,
subject only to Liens permitted under Section 4.1(e).

     3.2. Type and Jurisdiction of Organization, Organizational and Identification Numbers.
The type of entity of the Grantor, its state of organization, the organizational number issued to
it by its state of organization and its federal employer identification number arc set forth on
Exhibit A.

     3.3. Principal Location. The Grantor’s mailing address and the location of its place
of business (if it has only one) or its chief executive office (if it has more than one place of
business), arc disclosed in Exhibit A; the Grantor has no other places of business except those set
forth in Exhibit A.

     3.4. Collateral Locations. All of the Grantor’s locations where Collateral is located
are listed on Exhibit A. All of said locations are owned by the Grantor except for locations (i)
which are leased by the Grantor as lessee and designated in
Part VII(b) of Exhibit A and (ii) at
which Inventory is held in a public warehouse or is otherwise held by a bailee or on consignment as
designated in Part VII(c) of Exhibit A.

     3.5. Deposit Accounts. All of the Grantor’s Deposit Accounts are listed on Exhibit
B.

     3.6. Exact Names. The Grantor’s name in which it has executed this Security Agreement
is the exact name as it appears in the Grantor’s organizational documents, as amended, as filed
with the Grantor’s jurisdiction of organization. The Grantor has not, during the past five years,
been known by or used any other corporate or fictitious name, or been a party to any merger or
consolidation, or been a party to any acquisition.

     3.7.
Letter of Credit Rights and Chattel Paper.
Exhibit C lists all Letter of Credit
Rights and Chattel Paper of the Grantor. All action by the Grantor necessary or desirable to
protect and perfect the Subordinated Collateral Agent’s Lien on each item listed on Exhibit C
(including the delivery of all originals and the placement of a legend on all Chattel Paper as
required hereunder) has been duly taken. The Subordinated Collateral Agent will have a fully
perfected security interest in the Collateral listed on Exhibit C, subject only to Liens permitted
under Section 4.1(e).

     3.8. Commercial Tort Claims. Commercial Torts Claims of the Grantor are set forth
on Exhibit F.

     3.9. Inventory. With respect to any Inventory scheduled or listed on the most recent
Collateral Report, (a) such Inventory (other than Inventory in transit) is located at one of the
Grantor’s locations set forth on Exhibit A, (b) no Inventory (other than Inventory in
transit) is now, or shall at any time or times hereafter be stored at any other location except as
permitted by Section 4.1 (g), (c) the Grantor has good, indefeasible and merchantable title to such
Inventory and such Inventory is not subject to any Lien or security interest or document whatsoever
except for the Lien granted to the Subordinated Collateral Agent, for the benefit of the
Subordinated Collateral Agent and the Holders, and except as permitted under the Purchase
Agreement, (d) except as specifically disclosed in the most recent Collateral Report, such
Inventory is of good and merchantable quality, free from any defects, (e) such Inventory is not
subject to any
licensing, patent, royalty, trademark, trade name or copyright agreements with any third
parties which would require any consent of any third party upon sale or other disposition of that
Inventory or the payment of any monies to any third party upon such sale or other disposition, and
(f) sale or other disposition of such Inventory by the Subordinated Collateral Agent
following an Event of Default shall not require the consent of any Person and shall not constitute
a breach or default under any contract or agreement to which the Grantor is a party or to which
such property is subject.

     3.10. Filing Requirements. None of the Collateral is of a type for which security
interests or liens may be perfected by filing under any federal statute.

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     3.11. No Financing Statements, Security Agreements. No financing statement or security
agreement describing all or any portion of the Collateral which has not lapsed or been terminated
naming the Grantor as debtor has been filed or is of record in any jurisdiction except (a) for
financing statements or security agreements naming the Subordinated Collateral Agent on behalf of
the Holders as the secured party and (b) as permitted by Section 4.1(e).

     3.12. Pledged Collateral.

          (a) Exhibit D sets forth a complete and accurate list of all of the Pledged
Collateral. The Grantor is the direct, sole beneficial owner and sale holder of record of the
Pledged Collateral listed on Exhibit D as being owned by it, free and clear of any Liens,
except for the security interest granted to the Subordinated Collateral Agent for the benefit of
the Holders hereunder and security interest granted to the Bank Agent. The Grantor further
represents and warrants that (i) all Pledged Collateral constituting an Equity Interest has been
(to the extent such concepts are relevant with respect to such Pledged Collateral) duly authorized,
validly issued, are fully paid and non-assessable, (ii) with respect to any certificates delivered
to the Subordinated Collateral Agent representing an Equity Interest, either such certificates are
Securities as defined in Article 8 of the UCC as a result of actions by the issuer or otherwise,
or, if such certificates are not Securities, the Grantor has so informed the Subordinated
Collateral Agent so that the Subordinated Collateral Agent may take steps to perfect its security
interest therein as a General Intangible, and (iii) all Pledged Collateral held by a securities
intermediary is covered by a control agreement among the Grantor, the securities intermediary and
the Subordinated Collateral Agent pursuant to which the Subordinated Collateral Agent has Control.

          (b) In addition, (i) none of the Pledged Collateral has been issued or transferred in
violation of the securities registration, securities disclosure or similar laws of any jurisdiction
to which such issuance or transfer may be subject, (ii) there are existing no options, warrants,
calls or commitments of any character whatsoever relating to the Pledged Collateral or which
obligate the issuer of any Equity Interest included in the Pledged Collateral to issue additional
Equity Interests, and (iii) no consent, approval, authorization, or other action by, and no giving
of notice to or, filing with, any governmental authority or any other Person is required for the
pledge by the Grantor of the Pledged Collateral pursuant to this Security Agreement or for the
execution, delivery and performance of this Security Agreement by the Grantor, or for the exercise
by the Subordinated Collateral Agent of the voting or other rights provided for in this Security
Agreement or for the remedies in respect of the Pledged Collateral pursuant to this Security
Agreement, except as may be required in connection with such disposition by laws affecting the
offering and sale of securities generally.

          (c) Except as set forth in Exhibit D, the Grantor owns 100% of the issued and
outstanding Equity Interests which constitute Pledged Collateral.

     3.13. Securities Accounts. The names and addresses of all institutions at which the
Grantor maintains its Securities Accounts and the account numbers and account names of such
Securities Accounts are listed on Exhibit G. The Company
shall amend Exhibit G from time to time
within twenty (20) Business Days after opening any additional Securities Account or closing or
changing the account number or account name on any existing Securities Account.

ARTICLE IV

COVENANTS

     From the date of this Security Agreement, and thereafter until this Security Agreement is
terminated, the Grantor agrees that:

     4.1. General.

          (a) Collateral Records. The Grantor will maintain complete and accurate books and
records with respect to the Collateral, and furnish to the Subordinated Collateral Agent, with
sufficient copies

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for each
of the Holders, such reports relating to the Collateral as the Subordinated
Collateral Agent shall from time to time request.

          (b) Authorization to File Financing Statements; Ratification. The Grantor hereby
authorizes the Subordinated Collateral Agent to file, and if requested will deliver to the
Subordinated Collateral Agent, all financing statements and other documents and take such other
actions as may from time to time be requested by the Subordinated Collateral Agent in order to
maintain a first perfected security interest in and, if applicable,
Control of, the Collateral. Any
financing statement filed by the Subordinated Collateral Agent may be filed in any filing office in
any UCC jurisdiction and may (i) indicate the Collateral by any description which reasonably
approximates the description contained in this Security Agreement, and (ii) contain any other
information required by part 5 of Article 9 of the UCC for the sufficiency or filing
office acceptance of any financing statement or amendment, including whether the Grantor is an
organization, the type of organization and any organization identification number issued to the
Grantor. The Grantor also agrees to furnish any such information to the Subordinated Collateral
Agent promptly upon request. The Grantor also ratifies its authorization for the Subordinated
Collateral Agent to have filed in any UCC jurisdiction any initial financing statements or
amendments thereto if filed prior to the date hereof.

          (c) Further Assurances. The Grantor will, if so requested by the Subordinated
Collateral Agent, furnish to the Subordinated Collateral Agent, as often as the Subordinated
Collateral Agent requests, statements and schedules further identifying and describing the
Collateral and such other reports and information in connection with the Collateral as the
Subordinated Collateral Agent may reasonably request, all in such detail as the Subordinated
Collateral Agent may specify. The Grantor also agrees to take any and all actions necessary to
defend title to the Collateral against all persons and to defend the security interest of the
Subordinated Collateral Agent in the Collateral and the priority thereof against any Lien not
expressly permitted hereunder.

          (d) Disposition of Collateral. The Grantor will not sell, lease or otherwise dispose
of the Collateral except for dispositions specifically permitted pursuant to paragraph 6E of the
Purchase Agreement.

          (e) Liens. The Grantor will not create, incur, or suffer to exist any Lien on the
Collateral except (i) the security interest created by this Security Agreement, and (ii) other
Liens permitted under the terms of the Purchase Agreement.

          (f) Other Financing Statements. The Grantor will not authorize the filing
of any financing statement naming it as debtor covering all or any portion of the Collateral,
except as permitted by Section 4.1(e). The Grantor acknowledges that it is not authorized to file
any financing statement or amendment or termination statement with respect to any financing
statement without the prior written consent of the Subordinated Collateral Agent, subject to the
Grantor’s rights under Section 9-509(d)(2) of the UCC.

          (g) Locations. The Grantor will not (i) maintain any Collateral at any location other
than those locations listed on Exhibit A, (ii) otherwise change, or add to, such locations without
the Subordinated Collateral Agent’s prior written consent (and if the Subordinated Collateral Agent
gives such consent, the Grantor will concurrently therewith obtain a Collateral Access Agreement
for each such location), or (iii) change its principal place of
business or chief executive office from the location identified on
Exhibit A, other than as
permitted by the Purchase Agreement.

          (h) Compliance with Terms. The Grantor will perform and comply with all obligations in
respect of the Collateral and all agreements to which it is a party or by which it is bound
relating to the Collateral.

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          (i) Commercial Tort Claims and Letter of Credit Rights. The Grantor shall
amend (i) Exhibit F from time to time within twenty (20) Business Days after
obtaining any additional Commercial Tort Claims and (ii)
Exhibit C from time to time within
twenty (20) Business Days after obtaining any additional Letter-of-Credit Rights.

          (j) Contracts. The Grantor shall use its commercially reasonable efforts
to secure all consents and approvals necessary or appropriate for the grant of a security interest
to the Subordinated Collateral Agent in any Contract or license held by the Grantor or in which the
Grantor has any rights not heretofore assigned.

     4.2. Unsecuritized Receivables.

          (a) Certain Agreements on Unsecuritized Receivables. The Grantor will not make or
agree to make any discount, credit, rebate or other reduction in the original amount owing on an
Unsecuritized Receivable or accept in satisfaction of an Unsecuritized Receivable less than the
original amount thereof, except that, prior to the occurrence of an Event of Default, the Grantor
may reduce the amount of Unsecuritized Receivables in accordance with its present policies and in
the ordinary course of business.

          (b) Collection of Unsecuritized Receivables. Except as otherwise provided in this
Security Agreement, the Grantor will collect and enforce, at the Grantor’s sole expense, all
amounts due or hereafter due to the Grantor under the Unsecuritized Receivables.

          (c) Electronic Chattel Paper. The Grantor shall take all steps necessary to grant the
Subordinated Collateral Agent Control of all electronic Chattel Paper in accordance with the UCC
and all “transferable records” as defined in each of the Uniform Electronic Transactions Act and
the Electronic Signatures in Global and National Commerce Act.

     4.3. Inventory.

          (a) Maintenance of Inventory. The Grantor will do all things necessary to maintain,
preserve, protect and keep the Inventory in saleable condition, except for damaged or defective
goods arising in the ordinary course of the Grantor’s business.

          (b) Returned Inventory. If an Account Debtor returns any Inventory to the Grantor when
no Event of Default exists, then the Grantor shall promptly determine the reason for such return
and shall issue a credit memorandum to the Account Debtor in the appropriate amount. All returned
Inventory shall be subject to the Subordinated Collateral Agent’s Liens thereon.

          (c) Perpetual Inventory System. The Grantor will maintain a perpetual inventory
reporting system at all times.

     4.4. Delivery of Instruments, Securities, Chattel Paper and Documents. As to all
Chattel Paper and Instruments constituting part of the Collateral, the Grantor will (a) deliver to
the Subordinated Collateral Agent immediately upon execution of this Security Agreement the
originals of all Chattel Paper, Securities and Instruments constituting Collateral (if any then
exist), (b) hold in trust for the Subordinated Collateral Agent upon receipt and immediately
thereafter deliver to the Subordinated Collateral Agent any Chattel Paper, Securities and
Instruments constituting Collateral, and (c) upon the Subordinated Collateral Agent’s request,
deliver to the Subordinated Collateral Agent (and thereafter hold in trust for the Subordinated
Collateral Agent upon receipt and immediately deliver to the Subordinated Collateral Agent) any
Document evidencing or constituting Collateral. The Grantor hereby authorizes the Subordinated
Collateral Agent to attach each Amendment to this Security Agreement and agrees that all additional
Collateral set forth in such Amendments shall be considered to be part of the Collateral.

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     4.5. Uncertificated Pledged Collateral. The Grantor will permit the
Subordinated Collateral Agent from time to time to cause the
appropriate issuers (and, if held with
a securities intermediary, such securities intermediary) of uncertificated securities or other
types of Pledged Collateral not represented by certificates to mark their books and records with
the numbers and face amounts of all such uncertificated securities or other types of Pledged
Collateral not represented by certificates and all rollovers and replacements therefor to reflect
the Lien of the Subordinated Collateral Agent granted pursuant to this Security Agreement. The
Grantor will take any actions necessary to cause (a) the issuers of uncertificated securities which
are Pledged Collateral and (b) any securities intermediary which is the holder of any Pledged
Collateral, to cause the Subordinated Collateral Agent to have and retain Control over such Pledged
Collateral. Without limiting the foregoing, the Grantor will, with respect to Pledged Collateral
held with a securities intermediary, cause such securities intermediary to enter into a control
agreement with the Subordinated Collateral Agent, in form and substance satisfactory to the
Subordinated Collateral Agent, giving the Subordinated Collateral Agent Control.

     4.6. Pledged Collateral.

          (a) Changes in Capital Structure of Issuers. The Grantor will not (i) permit or suffer
any issuer of an Equity Interest constituting Pledged Collateral to dissolve, merge, liquidate or
retire any of its Equity Interests, or (ii) vote any Pledged Collateral in favor of any of the
foregoing.

          (b) Issuance of Additional Securities. The Grantor will not permit or suffer the
issuer of an Equity Interest constituting Pledged Collateral to issue additional Equity Interests,
any right to receive the same or any right to receive earnings, except to the Grantor.

          (c) Registration of Pledged Collateral. The Grantor will permit any registerable
Pledged Collateral to be registered in the name of the Subordinated Collateral Agent or its nominee
at any time at the option of the Required Holder(s).

          (d) Exercise of Rights in Pledged Collateral.

          (i)
Without in any way limiting the foregoing and subject to clause (ii) below, the
Grantor shall have the right to exercise all voting rights or other rights relating to the
Pledged Collateral for all purposes not inconsistent with this Security Agreement, the
Purchase Agreement or any other Note Document; provided however, that no vote
or other right shall be exercised or action taken which would have the effect of impairing
the rights of the Subordinated Collateral Agent in respect of the Pledged Collateral.

          (ii) The Grantor will permit the Subordinated Collateral Agent or its nominee at any
time after the occurrence of an Event of Default, without notice, to exercise all voting
rights or other rights relating to Pledged Collateral, including, without limitation,
exchange, subscription or any other rights, privileges, or options pertaining to any Equity
Interest or Investment Property constituting Pledged Collateral as if it were the absolute
owner thereof.

          (iii) The Grantor shall be entitled to collect and receive for its own use all cash
dividends and interest paid in respect of the Pledged Collateral to the extent not in
violation of the Purchase Agreement other than any of the following distributions
and payments (collectively referred to as the “Excluded Payments”): (A) dividends
and interest paid or payable other than in cash in respect of any Pledged Collateral, and
instruments and other property received, receivable or otherwise distributed in respect of,
or in exchange for,
any Pledged Collateral; (B) dividends and other distributions paid or payable in cash
in respect of any Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or paid-in
capital of an issuer; and (C) cash paid, payable or otherwise distributed, in respect of
principal of, or in redemption of, or in

G-11

 

exchange for, any Pledged Collateral; provided however, that until
actually paid, all rights to such distributions shall remain subject to the Lien created by
this Security Agreement; and

          (iv) All Excluded Payments and all other distributions in respect of any of the
Pledged Collateral, whenever paid or made, shall be delivered to the Subordinated
Collateral Agent to hold as Pledged Collateral and shall, if received by the Grantor, be
received in trust for the benefit of the Subordinated Collateral Agent, be segregated from
the other property or funds of the Grantor, and be forthwith delivered to the Subordinated
Collateral Agent as Pledged Collateral in the same form as so received (with any necessary
endorsement).

     4.7. No Interference. The Grantor agrees that it will not interfere with any right,
power and remedy of the Subordinated Collateral Agent provided for in this Security Agreement or
now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or
beginning of the exercise by the Subordinated Collateral Agent of anyone or more of such rights,
powers or remedies.

     4.8. Insurance. (a) In the event any Collateral is located in any area
that has been designated by the Federal Emergency Management Agency as a “Special Flood Hazard
Area”, the Grantor shall purchase and maintain flood insurance on such Collateral (including any
personal property which is located on any real property leased by the Grantor within a “Special
Flood Hazard Area”). The amount of flood insurance required by this Section shall be in an amount
equal to the lesser of the total outstanding principal amount of the Subordinated Notes or the
total replacement cost value of the Inventory at such location.

          (b) All
insurance policies required hereunder and under paragraph 5F of the Purchase Agreement
shall name the Subordinated Collateral Agent (for the benefit of the Subordinated Collateral Agent
and the Holders) as an additional insured or as loss payee, as applicable, and shall contain loss
payable clauses or mortgagee clauses, through endorsements in form and substance satisfactory to
the Subordinated Collateral Agent, which provide that: (i) all proceeds thereunder with respect to
any Collateral shall be payable to the Subordinated Collateral Agent; (ii) no such insurance shall
be affected by any act or neglect of the insured or owner of the property described in such policy;
and (iii) such policy and loss payable or mortgagee clauses may be canceled, amended, or terminated
only upon at least thirty days prior written notice given to the Subordinated Collateral Agent.

          (c) All premiums on such insurance shall be paid when due by the Grantor, and copies of the
policies delivered to the Subordinated Collateral Agent. If the Grantor fails to obtain any
insurance as required by this Section, the Subordinated Collateral Agent may obtain such insurance
at the Grantor’s expense. By purchasing such insurance, the Subordinated Collateral Agent shall not
be deemed to have waived any Default arising from the Grantor’s failure to maintain such insurance
or pay any premiums therefor.

     4.9. Collateral Access Agreements. The Grantor shall use commercially reasonable
efforts to obtain a Collateral Access Agreement, from the lessor of each leased property, mortgagee
of owned property or bailee or consignee with respect to any warehouse, processor or converter
facility or other location where Collateral is stored or located, which agreement or letter shall
provide access rights, contain a waiver or subordination of all Liens or claims that the
landlord, mortgagee, bailee or consignee may assert against the Collateral at that location,
and shall otherwise be reasonably satisfactory in form and substance to the Subordinated Collateral
Agent. After the First Amendment Effective Date, no real property or warehouse space shall be
leased by the Grantor and no Inventory shall be shipped to a processor or converter under
arrangements established after the First Amendment Effective Date, unless and until a satisfactory
Collateral Access Agreement shall first have been obtained with respect to such location. The
Grantor shall timely and fully pay and perform its obligations under all leases and other
agreements with respect to each leased location or third party warehouse where any Collateral is or
may be located.

     4.10. Change of Name or Location; Change of Fiscal Year. The Grantor shall not (a)
change its name

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as it appears in official filings in the state of its incorporation or organization, (b)
change its chief executive office, principal place of business, mailing address, corporate offices
or warehouses or locations at which Collateral is held or stored, or the location of its records
concerning the Collateral as set forth in this Security Agreement, (c) change the type of entity
that it is, (d) change its organization identification number, if any, issued by its state of
incorporation or other organization, or (e) change its state of incorporation or organization, in
each case, unless the Subordinated Collateral Agent shall have received at least thirty days prior
written notice of such change and the Subordinated Collateral Agent shall have acknowledged in
writing that either (1) such change will not adversely affect the validity, perfection or priority
of the Subordinated Collateral Agent’s security interest in the Collateral, or (2) any reasonable
action requested by the Subordinated Collateral Agent in connection therewith has been completed or
taken (including any action to continue the perfection of any Liens in favor of the Subordinated
Collateral Agent, on behalf of the Holders, in any Collateral), provided that, any new
location shall be in the continental U.S. The Grantor shall not change its fiscal year which
currently ends on the Friday closest to
January 31st of each year.

     4.11. Securities Accounts. The Grantor shall use its commercially reasonable efforts
to assist the Subordinated Collateral Agent in obtaining control under the UCC with respect to any
Collateral consisting of Securities Accounts (with investment or other assets that currently exceed
or are at any time expected to exceed $25,000).

ARTICLE V

EVENTS OF DEFAULT AND REMEDIES

     5.1. Events of Default. The occurrence of anyone or more of the following events
shall constitute an Event of Default hereunder:

          (a) Any representation or warranty made by or on behalf of the Grantor under or in connection
with this Security Agreement shall be materially false as of the date on which made.

          (b) The breach by the Grantor of any of the terms or provisions of Article
IV or Article VII.

          (c) The breach by the Grantor (other than a breach which constitutes an Event of Default under
any other Section of this Article V) of any of the terms or provisions of this Security
Agreement which is not remedied within ten days after such breach.

          (d) The occurrence of any “Event of Default” under, and as defined in, the Purchase Agreement.

          (e) Any Equity Interest which is included within the Collateral shall at any time constitute a
Security or the issuer of any such Equity Interest shall take any action to have such interests
treated as a Security unless (i) all certificates or other documents constituting such Security
have been delivered to the Subordinated Collateral Agent and such Security is properly defined as
such under Article 8 of the UCC of the applicable jurisdiction, whether as a result of actions by
the issuer thereof or otherwise, or (ii) the Subordinated Collateral Agent has entered into a
control agreement with the issuer of such Security or with a securities intermediary relating
to such Security and such Security is defined as such under Article 8 of the UCC of the
applicable jurisdiction, whether as a result of actions by the issuer thereof or otherwise.

     5.2. Remedies.

          (a) Upon the occurrence of an Event of Default, the Subordinated Collateral Agent may exercise
any or all of the following rights and remedies:

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          (i) those rights and remedies provided in this Security Agreement, the Purchase
Agreement, or any other Note Document; provided that, this Section 5.2(a) shall
not be understood to limit any rights or remedies available to the Subordinated Collateral
Agent and the Holders prior to an Event of Default;

          (ii) those rights and remedies available to a secured party under the UCC (whether or
not the UCC applies to the affected Collateral) or under any other applicable law
(including, without limitation, any law governing the exercise of a bank’s right of setoff
or bankers’ lien) when a debtor is in default under a security agreement;

          (iii) give notice of sale control or any other instruction under any Deposit Account
Control Agreement or and other control agreement with any securities intermediary and take
any action therein with respect to such Collateral;

          (iv)
without notice (except as specifically provided in Section 8.1 or elsewhere
herein), demand or advertisement of any kind to the Grantor or any other Person, enter the
premises of the Grantor where any Collateral is located (through self-help and without
judicial process) to collect, receive, assemble, process, appropriate, sell, lease, assign,
grant an option or options to purchase or otherwise dispose of, deliver, or realize upon,
the Collateral or any part thereof in one or more parcels at public or private sale or
sales (which sales may be adjourned or continued from time to time with or without notice
and may take place at the Grantor’s premises or elsewhere), for cash, on credit or for
future delivery without assumption of any credit risk, and upon such other terms as the
Subordinated Collateral Agent may deem commercially reasonable; and

          (v) concurrently with written notice to the Grantor, transfer and register in its name
or in the name of its nominee the whole or any part of the Pledged Collateral, to exchange
certificates or instruments representing or evidencing Pledged Collateral for certificates
or instruments of smaller or larger denominations, to exercise the voting and all other
rights as a holder with respect thereto, to collect and receive all cash dividends,
interest, principal and other distributions made thereon and to otherwise act with respect
to the Pledged Collateral as though the Subordinated Collateral Agent was the outright
owner thereof.

          (b) The Subordinated Collateral Agent, on behalf of the Holders, may comply with any
applicable state or federal law requirements in connection with a disposition of the Collateral and
compliance will not be considered to adversely affect the commercial reasonableness of any sale of
the Collateral.

          (c) The Subordinated Collateral Agent shall have the right upon any such public sale or sales
and, to the extent permitted by law, upon any such private sale or sales, to purchase for the
benefit of the Subordinated Collateral Agent and the Holders, the whole or any part of the
Collateral so sold, free of any right of equity redemption, which equity redemption the Grantor
hereby expressly releases.

          (d) Until the Subordinated Collateral Agent is able to effect a sale, lease, or other
disposition of Collateral, the Subordinated Collateral Agent shall have the right to hold or use
Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of
preserving Collateral or its value or for any other purpose deemed appropriate by the
Subordinated Collateral Agent. The Subordinated Collateral Agent may, if it so elects, seek
the appointment of a receiver or keeper to take possession of Collateral and to enforce any of the
Subordinated Collateral Agent’s remedies (for the benefit of the Subordinated Collateral Agent and
Holders), with respect to such appointment without prior notice or hearing as to such appointment.

          (e) [Intentionally Omitted].

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          (f) Notwithstanding the foregoing, neither the Subordinated Collateral Agent nor the
Holders shall be required to (i) make any demand upon, or pursue or exhaust any of their rights or
remedies against, the Grantor, any other obligor, guarantor, pledgor or any other Person with
respect to the payment of the Secured Obligations or to pursue or exhaust any of their rights or
remedies with respect to any Collateral therefor or any direct or indirect guarantee thereof, (ii)
marshal the Collateral or any guarantee of the Secured Obligations or to resort to the Collateral
or any such guarantee in any particular order, or (iii) effect a public sale of any Collateral.

          (g) The Grantor recognizes that the Subordinated Collateral Agent may be unable to effect a
public sale of any or all the Pledged Collateral and may be compelled to resort to one or more
private sales thereof in accordance with clause (a) above. The Grantor also acknowledges
that any private sale may result in prices and other terms less favorable to the seller than if
such sale were a public sale and, notwithstanding such circumstances, agrees that any such private
sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue
of such sale being private. The Subordinated Collateral Agent shall be under no obligation to
delay a sale of any of the Pledged Collateral for the period of time necessary to permit the
Grantor or the issuer of the Pledged Collateral to register such securities for public sale under
the Securities Act of 1933, as amended, or under applicable state securities laws, even if the
Grantor and the issuer would agree to do so.

     5.3. Grantor’s Obligations Upon Default. Upon the request of the Subordinated
Collateral Agent after the occurrence and during the continuance of an Event of Default, the
Grantor will:

          (a) assemble and make available to the Subordinated Collateral Agent the Collateral and all
books and records relating thereto at any place or places specified by the Subordinated Collateral
Agent, whether at the Grantor’s premises or elsewhere;

          (b) permit the Subordinated Collateral Agent, by the Subordinated Collateral Agent’s
representatives and agents, to enter, occupy and use any premises where all or any part of the
Collateral, or the books and records relating thereto, or both, are located, to take possession of
all or any part of the Collateral or the books and records relating thereto, or both, to remove
all or any part of the Collateral or the books and records relating thereto, or both, and to
conduct sales of the Collateral, without any obligation to pay the Grantor for such use and
occupancy;

          (c) prepare and file, or cause an issuer of Pledged Collateral to prepare and file, with the
Securities and Exchange Commission or any other applicable government agency, registration
statements, a prospectus and such other documentation in connection with the Pledged Collateral as
the Subordinated Collateral Agent may request, all in form and substance satisfactory to the
Subordinated Collateral Agent, and furnish to the Subordinated Collateral Agent, or cause an
issuer of Pledged Collateral to furnish to the Subordinated Collateral Agent, any information
regarding the Pledged Collateral in such detail as the Subordinated Collateral Agent may specify;

          (d) take, or cause an issuer of Pledged Collateral to take, any and all actions necessary to
register or qualify the Pledged Collateral to enable the Subordinated Collateral Agent to
consummate a public sale or other disposition of the Pledged Collateral; and

          (e) at its own expense, cause the independent certified public accountants then engaged by the
Grantor to prepare and deliver to the Subordinated Collateral Agent and each Holder, at any time,
and from time to time, promptly upon the Subordinated Collateral Agent’s request, the following
reports with respect to the Grantor: (i) a reconciliation of all Accounts; (ii) an aging of all
Accounts; (iii) trial balances; and (iv) a test verification of such Accounts.

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     5.4. Grant of Intellectual Property License. For the purpose of enabling the
Subordinated Collateral Agent to exercise the rights and remedies under this Article V at
such time as the Subordinated Collateral Agent shall be lawfully entitled to exercise such rights
and remedies, the Grantor hereby (a) grants to the Subordinated Collateral Agent, for the benefit
of the Subordinated Collateral Agent and the Holders, an irrevocable, nonexclusive license
(exercisable without payment of royalty or other compensation to the Grantor) to use, license or
sublicense any intellectual property rights now owned or hereafter acquired by the Grantor, and
wherever the same may be located, and including in such license access to all media in which any of
the licensed items may be recorded or stored and to all computer software and programs used for the
compilation or printout thereof and (b) irrevocably agrees that the Subordinated Collateral Agent
may sell any of the Grantor’s Inventory directly to any person, including without limitation
persons who have previously purchased the Grantor’s Inventory from the Grantor and in connection
with any such sale or other enforcement of the Subordinated Collateral Agent’s rights under this
Security Agreement, may sell Inventory which bears any trademark owned by or licensed to the
Grantor and any Inventory that is covered by any copyright owned by or licensed to the Grantor and
the Subordinated Collateral Agent may finish any work in process and affix any trademark owned by
or licensed to the Grantor and sell such Inventory as provided herein.

ARTICLE VI

ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY

     6.1. Account Verification. The Subordinated Collateral Agent may at any time, in the
Subordinated Collateral Agent’s own name, in the name of a nominee of the Subordinated Collateral
Agent, or in the name of the Grantor communicate (by mail, telephone, facsimile or otherwise) with
the Account Debtors of such Grantor, parties to contracts with the Grantor
and obligors in respect of Instruments of the Grantor to verify with such Persons, to the
Subordinated Collateral Agent’s satisfaction, the existence, amount, terms of, and any other matter
relating to, Unsecuritized Receivables subject to applicable laws.

     6.2. Authorization for Subordinated Collateral Agent to Take Certain Action.

          (a) The Grantor irrevocably authorizes the Subordinated Collateral Agent at any time and from
time to time in the sole discretion of the Subordinated Collateral Agent and appoints the
Subordinated Collateral Agent as its attorney in fact (i) to execute on behalf of
the Grantor as debtor and to file financing statements necessary or desirable in the Subordinated
Collateral Agent’s sole discretion to perfect and to maintain the perfection and priority of the
Subordinated Collateral Agent’s security interest in the Collateral, (ii) to endorse and collect
any cash proceeds of the Collateral, (iii) to file a carbon, photographic or other reproduction of
this Security Agreement or any financing statement with respect to the Collateral as a financing
statement and to file any other financing statement or amendment of a financing statement (which
does not add new collateral or add a debtor) in such offices as the Subordinated Collateral Agent
in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and
priority of the Subordinated Collateral Agent’s security interest in the Collateral, (iv) to
contact and enter into one or more agreements with the issuers of uncertificated securities which
are Pledged Collateral or with securities intermediaries holding Pledged Collateral as may be
necessary or advisable to give the Subordinated Collateral Agent Control over such Pledged
Collateral, (v) to apply the proceeds of any Collateral received by the Subordinated Collateral
Agent to the Secured Obligations as provided in Section 7.2, (vi) to discharge past due taxes,
assessments, charges, fees or Liens on the Collateral (except for such Liens as are specifically
permitted hereunder), (vii) to contact Account Debtors for any reason, (viii) to demand payment or
enforce payment of the Unsecuritized Receivables in the name of the Subordinated Collateral Agent
or the Grantor and to endorse any and all checks, drafts, and other instruments for the payment of
money relating to the Unsecuritized Receivables, (ix) to sign the Grantor’s name on any invoice or
bill of lading relating to the Unsecuritized Receivables, drafts against any Account Debtor of the
Grantor, assignments and verifications of Unsecuritized Receivables, (x) to exercise all of the
Grantor’s rights and remedies with respect to the collection of the Unsecuritized Receivables and
any other Collateral, (xi) to settle, adjust, compromise, extend or renew the Unsecuritized
Receivables, (xii) to settle, adjust or compromise any legal proceedings brought to collect
Unsecuritized Receivables, (xiii) to prepare, file

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and sign the Grantor’s name on a proof of claim
in bankruptcy or similar document against any Account Debtor of the Grantor, (xiv) to prepare, file
and sign the Grantor’s name on any notice of Lien, assignment or satisfaction of Lien or similar
document in connection with the Unsecuritized Receivables, (xv) to change the address for delivery
of mail addressed to the Grantor to such address as the Subordinated Collateral Agent may designate
and to receive, open and dispose of all mail addressed to the Grantor, and (xvi) to do all other
acts and things necessary to carry out this Security Agreement; and the Grantor agrees to reimburse
the Subordinated Collateral Agent on demand for any payment made or any expense incurred by the
Subordinated Collateral Agent in connection with any of the foregoing; provided that, this
authorization shall not relieve the Grantor of any of its obligations under this Security Agreement
or under the Purchase Agreement.

          (b) All acts of said attorney or designee are hereby ratified and approved. The powers
conferred on the Subordinated Collateral Agent, for the benefit of the Subordinated Collateral
Agent and Holders, under this Section 6.2 are solely to protect the Subordinated Collateral Agent’s
interests in the Collateral and shall not impose any duty upon the Subordinated Collateral Agent or
any Holder to exercise any such powers. The Subordinated Collateral Agent agrees that, except for
the powers granted in Section 6.2(a)(i)-(vi) and Section 6.2(a)(xvi), it shall not exercise any
power or authority granted to it unless an Event of Default has occurred and is continuing.

     6.3. Proxy. THE GRANTOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS THE SUBORDINATED
COLLATERAL AGENT AS THE PROXY AND ATTORNEY-IN-FACT (AS SET FORTH IN SECTION 6.2 ABOVE) OF THE
GRANTOR WITH RESPECT TO THE PLEDGED COLLATERAL, INCLUDING THE RIGHT TO VOTE SUCH PLEDGED
COLLATERAL, WITH FULL POWER OF SUBSTITUTION TO DO SO. IN ADDITION TO THE RIGHT TO VOTE ANY SUCH
PLEDGED COLLATERAL, THE APPOINTMENT OF THE SUBORDINATED COLLATERAL AGENT AS PROXY AND
ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES AND
REMEDIES TO WHICH A HOLDER OF SUCH PLEDGED COLLATERAL WOULD BE ENTITLED (INCLUDING GIVING OR
WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING
AT SUCH MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE NECESSITY OF ANY
ACTION (INCLUDING ANY TRANSFER OF ANY SUCH PLEDGED COLLATERAL ON THE RECORD BOOKS OF THE ISSUER
THEREOF) BY ANY PERSON (INCLUDING THE ISSUER OF SUCH PLEDGED COLLATERAL OR ANY OFFICER OR AGENT
THEREOF), UPON THE OCCURRENCE OF A DEFAULT.

     6.4. Nature of Appointment; Limitation of Duty. THE APPOINTMENT OF THE SUBORDINATED
COLLATERAL AGENT AS PROXY AND ATTORNEY-IN-FACT IN THIS ARTICLE VI IS COUPLED WITH AN INTEREST AND
SHALL BE IRREVOCABLE UNTIL THE DATE ON WHICH THIS SECURITY AGREEMENT IS TERMINATED IN ACCORDANCE
WITH SECTION 8.14. NOTWITHSTANDING ANYTHING CONTAINED HEREIN, NEITHER THE SUBORDINATED COLLATERAL
AGENT, NOR ANY HOLDER, NOR ANY OF THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS OR REPRESENTATIVES SHALL HAVE ANY DUTY TO EXERCISE ANY RIGHT OR POWER GRANTED HEREUNDER OR
OTHERWISE OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY FAILURE TO DO SO OR FOR ANY
DELAY IN DOING SO, EXCEPT IN RESPECT OF DAMAGES ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED THAT,
IN NO EVENT SHALL THEY BE LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

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ARTICLE VII

COLLECTION AND APPLICATION OF COLLATERAL PROCEEDS; DEPOSIT ACCOUNTS

     7.1. Collection of Unsecuritized Receivables.

          (a) On or before the First Amendment Effective Date, the Grantor shall execute and deliver to
the Subordinated Collateral Agent a Deposit Account Control Agreement for Merchant Deposit Account
maintained by the Grantor at U.S. Bank National Association (the “Merchant Deposit
Account”), which Merchant Deposit Account is identified as such on Exhibit B. The
Grantor shall cause to be deposited in that Merchant Deposit Account on each Business Day all
proceeds of Collateral other than proceeds of Securitization Sales Receivables and Servicing
Accounts and Unsecuritized Receivables. On or before the First Amendment Effective Date, the
Grantor shall execute and deliver to the Subordinated Collateral Agent a Deposit Control Account
Agreement for a deposit account (the “Collateral Deposit Account”) maintained with the
Bank Agent. Grantor shall cause to be deposited in the Collateral Deposit Account on each Business
Day all proceeds of Servicing Accounts, Securitization Sale Receivables and settlement payments
from the CIT Bank under the CIT Documents and Unsecuritized Receivables. On each Business Day, all
funds on deposit in the Merchant Deposit Account shall be transferred to the Collateral Deposit
Account. On or before the First Amendment Effective Date, the Grantor will establish lock box
service (the “Lock Boxes”) with the bank(s) set
forth in Exhibit B, which lock
boxes shall be subject to irrevocable lockbox agreements in a form acceptable to the Subordinated
Collateral Agent designating the Collateral Agent as the secured party (a “Lock Box
Agreement”).

          (b) The Grantor shall direct all of its Account Debtors to forward payments directly to Lock
Boxes subject to Lock Box Agreements. The Collateral Agent shall have sole access to the Lock
Boxes at all times and the Grantor shall take all actions necessary to grant the Collateral Agent
such sole access. At no time shall the Grantor remove any item from the Lock Box without the
Collateral Agent’s prior written consent or from the Collateral Deposit Account without the
Subordinated Collateral Agent’s consent. If notwithstanding the foregoing instructions, the
Grantor receives any proceeds of any Securitization Receivables, the Grantor shall receive such
payments as the Collateral Agent’s trustee, and shall immediately deposit all cash, checks or
other similar payments related to or constituting payments made in respect of Unsecuritized
Receivables received by it to a Lock Box. At any time the Subordinated Collateral Agent is the
“Controlling Secured Party” (as defined in the Collateral Deposit Account Control Agreement), the
Subordinated Collateral Agent shall hold and apply funds received into the Collateral Deposit
Account as provided by the terms of Section 7.2.

     7.2. Application of Proceeds; Deficiency. All amounts deposited in the Collateral
Deposit Account shall be applied by the Subordinated Collateral Agent against the Secured
Obligations. Any such proceeds of the Collateral shall be applied as determined by the Holders. The
balance, if any, after all of the Secured Obligations have been satisfied, shall be deposited by
the Subordinated Collateral Agent into the Grantor’s general operating account. The Grantor shall
remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay all Secured Obligations, including any attorneys’ fees and other expenses
incurred by the Subordinated Collateral Agent or any Holder to collect such deficiency.

ARTICLE VIII

GENERAL PROVISIONS

     8.1. Waivers. The Grantor hereby waives notice of the time and place of any public
sale or the time after which any private sale or other disposition of all or any part of the
Collateral may be made. To the extent such notice may not be waived under applicable law, any
notice made shall be deemed reasonable if sent to the Grantor, addressed as set forth in
Article IX, at least ten days prior to (i) the date of any such public sale or (ii) the
time after which any such private sale or other disposition may be made. To the maximum extent
permitted by applicable law, the Grantor waives all claims, damages, and demands against the
Subordinated Collateral

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Agent or any Holder arising out of the repossession, retention or sale of the Collateral, except
such as arise solely out of the gross negligence or willful misconduct of the Subordinated
Collateral Agent or such Holder as finally determined by a court of competent jurisdiction. To the
extent it may lawfully do so, the Grantor absolutely and irrevocably waives and relinquishes the
benefit and advantage of, and covenants not to assert against the Subordinated Collateral Agent or
any Holder, any valuation, stay, appraisal, extension, moratorium, redemption or similar laws and
any and all rights or defenses it may have as a surety now or hereafter existing which, but for
this provision, might be applicable to the sale of any Collateral made under the judgment, order or
decree of any court, or privately under the power of sale conferred by this Security Agreement, or
otherwise. Except as otherwise specifically provided herein, the Grantor hereby waives presentment,
demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.

     8.2. Limitation on Subordinated Collateral Agent’s and Holders’ Duty with Respect to the
Collateral. The Subordinated Collateral Agent shall have no obligation to clean-up or otherwise
prepare the Collateral for sale. The Subordinated Collateral Agent and each Holder shall use
reasonable care with respect to the Collateral in its possession or under its control. Neither the
Subordinated Collateral Agent nor any Holder shall have any other duty as to any Collateral in its
possession or control or in the possession or control of any agent or nominee of the Subordinated
Collateral Agent or such
Holder, or any income thereon or as to the preservation of rights against prior parties or any
other rights pertaining thereto. To the extent that applicable law imposes duties on the
Subordinated Collateral Agent to exercise remedies in a commercially reasonable manner, the Grantor
acknowledges and agrees that it is commercially reasonable for the Subordinated Agent (i) to fail
to incur expenses deemed significant by the Subordinated Collateral Agent to prepare Collateral for
disposition or otherwise to transform raw material or work in process into finished goods or other
finished products for disposition, (ii) to fail to obtain third party consents for access to
Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain
governmental or third party consents for the collection or disposition of Collateral to be
collected or disposed of, (iii) to fail to exercise collection remedies against Account Debtors or
other Persons obligated on Collateral or to remove Liens on or any adverse claims against
Collateral, (iv) to exercise collection remedies against Account Debtors and other Persons
obligated on Collateral directly or through the use of collection agencies and other collection
specialists, (v) to advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other
Persons, whether or not in the same business as the Grantor, for expressions of interest in
acquiring all or any portion of such Collateral, (vii) to hire one or more professional auctioneers
to assist in the disposition of Collateral, whether or not the Collateral is of a specialized
nature, (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of
assets of the types included in the Collateral or that have the reasonable capacity of doing so, or
that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail
markets, (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi)
to purchase insurance or credit enhancements to insure the Subordinated Collateral Agent against
risks of loss, collection or disposition of Collateral or to provide to the Subordinated Collateral
Agent a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent
deemed appropriate by the Subordinated Collateral Agent, to obtain the services of other brokers,
investment bankers, consultants and other professionals to assist the Subordinated Collateral Agent
in the collection or disposition of any of the Collateral. The Grantor acknowledges that the
purpose of this Section 8.2 is to provide non-exhaustive indications of what actions or omissions
by the Subordinated Collateral Agent would be commercially reasonable in the Subordinated
Collateral Agent’s exercise of remedies against the Collateral and that other actions or omissions
by the Subordinated Collateral Agent shall not be deemed commercially unreasonable solely on
account of not being indicated in this Section 8.2. Without limitation upon the foregoing, nothing
contained in this Section 8.2 shall be construed to grant any rights to the Grantor or to impose
any duties on the Subordinated Collateral Agent that would not have been granted or imposed by this
Security Agreement or by applicable law in the absence of this Section 8.2.

     8.3. Compromises and Collection of Collateral. The Grantor and the Subordinated
Collateral Agent recognize that setoffs, counterclaims, defenses and other claims may be asserted
by obligors with respect to

G-19 

 

certain of the Unsecuritized Receivables, that certain of the
Unsecuritized Receivables may be or become uncollectible in whole or in part and that the expense
and probability of success in litigating a disputed Unsecuritized Receivable may exceed the amount
that reasonably may be expected to be recovered with respect to a Unsecuritized Receivable. In
view of the foregoing, the Grantor agrees that the Subordinated Collateral Agent may at any time
and from time to time, if an Event of Default has occurred and is continuing, compromise with the
obligor on any Unsecuritized Receivable, accept in full payment of any Unsecuritized Receivable
such amount as the Subordinated Collateral Agent in its sole discretion shall determine or abandon
any Unsecuritized Receivable, and any such action by the Subordinated Collateral Agent shall be
commercially reasonable so long as the Subordinated Collateral Agent acts in good faith based on
information known to it at the time it takes any such action.

     8.4. Secured Party Performance of Debtor Obligations. Without having any obligation
to do so, the Subordinated Collateral Agent may perform or pay any obligation which the Grantor
has agreed to perform or pay in this Security Agreement and the Grantor shall reimburse the
Subordinated Collateral Agent for any amounts paid by the Subordinated Collateral Agent pursuant
to this Section 8.4. The Grantor’s obligation to reimburse the Subordinated Collateral Agent
pursuant to the preceding sentence shall be a Secured Obligation payable on demand.

     8.5. Specific Performance of Certain Covenants. The Grantor acknowledges and agrees
that a breach of any of the covenants contained in Sections 4.1(d), 4.1(e), 4.4, 4.5, 4.6, 4.7,
4.8, 4.9, 4.10, 4.11, 5.3, or 8.7 or in Article VII will cause irreparable injury to the
Subordinated Collateral Agent and the Holders, that the Subordinated Collateral Agent and the
Holders have no adequate remedy at law in respect of such breaches and therefore agrees, without
limiting the right of the Subordinated Collateral Agent or the Holders to seek and obtain specific
performance of other obligations of the Grantor contained in this Security Agreement, that the
covenants of the Grantor contained in the Sections referred to in this Section 8.5 shall be
specifically enforceable against the Grantor.

     8.6. Dispositions Not Authorized. The Grantor is not authorized to sell or otherwise
dispose of the Collateral except as set forth in Section 4.1(d) and notwithstanding any course of
dealing between the Grantor and the Subordinated Collateral Agent or other conduct of the
Subordinated Collateral Agent, no authorization to sell or otherwise dispose of the Collateral
(except as set forth in Section 4.1(d)) shall be binding upon the Subordinated Collateral Agent or
the Holders unless such authorization is in writing signed by the Subordinated Collateral Agent
with the consent or at the direction of the Required Holder(s).

     8.7. No Waiver; Amendments; Cumulative Remedies. No delay or omission of the
Subordinated Collateral Agent or any Holder to exercise any right or remedy granted under this
Security Agreement shall impair such right or remedy or be construed to be a waiver of any Default
or an acquiescence therein, and any single or partial exercise of any such right or remedy shall
not preclude any other or further exercise thereof or the exercise of any other right or remedy.
No waiver, amendment or other variation of the terms, conditions or provisions of this Security
Agreement whatsoever shall be valid
unless in writing signed by the Subordinated Collateral Agent (with the written approval of
the Required Holder(s) or such other Person, if such approval is required under the Purchase
Agreement). All rights and remedies contained in this Security Agreement or by law afforded shall
be cumulative and all shall be available to the Subordinated Collateral Agent and the Holders
until the Secured Obligations have been paid in full.

     8.8. Limitation by Law; Severability of Provisions. All rights, remedies and powers
provided in this Security Agreement may be exercised only to the extent that the exercise thereof
does not violate any applicable provision of law, and all the provisions of this Security Agreement
are intended to be subject to all applicable mandatory provisions of law that may be controlling
and to be limited to the extent necessary so that they shall not render this Security Agreement
invalid, unenforceable or not entitled to be recorded or registered, in whole or in part. Any
provision in this Security Agreement that is held to be inoperative, unenforceable, or invalid in

G-20 

 

any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation, enforceability, or
validity of that provision in any other jurisdiction, and to this end the provisions of this
Security Agreement arc declared to be severable.

     8.9. Reinstatement. This Security Agreement shall remain in full force and effect and
continue to be effective should any petition be filed by or against the Grantor for liquidation or
reorganization, should the Grantor become insolvent or make an assignment for the benefit of any
creditor or creditors or should a receiver or trustee be appointed for all or any significant part
of the Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be,
if at any time payment and performance of the Secured Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the Secured Obligations, whether as a “voidable preference,”
“fraudulent conveyance,” or otherwise, all as though such payment or performance had not been
made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid
and not so rescinded, reduced, restored or returned.

     8.10. Benefit of Agreement. The terms and provisions of this Security Agreement shall
be binding upon and inure to the benefit of the Grantor, the Subordinated Collateral Agent and the
Holders and their respective successors and assigns (including all persons who become bound as a
debtor to this Security Agreement), except that the Grantor shall not have the right to assign its
rights or delegate its obligations under this Security Agreement or any interest herein, without
the prior written consent of the Subordinated Collateral Agent. No sales of participations,
assignments, transfers, or other dispositions of any agreement governing the Secured Obligations
or any portion thereof or interest therein shall in any manner impair the Lien granted to the
Subordinated Collateral Agent, for the benefit of the Subordinated Collateral Agent and the
Holders, hereunder.

     8.11. Survival of Representations. All representations and warranties of the Grantor
contained in this Security Agreement shall survive the execution and delivery of this Security
Agreement.

     8.12. Taxes and Expenses. Any taxes (including income taxes) payable or ruled payable
by Federal or State authority in respect of this Security Agreement shall be paid by the Grantor,
together with interest and penalties, if any. The Grantor shall reimburse the Subordinated
Collateral Agent for any and all out-of-pocket expenses and internal charges (including reasonable
attorneys’, auditors’ and accountants’ fees and reasonable time charges of attorneys, paralegals,
auditors and accountants who may be employees of the Subordinated Collateral Agent) paid or
incurred by the Subordinated Collateral Agent in connection with the preparation, execution,
delivery, administration, collection and enforcement of this Security Agreement and in the audit,
analysis, administration, collection, preservation or sale of the Collateral (including the
expenses and charges associated with any periodic or special audit of the Collateral). Any and all
costs and expenses incurred by the Grantor in the performance of actions required pursuant to the
terms hereof shall be borne solely by the Grantor.

     8.13. Headings. The title of and section headings in this Security Agreement are for
convenience of reference only, and shall not govern the interpretation of any of the terms and
provisions of this Security Agreement.

     8.14. Termination. This Security Agreement shall continue in effect (notwithstanding
the fact that from time to time there may be no Secured Obligations outstanding) until (i) the
Purchase Agreement has terminated pursuant to its express terms and (ii) all of the Secured
Obligations have been indefeasibly paid and performed in full and no commitments of the
Subordinated Collateral Agent or the Holders which would give rise to any Secured Obligations are
outstanding.

     8.15. Entire Agreement. This Security Agreement embodies the entire agreement and
understanding between the Grantor and the Subordinated Collateral Agent relating to the Collateral
and supersedes all prior

G-21 

 

agreements and understandings between the Grantor and the Subordinated
Collateral Agent relating to the Collateral.

     8.16. CHOICE OF LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS.

     8.17. CONSENT TO JURISDICTION. THE GRANTOR HEREBY IRREVOCABLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY U.S. FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO,
ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY
OTHER NOTE DOCUMENT AND THE GRANTOR HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS
TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS
AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE SUBORDINATED COLLATERAL AGENT
OR ANY HOLDER TO BRING PROCEEDINGS AGAINST THE GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION.
ANY JUDICIAL PROCEEDING BY THE GRANTOR AGAINST THE SUBORDINATED COLLATERAL AGENT OR ANY HOLDER OR
ANY AFFILIATE OF THE SUBORDINATED COLLATERAL AGENT OR ANY HOLDER INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS SECURITY
AGREEMENT OR ANY OTHER NOTE DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS.

     8.18. WAIVER OF JURY TRIAL. THE GRANTOR, THE SUBORDINATED COLLATERAL AGENT AND EACH
HOLDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED
TO, OR CONNECTED WITH THIS SECURITY AGREEMENT OR ANY OTHER NOTE DOCUMENT OR THE RELATIONSHIP
ESTABLISHED THEREUNDER.

     8.19. Indemnity. The Grantor hereby agrees to indemnify the Subordinated Collateral
Agent and the Holders, and their respective successors, assigns, agents and employees, from and
against any and all liabilities, damages, penalties, suits, costs, and expenses of any kind and
nature (including, without limitation, all expenses of litigation or preparation therefor whether
or not the Subordinated Collateral Agent or any Holder is a party thereto) imposed on, incurred by
or asserted against the Subordinated Collateral Agent or the Holders, or their respective
successors, assigns, agents and employees, in any way relating to or arising out of this Security
Agreement, or the manufacture, purchase, acceptance, rejection, ownership, delivery, lease,
possession, use, operation, condition, sale, return or other disposition of any Collateral
(including, without limitation, latent and other defects, whether or not discoverable by the
Subordinated Collateral Agent or the Holders or the Grantor, and any claim for trademark
infringement).

     8.20. Counterparts. This Security Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and any of the parties
hereto may execute this Security Agreement by signing any such counterpart.

     8.21. Effect of Changes in Securitization Documents. The Securitization Documents may
be amended, modified, supplemented, restated or extended from time to time (each, a
“change”); provided that, for purposes of this Agreement, no such change shall affect the
defined terms in the Securitization Documents as such terms have been incorporated herein by
reference in a manner which impairs or diminishes the Collateral.

G-22 

 

Notwithstanding anything herein to the contrary, and for the avoidance of doubt, the parties hereto
expressly agree that any conveyance, assignment, reconveyance or reassignment executed in
accordance with the provisions of any such Securitization Document shall not be considered to be a
change to such Securitization Document.

ARTICLE IX

NOTICES

     Except as otherwise specified herein, all notices, requests, demands, consents, instructions
or other communications to or upon the Grantor or Subordinated Collateral Agent under this Security
Agreement shall be given as provided in paragraph 121 of the Purchase Agreement.

ARTICLE X

SUBORDINATED COLLATERAL AGENT

     Prudential Capital Partners II, L.P. has been appointed Subordinated Collateral Agent for the
Purchasers pursuant to the Collateral Agency Agreement. It is expressly understood and agreed by
the parties to this Security Agreement that any authority conferred upon the Subordinated
Collateral Agent hereunder is subject to the terms of the delegation of authority made by the
Purchasers to the Subordinated Collateral Agent pursuant to the Collateral Agency Agreement, and
that the Subordinated Collateral Agent has agreed to act (and any successor Subordinated
Collateral Agent shall act) as such hereunder only on the express conditions contained in the
Collateral Agency Agreement. Any successor Subordinated Collateral Agent appointed pursuant to the
Collateral Agency Agreement shall be entitled to all the rights, interests and benefits of the
Subordinated Collateral Agent hereunder.

ARTICLE XI

STOCK OF SECURITIZATION SPE; LIMITATION ON ACTIONS

     The parties hereto acknowledge that the pledge hereunder of the capital stock (the
“Securitization SPE Stock”) of the Securitization SPE is prohibited by the terms of the
Receivables Purchase Agreement, unless certain limitations with respect to the pledge of the
Securitization SPE Stock as set forth herein are observed. Accordingly, in order to induce U.S.
Bank National
Association, as Indenture Trustee (in such capacity, together with the successors and assigns,
the “Indenture Trustee”) to permit the pledge of the Securitization SPE Stock, the parties
hereto agree to the following limitations relating only to the pledge of the Securitization SPE
Stock and not to any other Pledged Collateral.

     To induce the Indenture Trustee to permit the pledge of the Securitization SPE Stock, the
parties hereto agree to the following limitations:

          (a) Notwithstanding anything to the contrary contained herein:

               (i) Prior to the date that is one year and one day after all Notes issued under the Master
Indenture have been paid in full, the Subordinated Collateral Agent, for itself and for the
Holders, agrees that, with respect to the Securitization SPE Stock, it will not, without the prior
written consent of the Indenture Trustee take any action adverse to the Indenture Trustee or the
Noteholders (as defined in the Master Indenture), including, without limitation, (A) causing the
Securitization SPE to violate or breach any term or provision in any Transaction Document (as
defined in the Master Indenture), (B) amending or altering any of the Securitization SPE’s
organizational documents, (C) causing the Securitization SPE to incur any debt, other than, in each
case, as may be allowed in the Transaction Documents or (D) otherwise take any action which would
compromise or call into question the intended bankruptcy remote structure of the transactions
contemplated by the Receivables Purchase Agreement and the other Transaction Documents; provided,
that any termination of

G-23 

 

the Receivables Purchase Agreement in accordance with the terms thereof
shall not be deemed to be adverse to the interests of the Indenture Trustee or any Noteholders or
other secured party under the Master Indenture;

               (ii) Prior to the date on which the Notes issued under the Master Indenture have been
paid in full, in the event that the Subordinated Collateral Agent receives any payments or
funds constituting Securitization Property (as defined in the Securitization Intercreditor Agreement), the
Subordinated Collateral Agent shall hold such payments or funds in trust for the benefit of the Indenture Trustee, and
shall promptly transfer such payments or funds to the Indenture Trustee;

               (iii) Prior to the date on which the Notes issued under the Master Indenture have been paid
in full, (A) this Article XI shall not be amended, restated, supplemented or otherwise modified
without the prior written consent of the Indenture Trustee and the provisions of this Article XI
shall be contained in any agreement that amends and restates this Security Agreement and (B) the
Subordinated Collateral Agent for itself and for the Holders agrees that no such party shall enter
into any additional agreement that would adversely affect the rights of the Noteholders or other
secured parties under the Master Indenture set forth in Article XI hereof; and

               (iv) Prior to the date that is one year and one day after all Notes issued under the Master
Indenture have been paid in full, neither the Subordinated Collateral Agent nor any Holder shall
object to or contest in any administrative, legal or equitable action or proceeding (including,
without limitation, any insolvency, bankruptcy, receivership, liquidation, reorganization, winding
up, readjustment, composition or other similar proceeding relating to the Grantor or the
Securitization SPE or their respective property) or object to or contest in any other manner (1)
the interests of the Securitization SPE and its successors and assigns in any of the assets
transferred (or purported to be transferred) by Grantor to the Securitization SPE pursuant to the
Transaction Documents and/or (2) the interests of the Indenture Trustee, and/or any Noteholder in
the Securitization Property or otherwise take any action which would compromise or call into
question the intended bankruptcy remote structure of the transactions contemplated by the
Transaction Documents. Neither the Subordinated Collateral Agent nor any Holder shall object to or
contest in any manner the receipt of any payment by the Indenture Trustee with respect to the
Securitization Property in accordance with the terms of the Transaction Documents for the
satisfaction of the Secured Obligations (as defined in the Receivables Purchase Agreement).

     The provisions of this Article XI shall continue to be effective or be reinstated, as the
case may be, if at any time any payment made pursuant to the Receivables Purchase Agreement is
rescinded or must otherwise be returned by the Indenture Trustee or any of the lenders upon the
insolvency, bankruptcy or reorganization of the Grantor or the Securitization SPE or otherwise,
all as though such payment had not been made.

          (b) The Indenture Trustee shall be a third-party beneficiary with respect to this Article XI.

          (c) The provisions of this Article XI provide for relative rights of the Subordinated
Collateral Agent and the Indenture Trustee, respectively, and are not intended for the benefit of
the Grantor or the Securitization SPE, nor shall such provisions limit or modify the obligations of
the Grantor under the Note Documents or the Transaction Documents, respectively.

ARTICLE XII

AMENDMENT AND RESTATEMENT

     This Security Agreement is intended to and does amend and restate the Original Security
Agreement in its entirety.

G-24 

 

ARTICLE XIII

COLLATERAL HELD BY BANK AGENT

     Notwithstanding any provision to the contrary herein, any Collateral that constitutes Pledged
Collateral that is held by, or required to be delivered to, the Subordinated Collateral Agent
hereunder shall be deemed to be held by, or such requirement shall be deemed to be satisfied by
delivery to, the Bank Agent in accordance with the Intercreditor Agreement.

ARTICLE XIV

INTERCREDITOR AGREEMENT

     Notwithstanding anything herein to the contrary, the lien and security interest granted to the
Subordinated Collateral Agent pursuant to this Security Agreement in the “Collateral” as defined in
the Intercreditor Agreement and the exercise of any right or remedy by the Subordinated Collateral
Agent hereunder in such Collateral are subject to the Intercreditor Agreement, as the same may be
amended, supplemented, modified or replaced from time to time. In the event of any conflict between
the terms of this Security Agreement and the Intercreditor Agreement with respect to the
“Collateral” as defined in the Intercreditor Agreement, the terms of the Intercreditor Agreement
shall govern with respect to such Collateral.

ARTICLE XV

CONFIRMATION OF GRANT OF SECURITY INTEREST

     The Grantor hereby confirms the grant to the Subordinated Collateral Agent, for the ratable
benefit of the Holders, after giving effect to this Security Agreement, under the Original Security
Agreement.

[Signature Page Follows]

G-25 

 

     IN WITNESS WHEREOF, the Grantor and the Subordinated Collateral Agent have executed this
Security Agreement as of the date first above written.

	 	 	 	 	 	 	 

	 	 	GRANTOR:	 	 
	 
	 	 	 	 	 	 
	 	 	FINGERHUT DIRECT MARKETING, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	SUBORDINATED COLLATERAL AGENT:	 	 
	 
	 	 	 	 	 	 
	 	 	PRUDENTIAL CAPITAL PARTNERS II, L.P.,	 	 
	 	 	     as Subordinated Collateral Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Stetson Street Partners, L.P., its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Vice President
	 	 

G-26 

 

EXHIBIT A

(See Sections 3.2, 3.3, 3.4, 3.9 and 9.1 of Security Agreement)

GRANTOR’S INFORMATION AND COLLATERAL LOCATIONS

	I.	 	Name of Grantor:                                                             
	 
	II.	 	State of Incorporation or Organization:                                                             
	 
	III.	 	Type of Entity:                                                             
	 
	IV.	 	Organizational Number assigned by State of Incorporation or Organization:                                                             
	 
	V.	 	Federal Employer Identification Number:                                                             
	 
	VI.	 	Place of Business (if it has only one) or Chief Executive
Office (if more than one place of business) and Mailing
Address:
	 
	 	 	                                                            
	 
	 	 	                                                            
	 
	 	 	                                                            
	 
	 	 	                                                            
	 
	 	 	Attention:                                         
	 
	VII.	 	Locations of Collateral:

	 	(a)	 	Properties Owned by the Grantor:
	 
	 	(b)	 	Properties Leased by the Grantor (Include Landlord’s Name):
	 
	 	(c)	 	Public Warehouses or other Locations pursuant to Bailment or Consignment
Arrangements (include name of Warehouse Operator or other Bailee or Consignee):

G-27

 

EXHIBIT B

(See Section 3.5 of Security Agreement)

DEPOSIT ACCOUNTS

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Description of	 
	 	 	 	 	 	 	Check here if Deposit	 	 	Deposit Account	 
	 	 	 	 	 	 	Account is a Collateral	 	 	if not a Collateral	 
	Name of Institution	 	Account Number	 	 	Deposit Account	 	 	Deposit Account	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 

LOCK BOXES

	 	 	 
	Name of Institution	 	Lock Box Number	 
	 
	 	 

G-28

 

EXHIBIT C

(See Section 3.7 of Security Agreement)

LETTER OF CREDIT RIGHTS

CHATTEL PAPER

G-29

 

EXHIBIT D

(See Section 3.12 of Security Agreement and Definition of “Pledged Collateral”)

LIST OF PLEDGED COLLATERAL, SECURITIES AND OTHER INVESTMENT PROPERTY

STOCKS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Certificate	 	 	 	 	 	 	 	 	 	 	Percentage of	 
	Issuer	 	Number(s)	 	 	Number of Shares	 	 	Class of Stock	 	 	Outstanding Shares	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

G-30

 

EXHIBIT E

(See Section 3.1 of Security Agreement)

OFFICES IN WHICH FINANCING STATEMENTS HAVE BEEN FILED

G-31

 

EXHIBIT F

(See Section 3.8 of Security Agreement)

COMMERCIAL TORT CLAIMS

G-32

 

EXHIBIT G

(See Section 3.13 of Security Agreement)

SECURITIES ACCOUNTS

G-33

 

EXHIBIT P

FORM OF COMPLIANCE CERTIFICATE

See Attached.

 

 

EXHIBIT P

COMPLIANCE CERTIFICATE

To: Prudential Capital Partners II, L.P. and the holders
of the Subordinated Notes

     This Compliance Certificate (this “Certificate”) is furnished pursuant to that certain
Securities Purchase Agreement, dated as of March 23, 2006 (as amended by that certain letter
agreement dated as of June 21, 2007, and as the same may be further amended, restated, extended,
supplemented or otherwise modified in writing from time to time, the “Agreement”), among Fingerhut
Direct Marketing, Inc., a Delaware corporation (the “Company”) and the purchasers party thereto.
Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the
meanings ascribed thereto in the Agreement.

     THE UNDERSIGNED HEREBY CERTIFIES THAT:

     1. I am the duly elected                      of the Company;

     2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under
my supervision, a detailed review of the transactions and conditions of the Company and its
Subsidiaries during the accounting period covered by the attached financial statements [for
quarterly or monthly financial statements add: and such financial statements present fairly in all
material respects the financial condition and results of operations of the Company and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied,
subject to normal year-end audit adjustments and the absence of footnotes];

     3. The examinations described in paragraph 2 did not disclose, except as set forth below, and
I have no knowledge of (i) the existence of any condition or event which constitutes an Event of
Default during or at the end of the accounting period covered by the attached financial statements
or as of the date of this Certificate or (ii) any change in GAAP or in the application thereof that
has occurred since the date of the audited financial statements referred to in paragraph 8B of the
Agreement;

     4. I hereby certify that no Obligor has changed (i) its name, (ii) its chief executive office,
(iii) principal place of business, (iv) the type of entity it is or (v) its state of incorporation
or organization without having given the Subordinated Collateral Agent the notice required by
Section 4.10 of the Security Agreement; and

     5. Schedule I attached hereto sets forth financial data and computations evidencing
the Company’s compliance with certain covenants of the Agreement, all of which data and
computations are true, complete and correct.

     Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the (i)
nature of the condition or event, the period during which it has existed and the action which the
Company has taken, is taking, or proposes to take with respect to each such condition or event or

P-1

 

(ii) the change in GAAP or the application thereof and the effect of such change on the
attached financial statements:

 

 

 

P-2

 

     The foregoing certifications, together with the computations set forth in Schedule I
hereto and the financial statements delivered with this Certificate in support hereof, are made and
delivered this ___ day of           ,      .

	 	 	 	 	 
	 	FINGERHUT DIRECT MARKETING, INC.
 	 
	 	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 

P-3

 

SCHEDULE I

Compliance as of           ,            with

Provisions of       and       of

the Agreement

P-4

 

EXHIBIT Q

FORM OF SECURITIZATION INTERCREDITOR AGREEMENT

See Attached.

 

 

EXECUTION COPY

INTERCREDITOR AGREEMENT

          THIS INTERCREDITOR AGREEMENT (as amended, restated, supplemented or otherwise modified
from time to time in accordance with the terms hereof, this “Agreement”) is entered into as of
June 21, 2007 by and among U.S. Bank National Association, as Indenture Trustee under the Master
Indenture (as defined below) (in such capacity, together with its successors and assigns, the
“Indenture Trustee”), Prudential Capital Partners II, L.P., as collateral agent for the Purchasers
party to the Securities Purchase Agreement (as defined below) (in such capacity, together with its
successors and assigns, the “Collateral Agent”), Fingerhut Funding, LLC, a Delaware limited
liability company (the “Securitization SPE”) and Fingerhut Direct Marketing, Inc., a Delaware
corporation (“Fingerhut” or the “Borrower”).

PRELIMINARY STATEMENTS

          A. The Borrower and the purchasers party thereto (the “Purchasers”) have entered into
that certain Securities Purchase Agreement, dated as of March 23, 2006 (as the same and each of
the other transaction documents related thereto may be amended, restated, supplemented or
otherwise modified from time to time, the “Securities Purchase Agreement” and collectively, the
“Note Facility”), pursuant to which the Borrower issued, and the Purchasers purchased, $30,000,000
aggregate principal amount of the 13.00% Senior Subordinated Secured Notes due, March 24, 2013 (the
“Subordinated Notes”). In connection with the Note Facility, to secure all of the obligations of
the Borrower to the Purchasers and the Collateral Agent, the Borrower and the Collateral Agent have
entered into that certain Amended and Restated Pledge and Security Agreement, dated as of the date
hereof (as the same may be amended, restated, supplemented or otherwise modified from time to time,
the “Security Agreement”) pursuant to which the Borrower has granted to the Collateral Agent a
security interest in the Note Collateral (as defined below).

          B. Pursuant to the Receivables Purchase Agreement, Fingerhut has agreed to sell to the
Securitization SPE all of its right, title and interest in and to the Securitization Receivables
and other Purchased Assets (each as defined in Exhibit A hereto).

          C. Pursuant to the Transfer and Servicing Agreement, among the Securitization
SPE, as transferor, Fingerhut, as servicer, and Fingerhut Credit Account Master Note Trust, as the
issuer (the “Trust”), the Securitization SPE has agreed to pledge all of its right, title and
interest in the Securitization Receivables and other Purchased Assets (the “Securitization
Property”) to the Indenture Trustee.

          D. Pursuant to that certain Master Indenture (the “Master Indenture”), among the Trust, as
issuer, and the Indenture Trustee, the Trust has pledged all of its right, title and interest in
the Securitization Property and has granted a first priority perfected security interest therein to
the Indenture Trustee.

          E. The parties are entering into this Agreement to set forth their
understandings with respect to the Securitization Property and the Note Collateral.

          F. Except as otherwise defined herein, all defined terms herein shall have the meanings
ascribed thereto in Exhibit A hereto or in the UCC or incorporated herein by reference

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to the
Securitization Documents as in effect on the date hereof. For purposes of this
Agreement, the term “Note Collateral” means the following:

          (i) All Accounts;

          (ii) All Chattel Paper;

          (iii) All Commercial Tort Claims;

          (iv) All Contracts;

          (v) All Deposit Accounts;

          (vi) All Documents;

          (vii) All Equipment;

          (viii) All General Intangibles (including Payment Intangibles);

          (ix) All Instruments;

          (x) All Inventory;

          (xi) All Investment Property;

          (xii) All Letter-of-Credit Rights;

          (xiii) All Securities Accounts;

          (xiv) All Supporting Obligations;

          (xv) All property of Borrower held by the Collateral Agent or any Holder, including, without
limitation, all property of every description now or hereafter in the possession or custody of or
in transit to the Collateral Agent or any Holder for any purpose, including, without limitation,
safekeeping, collection or pledge, for the account of the Borrower, or as to which Borrower may
have any right or power;

          (xvi) All other goods and personal property of the Borrower whether tangible or intangible
and whether now or hereafter owned or existing, leased, consigned by or to, or acquired by
Borrower and wherever located; and

          (xvii) To the extent not otherwise included, all Proceeds of each of the foregoing and all
accessions to, substitutions and replacements for, and rents, profits and products of each of the
foregoing;

excluding, however, in each case, the Securitization Accounts and the Securitization Property now
existing or hereafter arising and all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data that evidence or contain information relating to the
Securitization Property. To the extent that any security interest arises in any Securitization

Q-2

 

Account or in any asset under the Security Agreement prior to its becoming Securitization
Property, such security interest is deemed to have terminated automatically on the date it becomes
a Securitization Account or Securitization Property; provided that such security interest shall be
automatically reinstated on the date when any such Securitization Property is reconveyed to
Fingerhut and ceases to be Securitization Property pursuant to the terms of the Securitization
Documents.

     Accordingly, in consideration of the foregoing and the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

     Section 1. Security Interests.

     (a) Pursuant to the Security Agreement, the Borrower has granted a perfected security interest
(subject only to certain Liens securing the Senior Debt (as defined in the Subordination and
Intercreditor Agreement) as set forth in the Subordination and Intercreditor Agreement) in the Note
Collateral to the Collateral Agent, for the benefit of itself and the Purchasers (the “Note
Facility Secured Parties”). In accordance with the Security Agreement, the Collateral Agent has
agreed that the Note Collateral does not and will not include or constitute at any time
Securitization Property, and the Collateral Agent hereby releases automatically, without any
further action by any party, any and all liens, security interests and any other interest or claim
in the Securitization Property.

     (b) Pursuant to the Receivables Purchase Agreement, Fingerhut shall transfer to the
Securitization SPE all of its right, title and interest in the Securitization Property.

     (c) Pursuant to the Transfer and Servicing Agreement, the Securitization SPE has granted a
first priority perfected security interest in the Securitization Property to the Trust, and
pursuant to the Master Indenture, the Trust has granted a first priority perfected security
interest in the Securitization Property to the Indenture Trustee, for the benefit of the
Noteholders and the Indenture Trustee in its individual capacity. The Indenture Trustee agrees that
the Securitization Property does not and will not include or constitute at any time Note
Collateral.

     (d) Each of the parties hereto hereby acknowledges that the Indenture Trustee, for the benefit
of the Noteholders and the Indenture Trustee in its individual capacity, has a first priority
perfected security interest in all of the Securitization Property, including remittances relating
thereto, and agrees not to object or contest in any administrative, legal or equitable action or
proceeding (including, without limitation, any insolvency, bankruptcy, receivership, liquidation,
reorganization, winding up, readjustment, composition or other similar proceeding relating to
Fingerhut, the Securitization SPE or their respective property) or object to or contest in any
other manner the validity, priority or perfection of such security interest or otherwise take any
action which would compromise or call into question the intended bankruptcy remote structure of the
transactions contemplated by the Securitization Facility. The Collateral Agent hereby expressly
acknowledges that pursuant to the Security Agreement, the Collateral Agent has no interest in any
of the Securitization Property; provided, however, that at any time that any of the Securitization
Property ceases to be Securitization Property and is reconveyed to Fingerhut, then at such time (i)
such assets shall no longer be deemed to be Securitization Property hereunder, (ii) the security
interest of the Collateral Agent therein shall automatically attach, (iii) such

Q-3

 

reconveyed
assets shall be deemed to be Note Collateral, and (iv) any remittance which is not
proceeds of Securitization Property will be deemed Note Collateral.

     (e) Each of the parties hereto hereby acknowledges that the Collateral Agent, for the benefit
of the Note Facility Secured Parties, has a perfected security interest in all of the Note
Collateral (subject only to certain Liens securing the Senior Debt (as defined in
the Subordination and Intercreditor Agreement) as set forth in the Subordination and Intercreditor
Agreement), including remittances relating thereto, and agrees not to object to or contest in any
administrative, legal or equitable action or proceeding (including, without limitation, any
insolvency, bankruptcy, receivership, liquidation, reorganization, winding up, readjustment,
composition or other similar proceeding relating to the Borrower or any of its property) or object
to or contest in any other manner the validity, priority or perfection of such security interest.
The Indenture Trustee, hereby expressly acknowledges that the Indenture Trustee, has no interest in
any of the Note Collateral, including remittances relating thereto.

     (f) Nothing herein shall be deemed to waive any rights of the Collateral Agent or the
Indenture Trustee in the event of any transfer or other disposition of the Note Collateral or
Securitization Property, as the case may be, in violation of the agreements relating thereto or to
preclude the exercise by the Collateral Agent or the Indenture Trustee of rights and remedies
provided for under the Note Facility or Transaction Documents, as defined in the Securitization
Documents (referred to collectively herein as, the “Credit
Documents”), as applicable.

     (g) The Indenture Trustee hereby agrees that: (i) Fingerhut may pledge to the Collateral
Agent all of its right, title and interest in and to its equity interests in the Securitization
SPE, together with all dividends and other rights relating thereto; provided that the Indenture
Trustee shall have the right to review any such pledge agreement prior to its execution to confirm
that the provisions of such pledge agreement are consistent with the provisions set forth in
Article XI of the Security Agreement, as in effect on the date hereof, and to require the parties
to such pledge agreement to make such changes as the Indenture Trustee may require to make the
provisions of such pledge agreement consistent with the provisions of Article XI of the Security
Agreement as in effect on the date hereof, (ii) Borrower and each of Borrower’s other subsidiaries
(excluding, in any event, the Securitization SPE) (a “Guarantor”) may grant to the Collateral Agent
a security interest in the Note Collateral, (iii) a Guarantor may grant to the Collateral Agent a
security interest in all of its personal property and (iv) the security interests granted under the
Security Agreement, other than with respect to the Securitization Property may continue to secure
the obligations of Borrower to the Collateral Agent. The Collateral Agent hereby agrees that the
equity interest in the Trust retained by the Securitization SPE is not Note Collateral and is not
pledged to the Collateral Agent hereby.

     (h) The Collateral Agent, the Purchasers and the Note Facility Secured Parties hereby
acknowledge that they have not entered into the Securities Purchase Agreement, the Security
Agreement or this Agreement in reliance on the creditworthiness of the Securitization SPE and are
relying solely on the assets of Borrower to secure the obligations of the Borrower thereunder and
hereunder.

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     Section 2. Cooperation.

     (a) In the event that a Responsible Officer (as defined in the Master Indenture) of the
Indenture Trustee gets written notice or has actual knowledge that the Indenture Trustee shall be
deemed to have a perfected security interest equal to or prior to the security interest of the
Collateral Agent in any of the Note Collateral at any time hereafter, the Indenture Trustee shall
(i) promptly notify all other parties to this Agreement, and (ii) take any and all steps necessary,
at the direction of the Borrower, to have such perfected security interest released or assigned to
the Collateral Agent, on behalf of the Note Facility Secured Parties.

     (b) In the event that the Collateral Agent shall be deemed to have a first priority perfected
security interest in any of the Securitization Property at any time hereafter, the Collateral Agent
shall (i) promptly notify all other parties to this Agreement, and (ii) take any and all steps
necessary to have such first priority perfected security interest released or assigned to the
Indenture Trustee for the benefit of the Noteholders, the Indenture Trustee or other secured
parties under the Master Indenture (the “Secured Parties”).

     (c) The Collateral Agent hereby agrees promptly to transfer and return to, or in accordance
with the written direction of, the Indenture Trustee, at such account or other place as the
Indenture Trustee may so instruct, any funds or other property that are received by the Collateral
Agent and that are identified to the Collateral Agent in writing as not constituting Note
Collateral but instead constituting Securitization Property. For purposes of maintaining the
perfection of the Indenture Trustee’s interest therein, the Indenture Trustee hereby appoints the
Collateral Agent as its agent in respect of such funds or other property and the Collateral Agent
accepts such appointment; provided, that the Collateral Agent’s sole duty as such agent shall be to
hold such funds and other property in trust for the benefit of the Indenture Trustee and to
transfer such funds or other property to or at the written direction of the Indenture Trustee as
aforesaid.

     (d) Subject to the Indenture Trustee’s obligations under the JPM Intercreditor Agreement,
the Indenture Trustee hereby agrees promptly to transfer and return to, or in accordance with the
directions of, the Collateral Agent, at such account or other place as the Collateral Agent may
instruct, any funds or other property that are received by the Indenture Trustee and that are
identified to the Indenture Trustee, in writing by Fingerhut or the Collateral Agent, as not
constituting Securitization Property but instead constituting Note Collateral. For purposes of
maintaining the perfection of the Collateral Agent’s interest therein, the Collateral Agent hereby
appoints the Indenture Trustee as its agent in respect of such funds and other property and the
Indenture Trustee accepts such appointment; provided, that the Indenture Trustee’s sole duty as
such agent shall be to hold such funds or other property in trust for the benefit of the Collateral
Agent and to transfer such funds or other property to the Collateral Agent’s Collection Account at
the direction of the Collateral Agent or Fingerhut as aforesaid.

     Section 3. Securitization Sales Receivables and Servicing Accounts.

     (a) Fingerhut hereby directs Securitization SPE to pay the portion of the cash consideration
which is paid by Securitization SPE to Fingerhut pursuant to the Receivables Purchase Agreement to
the Collection Account established by Fingerhut. In addition, Fingerhut

Q-5

 

agrees
that all amounts deposited in the bank account (No. 104774083463) established by Fingerhut
with U.S. Bank National Association shall be transferred on each Business Day into the bank
account (No. 1661780221) established by Fingerhut with The Huntington National Bank.

     Section 4. Representations.

          Each of the parties hereto represents and warrants to the other parties that (a) its
execution, delivery and performance of this Agreement has been duly authorized by all necessary
corporate proceedings, (b) the execution, delivery and performance by it of this Agreement is
within its corporate powers and does not conflict with its charter, by-laws or operating agreement
or with any law, rule, regulation, writ or order binding upon it or its properties, and (c) this
Agreement constitutes its legally valid and enforceable obligation, enforceable against it in
accordance with its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’
rights generally or by general principles of equity.

     Section 5. Notices.

          All notices required to be given hereunder shall be given in writing and shall be effective
when received at the address for the recipient as set forth beneath its signature on the signature
pages hereof. Any party may change its address for notice by written notice to the other parties
hereto.

     Section 6. No Proceedings.

          Each of the parties hereto (other than the Indenture Trustee) agrees that it will not
institute against the Securitization SPE or join any person in instituting against the
Securitization SPE, any case or other proceeding under any applicable bankruptcy, insolvency,
reorganization, debt arrangement, dissolution or other similar law now or hereafter in effect so
long as one year and one day shall not have elapsed since the Notes issued pursuant to the Master
Indenture have been paid in full.

     Section 7. Miscellaneous.

     (a) Amendments, Etc. No amendment or waiver of any provision of this Agreement,
nor consent to any departure by any party herefrom, shall in any event be effective unless the same
shall be in writing and signed by all of the parties hereto, and, in the case of a waiver, shall be
effective only in the specific instance and for the specific purpose
for which given.

     (b) Conflict. In the event of any conflict between the provisions of this Agreement
and the provisions of any of the Credit Documents, the provisions of this Agreement shall govern
and prevail.

     (c) Termination. In the event that all obligations secured by the Note Collateral
shall have been paid in full and the Note Facility and liens created thereunder shall have been
terminated or released, then the Collateral Agent shall promptly notify the other parties hereto,
and the Collateral Agent thereafter shall no longer have any rights or obligations hereunder. In

Q-6

 

the event that the Notes issued pursuant to the Master Indenture have been paid in full and the
Transaction Documents and liens created thereunder shall have been terminated or released, then
the Indenture Trustee shall promptly notify the other parties hereto, and the Indenture Trustee
thereafter shall no longer have any rights or obligations hereunder.

     (d) Binding Effect. This Agreement shall become effective when it shall have been
executed and delivered by each of the parties hereto and thereafter shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns.

     (e) No Benefit To Third Parties. The terms and provisions of this Agreement shall be
for the sole benefit of the Collateral Agent and the Note Facility Secured Parties under the Note
Facility and the Indenture Trustee and the Secured Parties under the Transaction Documents, the
other parties hereto and their respective successors and assigns, and no other person, firm, entity
or corporation shall have any right, benefit, priority, or interest under, or because of this
Agreement. This Agreement shall define the relative rights of the Collateral Agent and the Note
Facility Secured Parties, on the one hand, and the Indenture Trustee and the Secured Parties, on
the other hand. Nothing in this Agreement shall (i) impair or otherwise affect, as among the
Securitization SPE and Fingerhut, and the Collateral Agent and the Note Facility Secured Parties,
on the one hand, and as between the Securitization SPE and Fingerhut, and the Indenture Trustee and
the Secured Parties, on the other hand, the obligation of either the Securitization SPE or
Fingerhut to the Collateral Agent and the Note Facility Secured Parties pursuant to and under the
Note Facility or the obligations of either the Securitization SPE or Fingerhut to the Indenture
Trustee and the Secured Parties pursuant to and under the Transaction Documents or (ii) affect the
relative rights of the Collateral Agent, the Note Facility Secured Parties, the Indenture Trustee
or the Secured Parties with respect to any other creditors of either the Securitization SPE or
Fingerhut.

     (f) GOVERNING LAW. JURISDICTION. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO CONFLICTS OF LAWS
(OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). EACH OF THE PARTIES HERETO
HEREBY AGREES TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL COURT LOCATED WITHIN THE STATE OF
NEW YORK. EACH OF THE PARTIES HERETO HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND
ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE
AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY SUCH COURT.

     (g) Execution in Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original and all of which
when taken together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Agreement by facsimile or by e-mail transmission shall be
effective as delivery of a manually executed counterpart of this Agreement.

Q-7

 

     (h) Effect of Changes in Securitization Documents. The Securitization Documents may
be amended, modified, supplemented, restated or extended from time to time (each, a “change”);
provided, for the purposes of this Agreement, no such change shall affect the defined terms in the
Securitization Documents as such terms have been incorporated herein by reference in a manner
which impairs or diminishes the Note Collateral. Notwithstanding anything herein to the contrary,
and for the avoidance of doubt, the parties hereto expressly agree that any conveyance,
assignment, reconveyance or reassignment executed in accordance with the provisions of any such
Securitization Document shall not be considered to be a change to such Securitization Document.

     (i) WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE
PARTIES HERETO WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PARTIES HERETO ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN ANY OF THEM IN CONNECTION WITH THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY. INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT WILL BE
RESOLVED IN A BENCH TRIAL WITHOUT A JURY.

[Remainder of page intentionally left blank]

[Signature pages follow]

Q-8

 

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first above written.

	 	 	 	 	 

	 	 	U.S. BANK NATIONAL ASSOCIATION, as

      Indenture Trustee
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 
	 
	 	 	 	 
	 

	 	Address:
	 	60 Livingston Avenue
	 

	 	 	 	EP-MN-WS3D 

St. Paul, MN 55107
	 

	 	 	 	Attention: Structured Finance –
	 

	 	 	 	Fingerhut 2007-1
	 

	 	 	 	Telephone: (651)495-3829
	 

	 	 	 	Facsimile: (651)495-8090
	 

	 	 	 	E-mail:
	 
	 	 	PRUDENTIAL CAPITAL PARTNERS II, L.P., as

      Collateral Agent

	 	   	 	 	 
	 

	 	By: 	Stetson Street Partners, L.P., its general partner
	 
	 	 	 	 
	 

	 	By: 	 	 
	 

	 	 	 
	 

	 	 	Vice President

	 	 	 	 	 
	 

	 	Address:
	 	c/o Prudential Capital Group
	 

	 	 	 	Two Prudential Plaza, Suite 5600
	 

	 	 	 	180 N. Stetson Avenue
	 

	 	 	 	Chicago, II 60601
	 
	 	 	 	 
	 

	 	 	 	Attention: Managing Director
	 

	 	 	 	Facsimile: (312) 540-4222

Q-9

 

	 	 	 	 	 

	 	 	FINGERHUT FUNDING, LLC, as Securitization SPE
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 
	 
	 	 	 	 
	 

	 	Address:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	Attention:
	 

	 	 	 	Telephone:
	 

	 	 	 	Facsimile:
	 

	 	 	 	E-mail:
	 
	 	 	 	 
	 	 	FINGERHUT DIRECT MARKETING, INC., as Borrower
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 
	 
	 	 	 	 
	 

	 	Address:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	Attention:
	 

	 	 	 	Telephone:
	 

	 	 	 	Facsimile:
	 

	 	 	 	E-mail:

Q-10

 

EXHIBIT A

     “Accounts” shall have the meaning set forth in Article 9 of the UCC.

     “Chattel
Paper” shall have the meaning set forth in Article 9 of the
UCC.

     “CIT Documents” means the Receivables Sale Agreement dated as of the date hereof, by and
between CIT Bank and Fingerhut (as it may be amended or modified from time to time) and the
Revolving Loan Product Program Agreement dated as of the date hereof, by and between CIT Bank and
Fingerhut (as it may be amended or modified from time to time).

     “Collateral Deposit Account” shall have the meaning set forth in Section 7.1 (a) of
the Security Agreement as in effect on the date hereof.

     “Collection Account” means deposit account No. 758660021 of the Fingerhut
maintained with JPMorgan Chase Bank, N.A.

     “Commercial Tort Claim” means any “commercial tort claim,” as such term is defined in
Section 9-102(a)(13) of the UCC (or any other then applicable provision of the UCC) which is set
forth on Schedule II hereto.

     “Contracts” means all contracts, undertakings, franchise agreements or other agreements (other
than rights evidenced by Chattel Paper, Documents or Instruments) in or under which the Borrower
may now or hereafter have any right, title or interest, including, without limitation, with respect
to an Account, any agreement relating to the terms of payment or the terms of performance thereof.

     “Control” shall have the meaning set forth in Article 8 or, if applicable, in Section 9-104,
9-105, 9-106 or 9-107 of Article 9 of the UCC.

     “Deposit Accounts” shall have the meaning set forth in Article 9 of the
UCC.

     “Documents” shall have the meaning set forth in Article 9 of the UCC.

     “Equipment” means any “equipment,” as such term is defined in Section 9-102(a)(33) of the UCC
(or any other then applicable provision of the UCC), now or hereafter owned or acquired by the
Borrower or in which the Borrower now holds or hereafter acquires any interest and, in any event,
shall include, without limitation, all machinery, equipment, fixtures, furniture, furnishings,
trade fixtures, vehicles, trucks, mainframe, personal and other computers, terminals and printers
and related components and accessories, all copiers, telephonic, video, electronic data-processing,
data storage equipment and other equipment of any nature whatsoever, and any and all additions,
substitutions and replacements of any of the foregoing, wherever located, together with all
attachments, components, parts, equipment and accessories installed thereon or affixed thereto.

Q-11

 

     “General Intangibles” shall have the meaning set forth in Article 9 of the
UCC.

     “Instruments” shall have the meaning set forth in Article 9 of the UCC.

     “Inventory” shall have the meaning set forth in Article 9 of the UCC.

     “Investment Property” shall have the meaning set forth in Article 9 of the
UCC.

     “JPM Intercreditor Agreement” means the Intercreditor Agreement dated as of June 21,
2007 among JPMorgan Chase Bank, N.A., as administrative agent, and the Indenture Trustee on behalf
of noteholders under any Securitization Facility, as the same may be amended or modified from time
to time.

     “Letter-of-Credit Rights” shall have the meaning set forth in Article 9 of the
UCC.

     “Master Indenture” means that certain Master Indenture dated as of the date hereof
between Fingerhut Credit Account Master Note Trust, as Issuer, and U.S. Bank National Association,
as Indenture Trustee as the same may be amended, modified or supplemented from time to time.

     “Merchant Deposit Account” has the meaning ascribed thereto in Section 7.1(a) of the
Security Agreement as in effect on the date hereof.

     “Payment Intangibles” shall have the meaning set forth in Article 9 of the
UCC.

     “Purchased Assets” means (i) Securitization Receivables and (ii) other
“Purchased Assets” (as such term is defined in Section 2.1(a) of the Receivables Purchase
Agreement).

     “Receivables Purchase Agreement” means that certain Receivables Purchase Agreement
dated as of the date hereof among Fingerhut Direct Marketing, Inc. and Fingerhut Funding LLC, as
the same may be amended, modified or supplemented from time to time.

     “Securities Account” means “securities account,” as such term is defined in
Section 8-501(a) of the UCC (or any other then applicable provision of the UCC).

     “Securitization Account” means (a) on and after the Initial Cut-Off Date, each Initial
Account, (b) on and after the applicable Additional Cut-Off Date, each Additional Account and (c)
each Transferred Account, but shall exclude (i) each Securitization Account that has been closed
and terminated in accordance with the relevant Account Guidelines, (ii) each Deleted Account and
(iii) any Securitization Account all the Receivables in which have either been: (A) reassigned to
Borrower pursuant to Section 6.1 or 6.2 of the Receivables Purchase Agreement or (B) assigned and
transferred to Borrower pursuant to Section 3.03 of the Transfer and Servicing Agreement;
provided, however, that any group of consumer credit accounts designated as Securitization
Accounts in a notice regarding Additional Accounts given by the Securitization SPE to Borrower
pursuant to the Receivables Purchase Agreement shall cease to

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be treated as Securitization Accounts if the purchase of receivables in such consumer credit
accounts by the Securitization SPE does not commence on or prior to the fifth Business Day
following the date originally specified in the notice for such addition as the expected addition
date; provided further, however, that, for the avoidance of doubt, in the event any such
designation of consumer credit accounts is not given effect by virtue of the preceding proviso,
nothing shall prevent Borrower from at any time thereafter again designating all or a portion of
such accounts to be included as Securitization Accounts and selling receivables in such
Securitization Accounts to the Securitization SPE. All of the defined terms in this definition have
the meanings ascribed thereto in the Securitization Documents, except for the terms “Securitization
SPE” and “Borrower.”

     “Securitization Documents” means the Receivables Purchase Agreement, the Transfer and
Servicing Agreement, the Master Indenture, the 2007-1 Supplemental Indenture and each additional
indenture supplement entered into from time to time.

     “Securitization Facility” means the securitization facility evidenced by the
Securitization Documents.

     “Securitization Property” means Securitization Accounts, Securitization
Receivables and Purchased Assets.

     “Securitization Receivables” means all amounts payable by obligors on any
Securitization Account from time to time.

     “Securitization Sales Receivables” means Payment Intangibles owing to
Fingerhut and arising from sales of Securitization Receivables and other Purchased Assets to the
Securitization SPE pursuant to the Securitization Documents.

     “Servicing Accounts” means Accounts owing to Fingerhut and arising from services
provided by it under the Transfer and Servicing Agreement.

     “Subordination and Intercreditor Agreement” means the Subordination and Intercreditor
Agreement dated as of June 21, 2007 among the Borrower, JPMorgan Chase Bank, N.A., as
administrative agent, and the Purchasers, as the same may be amended or modified from time to time.

     “Supporting Obligations” shall have the meaning set forth in Article 9 of the
UCC.

     “Transfer and Servicing Agreement” means that certain Transfer and Servicing Agreement
dated as of the date hereof among Fingerhut Funding, LLC, as Transferor, Fingerhut Direct
Marketing, Inc., as Servicer and Fingerhut Credit Account Master Note Trust, as Issuer, as the same
may be amended, modified or supplemented from time to time.

     “UCC” means the Uniform Commercial Code, as in effect from time to time, of the State of
Minnesota or of any other state the laws of which are required as a result thereof to

Q-13

 

be applied in connection with the attachment, perfection or priority of, or remedies with respect
to, the Collateral Agent’s or any Purchaser’s Lien on any Collateral.

     “Unsecuritized Receivables” means all rights to payment of any kind arising directly
or indirectly from the sale or other disposition of Inventory, including Accounts, Chattel Paper,
Instruments, Payment Intangibles, Letter of Credit Rights, Supporting Obligations, and general
intangibles related to the foregoing, but excluding Securitization Accounts and Securitization
Receivables.

Q-14exv10w19

Exhibit 10.19

EXECUTION COPY

May 15, 2008

Fingerhut Direct Marketing, Inc.

6509 Flying Cloud Drive

Eden Prairie, Minnesota 55344

Attn: Chief Financial Officer

Ladies and Gentlemen:

     Reference is made to that certain Securities Purchase Agreement, dated as of March 23, 2006, as
amended by that certain letter agreement dated as of June 21, 2007 (the “Purchase Agreement”),
between Fingerhut Direct Marketing, Inc., a Delaware corporation (the “Company”), and the
purchasers named on the Purchaser Schedule attached thereto (the “Purchasers”). Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned to such terms in the
Purchase Agreement.

     In order to provide financing for, among other things, the working capital needs of the Company and
its Subsidiaries in the ordinary course of business and to refinance certain existing Indebtedness,
the Company is about to enter into a new receivables facility.

     The Company has requested that the Purchasers agree to certain modifications to the Purchase
Agreement. Subject to the terms and conditions hereof, and effective upon the satisfaction of the
conditions set forth herein, and provided that the Company agrees to the modifications of the
Purchase Agreement set forth below, the Purchasers are willing to agree to such request.
Accordingly, and in accordance with the provisions of paragraph 12C of the Purchase Agreement, the
parties hereto agree as follows:

     SECTION 1. Amendments to the Purchase Agreement. Upon the Effective Date (as defined in
Section 3 hereof), each Purchaser and the Company agree that, the Purchase Agreement and the
Subordinated Notes shall be amended as follows:

     1.01 The table of exhibits is hereby amended by deleting the reference to “Securitization
Intercreditor Agreement” contained therein and inserting “Receivables Intercreditor Agreement” in
lieu thereof.

     1.02 Clauses (ii), (iii) and (vi) of Paragraph 5A of the Purchase Agreement are hereby amended by
inserting “, at the request of the Required Holder(s) at their sole discretion,”
immediately following each reference to “consolidated and” contained therein.

     1.03 Paragraph 5A of the Purchase Agreement is hereby amended by (a) deleting the “and” at the end
of clause (ix) thereof, (b) deleting the “,” at the end of clause (x) thereof and

 

 

inserting “; and” in lieu thereof and (c) inserting a new clause (xi) immediately
following clause (x) which shall read as follows:

     (xi) within 5 Business Days after the last day of each fiscal month, a Monthly Servicing
Report for such month.

     1.04 Paragraph 5I of the Purchase Agreement is hereby amended by inserting the proviso “;
provided, however, the Company may wind down and dissolve the Securitization SPE” at the end
thereof.

     1.05 Clause (i) of Paragraph 5M of the Purchase Agreement is hereby amended by inserting the words
“other than Fingerhut SPV” immediately following the phrase “in accordance with the terms of this
Agreement” contained in clause (a) thereof.

     1.06 Clause (ii) of Paragraph 5M of the Purchase Agreement is hereby amended by inserting the words
“and Fingerhut SPV” immediately following the words “the Securitization SPE” contained therein.

     1.07 Article 5 of the Purchase Agreement is hereby amended by inserting a new Paragraph 5Q at the
end thereof which shall read as follows:

     5Q. Payments from Fingerhut SPV. The Company shall require all payments from Fingerhut
SPV and all payments to otherwise pay for Purchased Assets to be directly deposited into Account
758660021 or such other accounts as reasonably acceptable to the Subordinated Collateral Agent.

     1.08 Paragraph 6A of the Purchase Agreement is hereby amended by (a) amending and restating clause
(ix) in its entirety to read as follows:

     (ix) Liens on Receivables Property and other Purchased Assets transferred by an Obligor to, and any
property and assets of, Fingerhut SPV;

(b) deleting the “.” at the end of clause (x) and inserting “; and” in lieu
thereof and (c) adding a new clause (xi) which shall read as follows:

     (xi) Liens on Fingerhut SPV Stock (as defined in the Receivables Intercreditor Agreement) to the
extent such Liens solely secure the obligations of the Company under the Holdings Guaranty and the
Holdings Letter Agreement, each as in effect on the Second Amendment Effective Date.

     1.09 Paragraph 6B of the Purchase Agreement is hereby amended by (a) amending and restating clause
(f) of clause (vi) thereof to read as follows:

(f) 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
Indebtedness must include subordination terms or be subject to an intercreditor agreement
satisfactory to the Required Holder(s) and conditions that are at least as favorable to the
Subordinated Collateral Agent and the holders of the

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Subordinated Notes as those that were applicable to the refinanced, renewed, or extended
Indebtedness

and (b) amending and restating clause (xii) thereof in its entirety to read as follows:

     (xii) any Indebtedness in respect of the SPV Credit Documents in a principal amount not to
exceed $450,000,000 (excluding capitalized interest, fees, expenses
and other Obligations (as defined in the SPV Credit Documents (as in effect on the Second Amendment
Effective Date)) related thereto).

     1.10 Paragraph 6C of the Purchase Agreement is hereby amended by (a) deleting the words
“Securitization Facility” referred to in clause (i) thereof and inserting “SPV Credit Documents” in
lieu thereof; (b) deleting the words “and are not Securitization SPEs” contained in clauses (iii)
and (iv) thereof; (c) inserting the words “in the aggregate” immediately following the reference to
“$2,500,000” contained in clauses (iii) and (iv) thereof; (d) deleting the “and” at the end of
clause (x) thereof; (e) deleting the “.” at the end of clause (xi) thereof and inserting
“; and” in lieu thereof and (f) inserting a new clause (xii) immediately following clause
(xi) which shall read as follows:

     (xii) (a) investments in the form of contributions of Receivables Property, in exchange for equity
interests in Fingerhut SPV made pursuant to the terms of the SPV Credit Documents as in effect on
the Second Amendment Effective Date, and Contribution Amounts (as defined in the SPV Revolving
Credit Agreement (as in effect on the Second Amendment Effective Date)) required to be made
pursuant to the terms of the SPV Revolving Credit Agreement as in effect on the Second Amendment
Effective Date, and (b) as long as no Default or Event of Default has occurred and is continuing or
would be caused thereby, investments in Fingerhut SPV, to the extent that such investments are
required to be made pursuant to the terms of the SPV Credit Documents as in effect on the Second
Amendment Effective Date, provided, that the restrictions in this clause (b) shall in no event
prohibit investments permitted under clause (a) of this paragraph 6C(xii).

     1.11 Paragraph 6E of the Purchase Agreement is hereby amended by (a) amending and restating clause
(ii) thereof in its entirety to read as follows:

     (ii) sales of Receivables Property and other Purchased Assets to Fingerhut SPV;

(b) deleting the “and” at the end of clause (vii), (c) inserting “and” at the end of clause (viii)
and (d) adding a new clause (ix) which shall read as follows:

     (ix) as long as no Default or Event of Default has occurred and is continuing or would be caused
therefore, dispositions by Fingerhut SPV, to the extent that such dispositions are permitted to be
made pursuant to the terms of the SPV Credit Documents as in effect on the Second Amendment
Effective Date;

     1.12 Clause (i) of Paragraph 6F of the Purchase Agreement is hereby amended by amending and
restating clause (d) thereof to read as follows:

3

 

(d) the Company may pay cash dividends on its Preferred Stock or Series B Preferred Stock with
proceeds of an initial public offering of its Common Stock upon the conversion of such preferred
stock to Common Stock, pursuant to Section 4.2.1 of the Company’s certificate of incorporation

     1.13 Clause (a) of Paragraph 6G of the Purchase Agreement is hereby amended by inserting the words
“, any SPV Credit Document” immediately following the words “any Transaction Document”
contained therein.

     1.14 Paragraph 6H of the Purchase Agreement is hereby amended and restated in its entirety to read
as follows

     6H. Amendment to Material Documents. The Company will not, nor will it permit any
Subsidiary to, amend, modify or waive any of its rights under (i) the SPV Credit Documents in any
manner which would (a) increase the principal amount thereof to an amount in excess of the amount
permitted pursuant to paragraph 6B(xii), (b) shorten the term thereof, (c) increase the interest
rate margins with respect to the Indebtedness thereunder by more than 200 basis points per annum
(exclusive of increases up to 300 basis points resulting from the accrual of interest at the
default rate), including recurring, periodic fee payments, (d) decrease the advance rates
thereunder (excluding, for the avoidance of doubt, impositions or adjustments of any reserves
pursuant to the terms of the SPV Credit Documents) or (e) make more restrictive or add any
financial covenant to the SPV Credit Documents related to the financial condition or results of
operations of the Company unless, in the case of this clause (e), the holders of Subordinated Notes
are offered the opportunity to amend this Agreement in a corresponding manner or (ii) its
certificate of incorporation, by-laws, operating, management or partnership agreement or other
organizational documents except, in the case of this clause (ii), after reasonable prior notice to
the Subordinated Collateral Agent (other than the amendments effective as of the Second Amendment
Effective Date in connection with entry by the Company or Fingerhut SPV in the SPV Credit
Documents).

     1.15 Paragraph 6J of the Purchase Agreement is hereby amended by inserting the following new
clauses at the end thereof:

     (iii) Minimum Net Liquidity 1. The Company’s Net Liquidity 1 shall be equal to or greater than (i)
$22,500,000 (measured as of the last day of each fiscal month of the Servicer other than the
December and January fiscal months) and (ii) $13,500,000 (measured as of the last day of the
December and January fiscal months of the Servicer), in each case after giving effect to any
payments under the SPV Revolving Credit Agreement on such date of measurement.

     (iv) Minimum Net Liquidity 2. The Company’s Net Liquidity 2 shall be equal to or greater than (i)
$9,000,000 (measured as of the last day of each fiscal month of the Servicer other than the
December and January fiscal months) and (ii) $6,750,000 (measured as of the last day of the January
and December fiscal months of the Servicer), in each case after giving effect to any payments under
the SPV Revolving Credit Agreement on such date of measurement.

4

 

     (v) Net Worth. The Company and its Subsidiaries shall have a Tangible Net Worth equal to or greater
than the sum of (i) $94,500,000, plus (ii) 75% of its Consolidated Net Income (if positive) for
each full Fiscal Year after the Second Amendment Effective Date plus (iii) 85% of the gross
proceeds of any issuance of Equity Interests by the Company or any Subsidiary after the Second
Amendment Effective Date (measured as of the last day of each Fiscal Quarter).

     (vi) Minimum LTM EBITDA Margin. The LTM EBITDA Margin for the Company and its Subsidiaries shall be
equal to or greater than 7.7% (measured as of the last day of each fiscal quarter of the Company).

     (vii) Minimum Availability. The Company shall maintain, at all times, Availability (under and as
defined in the Credit Agreement) of not less than $3,600,000.

     1.16 Paragraph 6K of the Purchase Agreement is hereby amended by (a) amending and restating clause
(iii) thereof in its entirety to read as follows:

     (iii) any investment permitted by paragraph 6C(iii), 6C(iv) or 6C(xii), and (b) amending and
restating clause (viii) thereof in its entirety to read as follows:

     (viii) transactions involving the transfer of Receivables Property and other Purchased Assets to
and by Fingerhut SPV in connection with the SPV Credit Documents and other transactions
permitted thereunder

     1.17 Article 6 of the Purchase Agreement is hereby amended by inserting a new Paragraph 6S at the
end thereof which shall read as follows:

     6S. Receivables Property Payments. The Company shall not make any payments to purchase Receivables
Property from CIT Bank or any successor thereto, except from an account subject to either (i) a
springing Account Control Agreement in favor of the Subordinated Collateral Agent or (ii) so long
as the Bank Agent has agreed to exercise control over depository accounts as to which it enters
into control agreements on behalf of the holders of Subordinated Notes as set forth in Section 4.6
of the Intercreditor Agreement, a springing account control agreement in favor of the Bank Agent.

     1.18 Clause (xvi) of Paragraph 7A of the Purchase Agreement is hereby amended by inserting after
the words “or any Security Document” the following: “or the Receivables Intercreditor Agreement”.

     1.19 Paragraph 7A of the Purchase Agreement is hereby amended by deleting clause (xvii) thereof in
its entirety.

     1.20 Paragraph 11B of the Purchase Agreement is hereby amended by inserting the following new
definitions in the appropriate alphabetical order to read as follows:

     “Account Control Agreement” shall mean an agreement, in form and substance satisfactory to the
Subordinated Collateral Agent, among any Obligor, a banking

5

 

institution holding such Obligor’s
funds, and the Subordinated Collateral Agent with respect to collection and control of all deposits
and balances held in an account maintained by any Obligor with such banking institution.

     “Cash” shall mean money, currency or a credit balance in any demand or deposit account.

     “Cash Equivalents” shall mean, as at any date of determination, (a) marketable securities
(i) issued or directly and unconditionally guaranteed as to interest and principal by the United
States Government, or (ii) issued by any agency of the United States the obligations of which are
backed by the full faith and credit of the United States, in each case maturing within one year
after such date; (b) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public instrumentality thereof, in
each case maturing within one year after such date and having, at the time of the acquisition
thereof, a rating of at least A-1 from Standard & Poor’s or at least P-1 from Moody’s; (c)
commercial paper maturing no more than one year from the date of creation thereof and having, at
the time of the acquisition thereof, a rating of at least A-1 from Standard & Poor’s or at least
P-1 from Moody’s; (d) certificates of deposit or bankers’ acceptances maturing within one year after such date and issued
or accepted by any commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia that (i) is at least
“adequately capitalized” (as defined
in the regulations of its primary Federal banking regulator), and (ii) has Tier 1 capital (as
defined in such regulations) of not less than $100,000,000; and (e) shares of any money market
mutual fund that (i) has substantially all of its assets invested continuously in the types of
investments referred to in clauses (a) and (b) above, (ii) has net assets of not less than
$500,000,000, and (iii) has the highest rating obtainable from either Standard & Poor’s or Moody’s.

     “CIT Bank” shall mean CIT Bank, a Utah industrial Bank.

     “Consolidated Adjusted EBITDA” shall mean, for any period, Net Income for such period plus (a)
without duplication and to the extent deducted in determining Net Income for such period, the sum
of (i) Interest Expense for such period, (ii) income tax expense for such period net of tax
refunds, (iii) all amounts attributable to depreciation and amortization expense for such period,
(iv) fees or expenses paid to the agents and lenders under the SPV Revolving Credit Agreement in
connection with the SPV Credit Documents on or prior to the Second Amendment Effective Date, (v)
other fees or expenses in an amount not to exceed $2,400,000 paid in connection with the SPV Credit
Documents and the transactions contemplated therein, (vi) with the consent of the Required
Holder(s), any other extraordinary non-cash charges for such period and (vii) with the consent of
the Required Holder(s), any other non-cash charges for such period (but excluding any non-cash
charge in respect of an item that was included in Net Income in a prior period and any non-cash
charge that relates to the write-down or write-off of inventory), minus (b) without duplication and
to the extent included in Net Income, (i) any cash payments made during such period in respect of
non-cash charges described in clause (a)(vii) taken in a prior period and (ii) any extraordinary
gains and any non-cash

6

 

items of income for such period, all calculated for the Company and its
Subsidiaries on a consolidated basis in accordance with GAAP.

     “Contingent Fee Letter” shall mean that certain Contingent Fee Letter dated May 15, 2008 from the
Company and accepted by Goldman Sachs & Co. and Fortress Credit Corp. as such letter may be
amended, modified or supplemented from time to time in accordance with the terms thereof.

     “Fingerhut SPV” shall mean Fingerhut Receivables I, LLC, a Delaware limited liability
company.

     “Fiscal Quarter” shall mean, for the Company and its Subsidiaries, a fiscal quarter of a Fiscal
Year.

     “Fiscal Year” shall mean the fiscal year of the Company and its Subsidiaries ending on the Friday
nearest to January 31st of each calendar year.

     “Holdings Guaranty” shall mean that certain Holdings Guaranty dated as of May 15, 2008 by and among
the Company and the SPV Collateral Agent, on behalf of the lenders under the SPV Revolving Credit
Agreement, as may be further amended, modified or supplemented from time to time in accordance with
the terms thereof.

     “Holdings Letter Agreement” shall mean that certain Holdings Letter Agreement dated as of May 15,
2008, by and between the Company and the SPV Collateral Agent, as may be further amended, modified,
supplemented from time to time in accordance with the terms thereof.

     “Intangible Assets” shall mean assets that are considered to be intangible assets under GAAP,
including customer lists, goodwill, computer software, copyrights, trade names, trademarks,
patents, franchises, licenses, unamortized deferred charges, unamortized debt discount and
capitalized research and developmental costs.

     “LTM EBITDA Margin” shall mean, for any date of determination, an amount (expressed as a
percentage) calculated by dividing (i) the Consolidated Adjusted EBITDA of the Company and its
Subsidiaries for the previous twelve months by (ii) the net sales of the Company and its
Subsidiaries for the previous twelve months.

     “Monthly Servicing Report” shall mean the Monthly Servicing Report in the form attached as Exhibit
B to the Servicing Agreement as in effect on the Second Amendment Effective Date.

     “Net Liquidity 1” shall mean, for any date of determination, an amount equal to the sum of (a)
unrestricted Cash and Cash Equivalents of the Company and its Subsidiaries, plus (b) Revolving
Availability (under and as defined in the SPV Revolving Credit Agreement), plus (c) availability
under the Credit Agreement; provided, that all conditions to funding under (b) or (c), as the case
may be, have been fully satisfied (other than delivery of prior notice of funding and post-funding
notices, opinions or certificates).

7

 

     “Net Liquidity 2” shall mean, for any date of determination, an amount equal to the sum of (a)
unrestricted Cash and Cash Equivalents of the Company and its Subsidiaries, plus (b) Revolving
Availability (under and as defined in the SPV Revolving Credit Agreement); provided, that all
conditions to funding under (b) have been fully satisfied (other than delivery of prior notice of
funding and post-funding notices, opinions or certificates).

     “Purchased Assets” shall mean (i) Underlying Receivables and (ii) other “Purchased Assets” (as such
term is defined in Section 2.1(a) of the Receivables Contribution and Purchase Agreement as in
effect on the Second Amendment Effective Date).

     “Receivables Contribution and Purchase Agreement” shall mean that certain Receivables Contribution
and Purchase Agreement dated as of May 15, 2008, by and between the Company and Fingerhut
SPV, as such agreement may be amended, modified or supplemented from time to time in accordance
with the terms thereof.

     “Receivables Intercreditor Agreement” shall mean the Intercreditor Agreement dated as of May
15, 2008 among the Subordinated Collateral Agent, the SPV Collateral Agent, Fingerhut SPV
and the Company in the form of Exhibit Q hereto, as amended, restated or otherwise
modified from time to time in accordance with its terms.

     “Receivables Property” has the meaning set forth in the Security Agreement.

     “Receivables Sale Agreement” shall mean that certain Amended and Restated Receivables Sale
Agreement, dated as of May 15, 2008, by and between CIT Bank and the Company, as such agreement may
be amended, modified or supplemented from time to time in accordance with the terms thereof.

     “Revolving Loan Product Program Agreement” shall mean that certain Revolving Loan Product Program
Agreement, dated as of May 15, 2008 by and between CIT Bank and the
Company, as such agreement may be amended, modified or supplemented from time to time in accordance
with the terms thereof.

     “Second Amendment Effective Date” shall mean May 15, 2008.

     “Series B Preferred Stock” shall mean the Company’s Series B Convertible Preferred Stock, par value
0.00001 per share.

     “Servicer” has the meaning set forth in the SPV Revolving Credit Agreement (as in effect on the
Second Amendment Effective Date).

     “Servicing Agreement” shall mean the Servicing Agreement dated as of May 15, 2008 by and
among Fingerhut SPV, the Company, as Servicer, and Goldman Sachs Specialty Lending Group, L.P. and
Fortress Credit Corp., as Lead Lenders, as the same may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof.

8

 

     “SPV Collateral Agent” shall mean Goldman Sachs Specialty Lending Group, L.P., as collateral
agent under the SPV Security Agreement or such other collateral agent under the SPV Security
Agreement pursuant to the terms thereof.

     “SPV Credit Documents” shall mean the SPV Revolving Credit Agreement, the Receivables Contribution
and Purchase Agreement, the Servicing Agreement, the SPV Security Agreement, the Holdings Guaranty,
the Holdings Letter Agreement and each additional Credit Document (as defined in the SPV Revolving
Credit Agreement as in effect on the Second Amendment Effective Date).

     “SPV Revolving Credit Agreement” shall mean the Revolving Credit Agreement, dated as of May
15, 2008, between Fingerhut SPV, Goldman Sachs Specialty Lending Group, L.P., as
administrative agent, collateral agent, syndication agent, documentation agent, lead arranger and
lead lender, and Fortress Credit Corp., as lead lender, as such agreement may be amended, modified
or supplemented from time to time in accordance with the terms thereof.

     “SPV Secured Parties” shall mean the SPV Collateral Agent (both for the benefit of the other
secured parties and in its individual capacity), the other Agents, the Lead Lenders, the Lenders
and the Lender Counterparties (each as defined under the SPV Revolving Credit Agreement (as in
effect on the date hereof) and shall include, without limitation, all former Agents, Lenders and
Lender Counterparties to the extent that any Secured Obligations (as defined under the SPV Security
Agreement (as in effect on the date hereof)) owing to such Persons were incurred while such Persons
were Agents, Lenders or Lender Counterparties and such Secured Obligations have not been paid or
satisfied in full.

     “SPV Security Agreement” shall mean the Security Agreement, dated as of May 15, 2008,
between Fingerhut SPV and the SPV Collateral Agent, as such agreement may be amended, modified or
supplemented from time to time in accordance with the terms thereof.

     “SPV Share Pledge” shall mean the Equity Pledge Agreement dated as of May 15, 2008
between the Company and the SPV Collateral Agent, as such agreement may be amended, modified or
supplemented from time to time in accordance with the terms thereof.

     “Tangible Net Worth” shall mean, with respect to a Person, as of any date of determination, the
result of (a) such Person’s total stockholder’s or other equity, minus (b) the sum of (i) all
Intangible Assets of such Person, (ii) all of such Person’s prepaid expenses and (iii) all amounts
due to such Person from its Affiliates.

     1.21 Paragraph 11B of the Purchase Agreement is hereby amended by amending and restating the
following definitions contained therein to read as follows:

     “Credit Agreement” shall mean the Amended and Restated Credit Agreement dated as of May 15,
2008, among the Company, the Bank Agent and the Banks, as

9

 

amended, restated, supplemented or
otherwise modified or replaced from time to time in accordance with the terms of the Intercreditor
Agreement.

     “Equity Interests” shall mean shares of capital stock, partnership interests, membership interests
in a limited liability company, beneficial interests in a trust or other equity ownership interests
in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or
acquire any such equity interest.

     “Fixed Charges” shall mean, with reference to any period, without duplication, cash Interest
Expense, plus scheduled principal payments on Indebtedness made during such period (not including
principal payments under the SPV Revolving Credit Agreement or under the Credit Agreement), plus
expense for income and franchise taxes paid in cash, plus dividends or distributions paid in cash,
all calculated for the Company and its Subsidiaries on a consolidated basis.

     “Material Indebtedness” shall mean (i) any Indebtedness under the SPV Credit Documents and (ii)
Indebtedness (other than the Obligations), or obligations in respect of one or more Swap
Agreements, of any one or more of the Company and its Subsidiaries in an aggregate principal amount
exceeding $5,000,000. For purposes of determining Material Indebtedness, the “obligations” of the
Company or any Subsidiary in respect of any Swap Agreement at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that the Company or such Subsidiary
would be required to pay if such Swap Agreement were terminated at such time.

     “Obligors” shall mean the Company, the Company’s domestic Subsidiaries (other than Fingerhut SPV)
and any other Person that now or hereafter guarantees or grants a Lien in any of its assets to
secure any of the Obligations and their successors and assigns.

     “Restricted Payment” shall mean (i) any dividend or other distribution (whether in cash, securities
or other property) with respect to any Equity Interests in the Company or any Subsidiary, or any
payment (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition,
cancellation or termination of any such Equity Interests in the Company or of any option, warrant
or other right to acquire any such Equity Interests in the Company or (ii) any payment of a
Contingent Financing Fee (as defined in the Contingent Fee Letter) or similar fee under the
Contingent Fee Letter.

     “Securitization SPE” shall mean Fingerhut Funding, LLC, a Delaware limited liability company.

     “Security Agreement” shall mean that certain Second Amended and Restated Pledge and Security
Agreement dated as of May 15, 2008 by the Company for the benefit of the holders of the
Subordinated Notes in the form of Exhibit G hereto, as the same may be amended, modified, or
supplemented from time to time in accordance with the provisions thereof.

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     1.22 Paragraph 11B of the Purchase Agreement is hereby amended by deleting the following
definitions:

     “Indenture Trustee”

     “Securitization Documents”

     “Securitization Facility”

     “Securitization Intercreditor Agreement”

     “Securitization Receivables”

     “Securitization Trust”

     “Transfer and Servicing Agreement”

     1.23 Exhibit G to the Purchase Agreement is amended and restated in its entirety to read as set
forth on Exhibit G attached to this letter agreement.

     1.24 Exhibit Q to the Purchase Agreement is amended and restated in its entirety to read
as set forth on Exhibit Q attached to this letter agreement.

     SECTION 2. Representations and Warranties. The Company represents and warrants to the
Purchasers that, after giving effect hereto (a) each representation and warranty set forth in
paragraph 8 of the Purchase Agreement is true and correct as of the date of the execution and
delivery of this letter by the Company with the same effect as if made on such date (except to the
extent such representations and warranties expressly refer to an earlier date, in which case they
were true and correct as of such earlier date) and (b) no Event of Default or Default exists.

     SECTION 3. Effectiveness. The amendments described in Section 1 above shall become
effective upon the date (the “Effective Date”) that each of the following conditions has been
satisfied in a manner satisfactory in form and substance to the Required Holder(s):

     (a) the Required Holder(s) have received the following documents:

     (i) a counterpart of this letter agreement duly executed by the Company;

     (ii) certified copies of the SPV Revolving Credit Agreement and each other SPV Credit Document each
duly executed by the parties thereto and all agreements, instruments and other documents executed
in connection therewith or delivered pursuant thereto, in form and substance satisfactory to the
Required Holder(s), and all conditions precedent to the effectiveness of the SPV Revolving Credit
Agreement and the other SPV Credit Documents shall have been satisfied and the Company shall have
applied the proceeds thereof in accordance with the terms of the SPV Revolving Credit Agreement;

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     (iii) certified copies of the CIT Documents each duly executed by the parties thereto and all
agreements, instruments and other documents executed in connection therewith or delivered pursuant
thereto, in form and substance satisfactory to the Required Holder(s), and all conditions precedent
to the effectiveness of the CIT Documents shall have been satisfied;

     (iv) certified copies of the Amended and Restated Credit Agreement duly executed by the parties
thereto and all agreements, instruments and other documents executed in connection therewith or
delivered pursuant thereto, in form and substance satisfactory to the Required Holder(s), and all
conditions precedent to the effectiveness of the Amended and Restated Credit Agreement shall have
been satisfied;

     (v) a counterpart of the Amended and Restated Security Agreement duly executed by the Company;

     (vi) counterparts of the Receivables Intercreditor Agreement duly executed by all parties thereto;

     (vii) evidence satisfactory to the Required Holder(s) that the Company and its Subsidiaries shall
have (a) caused all notes in respect of all indebtedness and other obligations outstanding under
the Securitization Documents (as defined in the Purchase Agreement immediately prior to giving
effect to this letter agreement (“Existing Securitization Indebtedness”) to be cancelled by
Fingerhut Funding LLC, (b) terminated any commitments to lend or make other extensions of credit in
respect of Existing Securitization Indebtedness, and (c) delivered to each Purchaser evidence that
all Liens securing Existing Securitization Indebtedness or other obligations of the Company and its
Subsidiaries thereunder being repaid on the Second Amendment Effective Date;

     (viii) a legal opinion of the Company’s in-house counsel, in form and substance satisfactory to the
Required Holder(s);

     (ix) a Secretary’s Certificate of the Company certifying, among other things (1) as to the name,
titles and true signatures of the officers of the Company authorized to sign this letter agreement
and the other documents to be delivered in connection with this letter agreement, (2) that attached
thereto is a true, accurate and complete copy of the certificate of incorporation or other
formation document of the Company, certified by the Secretary of State of the state of organization
of the
Company as of a recent date, (3) that attached thereto is a true, accurate and complete copy of the
by-laws, operating agreement or other organizational document of the Company, (4) that attached
thereto is a true, accurate and complete copy of the resolutions of the board of directors or other
managing body of the Company, duly adopted at a meeting or by unanimous written consent of such
board of directors or other managing body, authorizing the execution, delivery and performance of
this letter agreement and the other documents to be delivered by the Company in connection with
this letter agreement, and that such

12

 

resolutions have not been amended, modified, revoked or
rescinded, are in full force and effect and are the only resolutions of the shareholders, partners
or members of the Company or of such board of directors or other managing body or any committee
thereof relating to the subject matter thereof; and

     (x) a certificate of good standing for the Company from the Secretary of State of the state of
organization of the Company dated as of a recent date;

     (b) the Company shall have received proceeds of $55,930,000 from the issuance of 750,839,038 shares
of Series B Convertible Preferred Stock, 67,123,104 shares of which shall have been issued to the
Purchasers for a purchase price not to exceed $5,000,000, all pursuant to documentation in form and
substance satisfactory to the Purchasers;

     (c) each Purchaser shall have received payment of an amendment fee equal to 50 basis points of the
aggregate principal amount of Subordinated Notes held by such Purchaser;

     (d) all corporate and other proceedings in connection with the transactions contemplated by this
letter agreement shall be satisfactory to the Required Holder(s) and its counsel, and the Required
Holder(s) shall have received all such counterpart originals or certified or other copies of such
documents as they may reasonably request;

     (e) the Purchasers have received payment of all costs and expenses of the Purchasers (including
reasonable fees and disbursements of special counsel to the Purchasers) in connection with this
letter agreement and the transactions contemplated hereby;

     (f) as of the date hereof and after giving effect to this letter agreement, no Default or Event of
Default has occurred which is continuing; and

     (g) all the representations and warranties contained in Paragraph 8 of the Purchase Agreement are
true and correct in all material respects with the same force and effect as if made by the Company
on and as of the date hereof, except to the extent such representation and warranties, by their
terms, specifically are made as of a certain date prior to the date hereof.

     SECTION 4. Reference to and Effect on Purchase Agreement. Upon the effectiveness of this
letter agreement, each reference in the Purchase Agreement or any other document, instrument or
agreement to the “Purchase Agreement” shall mean and be a reference to the Purchase Agreement as
modified by this letter agreement. Except as specifically set forth in Section 1 hereof, the
Purchase Agreement shall remain in full force and effect and is hereby ratified and confirmed in
all respects.

     SECTION 5. Expenses. The Company hereby confirms its obligations under the Purchase
Agreement, whether or not the transactions hereby contemplated are consummated, to pay, promptly
after request by the Purchasers, all reasonable out-of-pocket costs and expenses, including
attorneys’ fees and expenses, incurred by the Purchasers in connection with this letter

13

 

agreement or the transactions contemplated hereby, in enforcing any rights under this letter
agreement, or in responding to any subpoena or other legal process or informal investigative demand
issued in connection with this letter agreement or the transactions contemplated hereby. The
obligations of the Company under this Section 5 shall survive transfer by the Purchasers of any
Subordinated Note and payment of any Subordinated Note.

     SECTION 6. Governing Law. THIS LETTER AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS OF SUCH STATE WHICH WOULD OTHERWISE CAUSE THIS LETTER AGREEMENT TO BE CONSTRUED OR
ENFORCED OTHER THAN IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.

     SECTION 7. Counterparts; Section Titles. This letter agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts, each of which when
so executed and delivered shall be deemed to be an original and all of which taken together shall
constitute but one and the same instrument. The section titles contained in this letter agreement
are and shall be without substance, meaning or content of any kind whatsoever and are not a part of
the agreement between the parties hereto.

[signature page follows]

14

 

	 	 	 	 	 	 
	 	Very truly yours,

PRUDENTIAL CAPITAL PARTNERS II, L.P.

	 
	 	 	By:  	Stetson Street Partners, L.P., its general partner
 
	 	 
	 	 	By:  	/s/ [ILLEGIBLE]
 	 
	 	 	 	Vice President 	 
	 	 
	 	PRUDENTIAL CAPITAL PARTNERS MANAGEMENT
FUND II, L.P.

 	 
	 	 	By:  	Mulberry Street Holdings, LLC, its general partner
 
	 	 
	 	 	By:  	Prudential Investment Management, Inc., its managing member
 
	 	 
	 	 	By:  	/s/ [ILLEGIBLE]
 	 
	 	 	 	Vice President 	 
	 	 
	 	PRUDENTIAL CAPITAL PARTNERS (PARALLEL
FUND) II, L.P.

 	 
	 	 	By:  	Stetson Street Partners, L.P., its general partner
 
	 	 
	 	 	By:  	/s/ [ILLEGIBLE]
 	 
	 	 	 	Vice President 	 
	 	 

AGREED AND ACCEPTED:

FINGERHUT DIRECT MARKETING, INC.

	 	 	 	 	 
	By:  	 	 
	 	Title: 	 	 	 
	 

Signature Page

Letter Agreement to Securities Purchase Agreement

 

 

	 	 	 	 	 	 
	 	Very truly yours,

PRUDENTIAL CAPITAL PARTNERS II, L.P.

 	 
	 	 	By:  	Stetson Street Partners, L.P., 

its general partner
 	 
	 	 
	 	 	By:  	 	 
	 	 	 	Vice President 	 
	 	 
	 	PRUDENTIAL CAPITAL PARTNERS MANAGEMENT
FUND II, L.P.

 	 
	 	 	By:  	Mulberry Street Holdings, LLC,

 its general partner
 	 
	 	 
	 	 	By:  	Prudential Investment Management, Inc.,

 its managing member
 	 
	 	 
	 	 	By:  	 	 
	 	 	 	Vice President 	 
	 	 
	 	PRUDENTIAL CAPITAL PARTNERS (PARALLEL
FUND) II, L.P.

 	 
	 	 	By:  	Stetson Street Partners, L.P., 

its general partner
 	 
	 	 
	 	 	By:  	 	 
	 	 	 	Vice President 	 
	 	 

AGREED AND ACCEPTED:

FINGERHUT DIRECT MARKETING, INC.

	 	 	 	 	 
	 	 
	By:  	/s/ [ILLEGIBLE]
 	 
	 	Title: 	EVP and CFO	 
	 

Signature Page

Letter Agreement to Securities Purchase Agreement

 

 

EXHIBIT G

FORM OF SECURITY AGREEMENT

EXECUTION COPY

SECOND AMENDED AND RESTATED

PLEDGE AND SECURITY AGREEMENT

     THIS SECOND AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (as it may be amended,
restated, supplemented or otherwise modified from time to time, the “Security Agreement”) is
entered into as of May 15, 2008 by and between Fingerhut Direct Marketing, Inc., a Delaware
corporation (the “Grantor”), and Prudential Capital Partners II, L.P., as collateral agent for the
Holders referenced below (in such capacity, the “Subordinated Collateral Agent”).

PRELIMINARY STATEMENTS

     A. The Grantor entered into that certain Securities Purchase Agreement, dated as of March 23,
2006 (as amended by that certain letter agreement dated as of June 21, 2007 (the “First Amendment”)
and that certain letter agreement dated as of May 15, 2008 (the “Second Amendment”) and as the same
may from time to time hereafter be further amended, modified, supplemented or restated, the
“Purchase Agreement”), by and among the Grantor and the purchasers party thereto (collectively, the
“Purchasers” and, together with any person who becomes a holder of any Subordinated Note (as
defined below) the “Holders”), pursuant to which the Purchasers, among other things, purchased
$30,000,000 aggregate principal amount of the 13.00% Senior Subordinated Secured Notes due March
24, 2013 (the “Subordinated Notes”) of the Grantor on the terms and subject to the conditions, set
forth in the Purchase Agreement.

     B. Pursuant to the Purchase Agreement, the Grantor entered into that certain Security
Agreement, dated as of March 23, 2006 with the Subordinated Collateral Agent (the “Original
Security Agreement”) to secure the Secured Obligations in order to induce the Purchasers to
enter into the Purchase Agreement and purchase the Subordinated Notes. In order to induce the
Purchasers to enter into the First Amendment and amend the Purchase Agreement as set forth therein,
the Grantor and the Subordinated Collateral Agent amended and restated the Original Security
Agreement to be the Amended and Restated Pledge and Security Agreement dated as of June 21, 2007
(the “Amended Security Agreement”).

     C. In order to induce the Purchasers to enter into the Second Amendment and amend the Purchase
Agreement as set forth therein, the Grantor is willing to amend and restate the Amended Security
Agreement pursuant to this Security Agreement.

     ACCORDINGLY, the Grantor and the Subordinated Collateral Agent, on behalf of the Holders,
hereby agree as follows:

ARTICLE I

DEFINITIONS

     1.1. Terms Defined in Purchase Agreement. All capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the Purchase Agreement.

     1.2. Terms Defined in UCC. Terms defined in the UCC which are not otherwise defined
in this Security Agreement are used herein as defined in the UCC.

     1.3. Definitions of Certain Terms Used Herein. As used in this Security Agreement, in
addition to the terms defined in the Preliminary Statement, the following terms shall have the
following meanings:

     “Accounts” shall have the meaning set forth in Article 9 of the UCC.

     “Amended Security Agreement” has the meaning ascribed thereto in
the Preamble.

 

     “Article” means a numbered article of this Security Agreement, unless another document is
specifically referenced.

     “Chattel Paper” shall have the meaning set forth in Article 9 of the
UCC.

     “CIT Bank” means CIT Bank, a Utah Industrial Bank.

     “CIT Documents” means the Amended and Restated Receivables Sale Agreement dated as of
the date hereof, by and between CIT Bank and Grantor (as it may be amended or modified from time
to time) and the Amended and Restated Revolving Loan Product Program Agreement dated as of the
date hereof, by and between CIT Bank and Grantor (as it may be amended or modified from time to
time).

     “Collateral” shall have the meaning set forth in Article II.

     “Collateral Access Agreement” means any landlord waiver or other agreement, in form
and substance satisfactory to the Subordinated Collateral Agent, between the Subordinated
Collateral Agent and any third party (including any bailee, consignee, customs broker, or other
similar Person) in possession of any Collateral or any landlord of the Grantor or any Subsidiary
for any real property where any Collateral is located, as such landlord waiver or other agreement
may be amended, restated, or otherwise modified from time to time.

     “Collateral Deposit Account” shall have the meaning set forth in Section 7.1 (a).

     “Collateral Report” means any certificate, report or other document delivered by the
Grantor to the Subordinated Collateral Agent or any Holder with respect to the Collateral pursuant
to any Note Document.

     “Commercial Tort Claim” means any “commercial tort claim,” as such term is defined in
Section 9-102(a)(13) of the UCC (or any other then applicable provision of the UCC).

     “Contracts” means all contracts, undertakings, franchise agreements or other agreements
(other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which the
Grantor may now or hereafter have any right, title or interest, including, without limitation,
with respect to an Account, any agreement relating to the terms of payment or the terms of
performance thereof.

     “Control” shall have the meaning set forth in Article 8 or, if applicable, in Section 9-104,
9-105, 9-106 or 9-107 of Article 9 of the UCC.

     “Default” means any event or condition which constitutes an Event of Default or which upon
notice, lapse of time or both would, unless cured or waived, become an Event of Default.

     “Deposit Account Control Agreement” means an agreement, in form and substance
satisfactory to the Subordinated Collateral Agent, among any Obligor, a banking institution
holding such Obligor’s funds, and the Subordinated Collateral Agent with respect to collection and
control of all deposits and balances held in a deposit account maintained by any Obligor with such
banking institution.

     “Deposit Accounts” shall have the meaning set forth in Article
9 of the UCC. 

     “Documents” shall have the meaning set forth in Article
9 of the UCC.

     “Equipment” means any “equipment,” as such term is defined in Section 9-102(a)(33) of the UCC
(or any other then applicable provision of the UCC), now or hereafter owned or acquired by the
Grantor or in which the Grantor now holds or hereafter acquires any interest and, in any event,
shall include, without limitation, all machinery, equipment, fixtures, furniture, furnishings,
trade fixtures, vehicles, trucks, mainframe, personal and other computers, terminals and printers
and related components and accessories, all copiers, telephonic, video, electronic data-processing,
data storage equipment and other equipment of any nature whatsoever, and any and

2

 

all additions, substitutions and replacements of any of the foregoing, wherever located, together
with all attachments, components, parts, equipment and accessories installed thereon or affixed
thereto.

     “Event of Default” means an event described in Section 5.1.

     “Excluded Payments” has the meaning ascribed thereto in Section 4.6(d)(iii).

     “Exhibit” refers to a specific exhibit to this Security Agreement, unless another document is
specifically referenced.

     “Fingerhut SPV” means Fingerhut Receivables I, LLC.

     “Fingerhut
SPV Stock” has the meaning ascribed thereto in Section 11.1.

     “General Intangibles” shall have the meaning set forth in
Article 9 of the UCC.

     “Grantor” has the meaning ascribed thereto in
the Preamble.

     “Holdings Guaranty” means that certain Holdings Guaranty dated as of May 15, 2008 by
and among Grantor and the SPV Collateral Agent, on behalf of the lenders under the SPV Revolving
Credit Agreement, as may be further amended, modified or supplemented from time to time in
accordance with the terms thereof.

     “Holdings Letter Agreement” means that certain Holdings Letter Agreement dated as of
May 15, 2008, by and between Grantor and the SPV Collateral Agent, as may be further amended,
modified, supplemented from time to time in accordance with the terms thereof.

     “Instruments” shall have the meaning set forth in Article 9 of the UCC.

     “Intercreditor Agreement” means the Intercreditor Agreement dated as of May 15, 2008,
by and among SPV Collateral Agent, Subordinated Collateral Agent, Fingerhut SPV and Grantor, as
the same may be further amended, restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof.

     “Inventory” shall have the meaning set forth in Article 9 of the UCC.

     “Investment Property” shall have the meaning set forth in Article 9 of the
UCC.

     “Letter-of-Credit Rights” shall have the meaning set forth in Article
9 of the UCC.

     “Lock Box Agreement” shall have the meaning set forth in
Section 7.1 (a).

     “Lock Boxes” shall have the meaning set forth in Section 7.1 (a).

     “Merchant Deposit Account” has the meaning ascribed thereto in Section 7.1
(a).

     “Note Documents” means Transaction Documents (as defined in the
Purchase Agreement).

     “Payment Intangibles” shall have the meaning set forth
in Article 9 of the UCC.

     “Pledged Collateral” means all Securities consisting of Equity Interests of
Subsidiaries of the Grantor, whether or not physically delivered to the Subordinated Collateral
Agent pursuant to this Security Agreement.

     “Proceeds” means “proceeds,” as such term is defined in Section 9-102(a)(64) of the UCC (or
any other then applicable provision of the UCC), and, in any event, shall include, without
limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of money or
currency or other proceeds payable to the

3

 

Grantor from time to time in respect of the Collateral, (b) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to the Grantor from time to time with respect to any of
the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to the
Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure
or forfeiture of all or any part of the Collateral by any governmental authority (or any Person
acting under color of governmental authority), (d) all certificates, dividends, cash, Instruments
and other property received or distributed in respect of or in exchange for any Investment
Property, and (e) any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.

     “Purchase Agreement” has the meaning ascribed thereto in the Preamble.

     “Purchased Assets” means (i) Underlying Receivables and (ii) other “Purchased Assets”
(as such term is defined in Section 2.1(a) of the Receivables Contribution and Purchase Agreement
(as in effect on the date hereof)).

     “Receivables Account” means each consumer revolving credit account established
pursuant to a Receivables Account Agreement (as defined in the Servicing Agreement as in effect on
the Second Amendment Effective Date) between CIT Bank and any Receivables Obligor (as defined in
the Servicing Agreement as in effect on the Second Amendment Effective Date).

     “Receivables Contribution and Purchase Agreement” means that certain Receivables
Contribution and Purchase Agreement dated as of the date hereof among the Grantor and the
Fingerhut SPV, as the same may be amended, modified or supplemented from time to time, in
accordance with the terms thereof.

     “Receivables Property” means Receivables Accounts, Underlying Receivables and
Purchased Assets.

     “Retained Receivables” means all rights to payment of any kind arising directly or
indirectly from the sale or other disposition of Inventory, including Accounts, Chattel Paper,
Instruments, Payment Intangibles, Letter of Credit Rights, Supporting Obligations, and general
intangibles related to the foregoing, but excluding Receivables Property transferred pursuant to
the Receivables Contribution and Purchase Agreement.

     “Sales Receivables” means Payment Intangibles owing to the Grantor and arising from
sales of Underlying Receivables and other Purchased Assets to Fingerhut SPV pursuant to the
Receivables Contribution and Purchase Agreement.

     “Section” means a numbered section of this Security Agreement, unless another document is
specifically referenced.

     “Secured Obligations” shall mean and include (a) the Obligations and (b) all
liabilities and obligations, howsoever arising, owed by the Grantor to Subordinated Collateral
Agent or the Holders (excluding the Warrants, the Investor Rights Agreement, the Stockholders
Agreement, the Equityholder Agreement and the VCOC Letter) or any one or more of them of every
kind and description (whether evidenced by any note or instrument and whether or not for the
payment of money), direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising pursuant to the terms of this Security Agreement.

     “Securities Account” means “securities account,” as such term is defined in Section
8-501(a) of the UCC (or any other then applicable provision of the UCC).

     “Security” has the meaning set forth in Article 8 of the UCC.

     “Servicing Accounts” means Accounts owing to Grantor and arising from services
provided by it under the Servicing Agreement.

4

 

     “Servicing Agreement” means the Servicing Agreement dated as of May 15, 2008 by and
among Fingerhut SPV, Grantor, as Servicer, and Goldman Sachs Specialty Lending Group, L.P. and
Fortress Credit Corp., as Lead Lenders, as the same may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof.

     “SPV Collateral Agent” means Goldman Sachs Specialty Lending Group, L.P., together
with any successors or assigns, as collateral agent under the SPV Security Agreement.

     “SPV Credit Documents” means the SPV Revolving Credit Agreement, the Receivables
Contribution and Purchase Agreement, the Servicing Agreement, the SPV Security Agreement and each
additional Credit Document (as defined in the SPV Revolving Credit Agreement as in effect on the
Second Amendment Effective Date).

     “SPV Security Agreement” means that certain Security Agreement (as amended, restated,
supplemented or otherwise modified from time to time in accordance with the terms thereof) between
Fingerhut SPV and the SPV Collateral Agent dated May 15, 2008.

     “SPV Share Pledge” means that certain Equity Pledge Agreement dated as of May 15,
2008, by and between Grantor and the SPV Collateral Agent, as may be further amended, modified and
supplemented in accordance with the terms thereof.

     “Supporting Obligations” shall have the meaning set forth in Article 9 of the UCC.

     “UCC” means the Uniform Commercial Code, as in effect from time to time, of the State of
Illinois or of any other state the laws of which are required as a result thereof to be applied in
connection with the attachment, perfection or priority of, or remedies with respect to, the
Subordinated Collateral Agent’s or any Holder’s Lien on any Collateral.

     “Underlying Receivables” means all amount payable by a Receivables Obligor (as
defined in the Servicing Agreement as in effect on the Second Amendment Effective Date) on the
related Receivables Account from time to time, and purchased by or contributed to Fingerhut SPV
from the Grantor under the Receivables Contribution and Purchase Agreement.

     The foregoing definitions shall be equally applicable to both the singular and plural forms
of the defined terms.

ARTICLE II

GRANT OF SECURITY INTEREST

     To secure payment and performance of the Secured Obligations, the Grantor hereby confirms its
prior grant under the Original Security Agreement and the Amended Security Agreement, as amended
and restated hereby, and pledges, assigns and grants to the Subordinated Collateral Agent, on
behalf of and for the ratable benefit of the Holders, a security interest in all of its right,
title and interest in, to and under certain personal property and other assets, whether now owned
by or owing to, or hereafter acquired by or arising in favor of the Grantor (including under any
trade name or derivations thereof), and whether owned or consigned by or to, or leased from or to,
the Grantor, and regardless of where located (all of which will be collectively referred to as the
“Collateral”), consisting of:

               (a) All Accounts;

               (b) All Chattel Paper;

               (c) All Commercial Tort Claims;

5

 

                         (d) All Contracts;

                         (e) All Deposit Accounts;

                         (f) All Documents;

                         (g) All Equipment;

                         (h) All General Intangibles (including Payment Intangibles);

                         (i) All Instruments;

                         (j) All Inventory;

                         (k) All Investment Property;

                         (l) All Letter-of-Credit Rights;

                         (m) All Securities Accounts;

                         (n) All Supporting Obligations;

                         (o) All property of the Grantor held by Subordinated Collateral Agent or any
Holder, including, without limitation, all property of every description now or hereafter in the
possession or custody of or in transit to the Subordinated Collateral Agent or any Holder for any
purpose, including, without limitation, safekeeping, collection or pledge, for the account of the
Grantor, or as to which the Grantor may have any right or power;

                         (p) All other goods and personal property of the Grantor whether tangible or
intangible and whether now or hereafter owned or existing, leased, consigned by or to, or acquired
by the Grantor and wherever located; and

                         (q) To the extent not otherwise included, all Proceeds of each of the foregoing and all
accessions to, substitutions and replacements for, and rents, profits and products of each of the
foregoing;

excluding, however, in each case, the Receivables Property now existing or hereafter arising and
all books, records (including electronic records), documents, instruments, ledger cards, files,
correspondence, computer programs, tapes, disks and related data that evidence or contain
information relating to the Receivables Property. To the extent that any security interest arises
in any Receivables Account or in any asset under this Security Agreement prior to its becoming
Receivables Property, such security interest is deemed to have terminated automatically on the date
it becomes a Receivables Account or Receivables Property; provided that such, security interest
shall be automatically reinstated on the date when any such Receivables Property is reconveyed to
the Grantor and ceases to be Receivables Property pursuant to the terms of the SPV Credit
Documents.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

     The Grantor represents and warrants to the Subordinated Collateral Agent and each Holder
that:

     3.1.
Title, Perfection and Priority. The Grantor has good and valid rights in or the
power to transfer the Collateral and title to the Collateral with respect to which it has
purported to grant a security interest hereunder, free and clear of all Liens except for Liens
permitted under Section 4.1(e), and has full power and

6

 

authority to grant to the Subordinated Collateral Agent the security interest in such
Collateral pursuant hereto. When financing statements have been filed in the appropriate offices
against the Grantor in the locations listed on Exhibit E, the Subordinated Collateral
Agent will have a fully perfected security interest in that Collateral in which a security
interest may be perfected by filing, subject only to Liens permitted under Section 4.1(e).

     3.2.
Type and Jurisdiction of Organization, Organizational and Identification Numbers.
The type of entity of the Grantor, its state of organization, the organizational number issued to
it by its state of organization and its federal employer identification number are set forth on
Exhibit A.

     3.3. Principal Location. The Grantor’s mailing address and the location of its place
of business (if it has only one) or its chief executive office (if it has more than one place of
business), are disclosed in Exhibit A; the Grantor has no other places of business except those set
forth in Exhibit A.

     3.4. Collateral Locations. All of the Grantor’s locations where Collateral is
located are listed on Exhibit A. All of said locations are owned by the Grantor except
for locations (i) which are leased by the Grantor as lessee and designated in Part VII(b)
of Exhibit A and (ii) at which Inventory is held in a public warehouse or is otherwise held
by a bailee or on consignment as designated in
Part VII(c) of Exhibit A.

     3.5.
Deposit Accounts. All of the Grantor’s Deposit Accounts
are listed on Exhibits B.

     3.6. Exact Names. The Grantor’s name in which it has executed this Security
Agreement is the exact name as it appears in the Grantor’s organizational documents, as amended, as
filed with the Grantor’s jurisdiction of organization. The Grantor has not, during the past five
years, been known by or used any other corporate or fictitious name, or been a party to any merger
or consolidation, or been a party to any acquisition.

     3.7.
Letter of Credit Rights and Chattel Paper. Exhibit C lists all Letter of Credit
Rights and Chattel Paper of the Grantor. All action by the Grantor necessary or desirable to
protect and perfect the Subordinated Collateral Agent’s Lien on
each item listed on Exhibit C (including the delivery of all originals and the placement of a legend on all Chattel Paper
as required hereunder) has been duly taken. The Subordinated Collateral Agent will have a fully
perfected security interest in the Collateral listed on Exhibit C, subject only to Liens
permitted under Section 4.1(e).

     3.8. Commercial Tort Claims. Commercial Torts Claims of the Grantor are set forth on
Exhibit F.

     3.9. Inventory. With respect to any Inventory scheduled or listed on the most recent
Collateral Report, (a) such Inventory (other than Inventory in transit) is located at one of the
Grantor’s locations set forth on Exhibit A, (b) no Inventory (other than Inventory in
transit) is now, or shall at any time or times hereafter be stored at any other location except as
permitted by Section 4.1(g), (c) the Grantor has good, indefeasible and merchantable title to such
Inventory and such Inventory is not subject to any Lien or security interest or document whatsoever
except for the Lien granted to the Subordinated Collateral Agent, for the benefit of the
Subordinated Collateral Agent and the Holders, and except as permitted under the Purchase
Agreement, (d) except as specifically disclosed in the most recent Collateral Report, such
Inventory is of good and merchantable quality, free from any defects, (e) such Inventory is not
subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any
third parties which would require any consent of any third party upon sale or other disposition of
that Inventory or the payment of any monies to any third party upon such sale or other disposition,
and (f) sale or other disposition of such Inventory by the Subordinated Collateral Agent following
an Event of Default shall not require the consent of any Person and shall not constitute a breach
or default under any contract or agreement to which the Grantor is a party or to which such
property is subject.

     3.10. Filing Requirements. None of the Collateral is of a type for which security
interests or liens may be perfected by filing under any federal statute.

7

 

     3.11. No Financing Statements, Security Agreements. No financing statement or security
agreement describing all or any portion of the Collateral which has not lapsed or been terminated
naming the Grantor as debtor has been filed or is of record in any jurisdiction except (a) for
financing statements or security agreements naming the Subordinated Collateral Agent on behalf of
the Holders as the secured party and (b) as permitted by Section 4.1(e).

     3.12. Pledged Collateral.

          (a) Exhibit D sets forth a complete and accurate list of all of the Pledged
Collateral. The Grantor is the direct, sole beneficial owner and sole holder of record of the
Pledged Collateral listed on Exhibit D as being owned by it, free and clear of any Liens,
except for (i) with respect to the Fingerhut SPV Stock only, the security interest of the SPV
Collateral Agent and (ii) with respect to all Pledged Collateral (including the Fingerhut SPV
Stock) the security interest granted to the Subordinated Collateral Agent for the benefit of the
Holders hereunder and security interest granted to the Bank Agent. The Grantor further represents
and warrants that (i) all Pledged Collateral constituting an Equity Interest has been (to the
extent such concepts are relevant with respect to such Pledged Collateral) duly authorized, validly
issued, are fully paid and non-assessable, (ii) with respect to any certificates delivered to the
Subordinated Collateral Agent representing an Equity Interest, either such certificates are
Securities as defined in Article 8 of the UCC as a result of actions by the issuer or otherwise,
or, if such certificates are not Securities, the Grantor has so informed the Subordinated
Collateral Agent so that the Subordinated Collateral Agent may take steps to perfect its security
interest therein as a General Intangible, and (iii) all Pledged Collateral held by a securities
intermediary is covered by a control agreement among the Grantor, the securities intermediary and
the Subordinated Collateral Agent pursuant to which the Subordinated Collateral Agent has Control.

          (b) In addition, (i) none of the Pledged Collateral has been issued or transferred in
violation of the securities registration, securities disclosure or similar laws of any jurisdiction
to which such issuance or transfer may be subject, (ii) there are existing no options, warrants,
calls or commitments of any character whatsoever relating to the Pledged Collateral or which
obligate the issuer of any Equity Interest included in the Pledged Collateral to issue additional
Equity Interests, and (iii) no consent, approval, authorization, or other action by, and no giving
of notice to or, filing with, any governmental authority or any other Person is required for the
pledge by the Grantor of the Pledged Collateral pursuant to this Security Agreement or for the
execution, delivery and performance of this Security Agreement by the Grantor, or for the exercise
by the Subordinated Collateral Agent of the voting or other rights provided for in this Security
Agreement or for the remedies in respect of the Pledged Collateral pursuant to this Security
Agreement, except as may be required in connection with such disposition by laws affecting the
offering and sale of securities generally.

          (c) Except
as set forth in Exhibit D, the Grantor owns 100% of the issued and
outstanding Equity Interests which constitute Pledged Collateral.

     3.13. Securities Accounts. The names and addresses of all institutions at which the
Grantor maintains its Securities Accounts and the account numbers and account names of such
Securities Accounts are listed on Exhibit G. The Company
shall amend Exhibit G from time to time within twenty (20) Business Days after opening any additional Securities Account
or closing or changing the account number or account name on any existing Securities Account.

ARTICLE IV

COVENANTS

     From the date of this Security Agreement, and thereafter until this Security Agreement is
terminated, the Grantor agrees that:

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     4.1. General.

          (a) Collateral Records. The Grantor will maintain complete and accurate books and
records with respect to the Collateral, and furnish to the Subordinated Collateral Agent, with
sufficient copies for each of the Holders, such reports relating to the Collateral as the
Subordinated Collateral Agent shall from time to time request.

          (b) Authorization to File Financing Statements; Ratification. The Grantor
hereby authorizes the Subordinated Collateral Agent to file, and if requested will deliver to the
Subordinated Collateral Agent, all financing statements and other documents and take such other
actions as may from time to time be requested by the Subordinated Collateral Agent in order to
maintain a first perfected security interest in and, if applicable, Control of, the Collateral. Any
financing statement filed by the Subordinated Collateral Agent may be filed in any filing office in
any UCC jurisdiction and may (i) indicate the Collateral by any description which reasonably
approximates the description contained in this Security Agreement, and (ii) contain any other
information required by part 5 of Article 9 of the UCC for the sufficiency or filing office
acceptance of any financing statement or amendment, including whether the Grantor is an
organization, the type of organization and any organization identification number issued to the
Grantor. The Grantor also agrees to furnish any such information to the Subordinated Collateral
Agent promptly upon request. The Grantor also ratifies its authorization for the Subordinated
Collateral Agent to have filed in any UCC jurisdiction any initial financing statements or
amendments thereto if filed prior to the date hereof.

          (c) Further Assurances. The Grantor will, if so requested by the Subordinated
Collateral Agent, furnish to the Subordinated Collateral Agent, as often as the Subordinated
Collateral Agent requests, statements and schedules further identifying and describing the
Collateral and such other reports and information in connection with the Collateral as the
Subordinated Collateral Agent may reasonably request, all in such detail as the Subordinated
Collateral Agent may specify. The Grantor also agrees to take any and all actions necessary to
defend title to the Collateral against all persons and to defend the security interest of the
Subordinated Collateral Agent in the Collateral and the priority thereof against any Lien not
expressly permitted hereunder.

          (d) Disposition of Collateral. The Grantor will not sell, lease or otherwise dispose
of the Collateral except for dispositions specifically permitted pursuant to paragraph 6E of the
Purchase Agreement.

          (e) Liens. The Grantor will not create, incur, or suffer to exist any Lien on the
Collateral except (i) the security interest created by this Security Agreement, and (ii) other
Liens permitted under the terms of the Purchase Agreement.

          (f) Other Financing Statements. The Grantor will not authorize the filing of any
financing statement naming it as debtor covering all or any portion of the Collateral, except as
permitted by Section 4. 1(e). The Grantor acknowledges that it is not authorized to file
any financing statement or amendment or termination statement with respect to any financing
statement without the prior written consent of the Subordinated Collateral Agent, subject to the
Grantor’s rights under Section 9-509(d)(2) of the UCC.

          (g) Locations. The Grantor will not (i) maintain any Collateral at any location other
than those locations listed on Exhibit A, (ii) otherwise change, or add to, such locations
without the Subordinated Collateral Agent’s prior written consent (and if the Subordinated
Collateral Agent gives such consent, the Grantor will concurrently therewith obtain a Collateral
Access Agreement for each such location), or (iii) change its principal place of business or chief
executive office from the location identified on
Exhibit A, other than as permitted by the
Purchase Agreement.

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          (h) Compliance with Terms. The Grantor will perform and comply with all obligations
in respect of the Collateral and all agreements to which it is a party or by which it is bound
relating to the Collateral.

          (i) Commercial Tort Claims and Letter of Credit Rights. The Grantor shall amend (i)
Exhibit F from time to time within twenty (20) Business Days after obtaining any
additional Commercial Tort Claims and (ii) Exhibit C from time to time within twenty (20)
Business Days after obtaining any additional Letter-of-Credit Rights.

          (j) Contracts. The Grantor shall use its commercially reasonable efforts to secure
all consents and approvals necessary or appropriate for the grant of a security interest to the
Subordinated Collateral Agent in any Contract or license held by the Grantor or in which the
Grantor has any rights not heretofore assigned.

     4.2. Retained Receivables.

          (a) Certain Agreements on Retained Receivables. The Grantor will not make or agree to
make any discount, credit, rebate or other reduction in the original amount owing on a Retained
Receivable or accept in satisfaction of a Retained Receivable less than the original amount
thereof, except that, prior to the occurrence of an Event of Default, the Grantor may reduce the
amount of Retained Receivables in accordance with its present policies and in the ordinary course
of business.

          (b) Collection of Retained Receivables. Except as otherwise provided in this
Security Agreement, the Grantor will collect and enforce, at the Grantor’s sole expense, all
amounts due or hereafter due to the Grantor under the Retained Receivables.

          (c) Electronic Chattel Paper. The Grantor shall take all steps necessary to grant
the Subordinated Collateral Agent Control of all electronic Chattel Paper in accordance with the
UCC and all “transferable records” as defined in each of the Uniform Electronic Transactions Act
and the Electronic Signatures in Global and National Commerce Act.

     4.3. Inventory.

          (a) Maintenance of Inventory. The Grantor will do all things necessary to maintain,
preserve, protect and keep the Inventory in saleable condition, except for damaged or defective
goods arising in the ordinary course of the Grantor’s business.

          (b) Returned Inventory. If an Account Debtor returns any Inventory to the Grantor
when no Event of Default exists, then the Grantor shall promptly determine the reason for such
return and shall issue a credit memorandum to the Account Debtor in the appropriate amount. All
returned Inventory shall be subject to the Subordinated Collateral Agent’s Liens thereon.

          (c) Perpetual Inventory System. The Grantor will maintain a perpetual inventory
reporting system at all times.

     4.4.
Delivery of Instruments, Securities, Chattel Paper and Documents. As to all
Chattel Paper and Instruments constituting part of the Collateral, the Grantor will (a) deliver to
the Subordinated Collateral Agent immediately upon execution of this Security Agreement the
originals of all Chattel Paper, Securities (other than the Fingerhut SPV Stock, while the
Intel-creditor Agreement and the SPV Credit Documents are in effect) and Instruments constituting
Collateral (if any then exist), (b) hold in trust for the Subordinated Collateral Agent upon
receipt and immediately thereafter deliver to the Subordinated Collateral Agent any Chattel Paper,
Securities (other than the Fingerhut SPV Stock, while the Intercreditor Agreement and the SPV
Credit Documents are in effect) and Instruments constituting Collateral, and (c) upon the
Subordinated Collateral

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Agent’s request, deliver to the Subordinated Collateral Agent (and thereafter hold in trust for
the Subordinated Collateral Agent upon receipt and immediately deliver to the Subordinated
Collateral Agent) any Document evidencing or constituting Collateral. The Grantor hereby
authorizes the Subordinated Collateral Agent to attach each Amendment to this Security Agreement
and agrees that all additional Collateral set forth in such Amendments shall be considered to be
part of the Collateral.

     4.5. Uncertificated Pledged Collateral. The Grantor will permit the Subordinated
Collateral Agent from time to time to cause the appropriate issuers (and, if held with a securities
intermediary, such securities intermediary) of uncertificated securities or other types of Pledged
Collateral not represented by certificates to mark their books and records with the numbers and
face amounts of all such uncertificated securities or other types of Pledged Collateral not
represented by certificates and all rollovers and replacements therefor to reflect the Lien of the
Subordinated Collateral Agent granted pursuant to this Security Agreement. The Grantor will take
any actions necessary to cause (a) the issuers of uncertificated securities which are Pledged
Collateral and (b) any securities intermediary which is the holder of any Pledged Collateral, to
cause the Subordinated Collateral Agent to have and retain Control over such Pledged Collateral.
Without limiting the foregoing, the Grantor will, with respect to Pledged Collateral held with a
securities intermediary, cause such securities intermediary to enter into a control agreement with
the Subordinated Collateral Agent, in form and substance satisfactory to the Subordinated
Collateral Agent, giving the Subordinated Collateral Agent Control.

     4.6. Pledged Collateral.

          (a) Changes in Capital Structure of Issuers. The Grantor will not (i) permit or suffer
any issuer of an Equity Interest constituting Pledged Collateral to dissolve, merge, liquidate or
retire any of its Equity Interests, or (ii) vote any Pledged Collateral in favor of any of the
foregoing.

          (b) Issuance of Additional Securities. The Grantor will not permit or suffer the
issuer of an Equity Interest constituting Pledged Collateral to issue additional Equity Interests,
any right to receive the same or any right to receive earnings, except to the Grantor.

          (c) Registration of Pledged Collateral. The Grantor will permit any registerable
Pledged Collateral to be registered in the name of the Subordinated Collateral Agent or its nominee
at any time at the option of the Required Holder(s).

          (d) Exercise of Rights in Pledged Collateral.

          (i) Without in any way limiting the foregoing and subject to clause (ii) below, the
Grantor shall have the right to exercise all voting rights or other rights relating to the
Pledged Collateral for all purposes not inconsistent with this Security Agreement, the
Purchase Agreement or any other Note Document; provided however, that no vote or other
right shall be exercised or action taken which would have the effect of impairing the
rights of the Subordinated Collateral Agent in respect of the Pledged Collateral.

          (ii) The Grantor will permit the Subordinated Collateral Agent or its nominee at any
time after the occurrence of an Event of Default, without notice, to exercise all voting
rights or other rights relating to Pledged Collateral, including, without limitation,
exchange, subscription or any other rights, privileges, or options pertaining to any Equity
Interest or Investment Property constituting Pledged Collateral as if it were the absolute
owner thereof.

          (iii) The Grantor shall be entitled to collect and receive for its own use all cash
dividends and interest paid in respect of the Pledged Collateral to the extent not in
violation of the Purchase Agreement other than any of the following distributions
and payments (collectively referred to as the “Excluded Payments”): (A) dividends and
interest paid or payable other than in cash in respect of any Pledged Collateral, and
instruments and other property received, receivable or otherwise distributed

11

 

in respect of, or in exchange for, any Pledged Collateral; (B) dividends and other
distributions paid or payable in cash in respect of any Pledged Collateral in connection
with a partial or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in capital of an issuer; and (C) cash paid, payable or
otherwise distributed, in respect of principal of, or in redemption of, or in exchange for,
any Pledged Collateral; provided however, that until actually paid, all rights to such
distributions shall remain subject to the Lien created by this Security Agreement; and

     (iv) All Excluded Payments and all other distributions in respect of any of the
Pledged Collateral, whenever paid or made, shall be delivered to the Subordinated
Collateral Agent to hold as Pledged Collateral and shall, if received by the Grantor, be
received in trust for the benefit of the Subordinated Collateral Agent, be segregated from
the other property or funds of the Grantor, and be forthwith delivered to the Subordinated
Collateral Agent as Pledged Collateral in the same form as so received (with any necessary
endorsement).

     4.7. No Interference. The Grantor agrees that it will not interfere with any right,
power and remedy of the Subordinated Collateral Agent provided for in this Security Agreement or
now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or
beginning of the exercise by the Subordinated Collateral Agent of any one or more of such rights,
powers or remedies.

     4.8.
Insurance. (a) In the event any Collateral is located in any area that has been
designated by the Federal Emergency Management Agency as a “Special Flood Hazard Area”, the Grantor
shall purchase and maintain flood insurance on such Collateral (including any personal property
which is located on any real property leased by the Grantor within a “Special Flood Hazard Area”).
The amount of flood insurance required by this Section shall be in an amount equal to the lesser of
the total outstanding principal amount of the Subordinated Notes or the total replacement cost
value of the Inventory at such location.

          (b) All insurance policies required hereunder and under paragraph 5F of the Purchase Agreement
shall name the Subordinated Collateral Agent (for the benefit of the Subordinated Collateral Agent
and the Holders) as an additional insured or as loss payee, as applicable, and shall contain loss
payable clauses or mortgagee clauses, through endorsements in form and substance satisfactory to
the Subordinated Collateral Agent, which provide that: (i) all proceeds thereunder with respect to
any Collateral shall be payable to the Subordinated Collateral Agent; (ii) no such insurance shall
be affected by any act or neglect of the insured or owner of the property described in such policy;
and (iii) such policy and loss payable or mortgagee clauses may be canceled, amended, or terminated
only upon at least thirty days prior written notice given to the Subordinated Collateral Agent.

          (c) All premiums on such insurance shall be paid when due by the Grantor, and copies of the
policies delivered to the Subordinated Collateral Agent. If the Grantor fails to obtain any
insurance as required by this Section, the Subordinated Collateral Agent may obtain such insurance
at the Grantor’s expense. By purchasing such insurance, the Subordinated Collateral Agent shall not
be deemed to have waived any Default arising from the Grantor’s failure to maintain such insurance
or pay any premiums therefor.

     4.9. Collateral Access Agreements. The Grantor shall use commercially reasonable
efforts to obtain a Collateral Access Agreement, from the lessor of each leased property, mortgagee
of owned property or bailee or consignee with respect to any warehouse, processor or converter
facility or other location where Collateral is stored or located, which agreement or letter shall
provide access rights, contain a waiver or subordination of all Liens or claims that the landlord,
mortgagee, bailee or consignee may assert against the Collateral at that location, and shall
otherwise be reasonably satisfactory in form and substance to the Subordinated Collateral Agent.
After the First Amendment Effective Date, no real property or warehouse space shall be leased by
the Grantor and no Inventory shall be shipped to a processor or converter under arrangements
established after the First Amendment Effective Date, unless and until a satisfactory Collateral
Access Agreement shall first have been obtained with respect to such location. The Grantor shall
timely and fully pay and perform its obligations under all leases and other agreements with respect
to each leased location or third party warehouse where any

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Collateral is or may be located.

     4.10. Change of Name or Location; Change of Fiscal Year. The Grantor shall not (a)
change its name as it appears in official filings in the state of its incorporation or
organization, (b) change its chief executive office, principal place of business, mailing address,
corporate offices or warehouses or locations at which Collateral is held or stored, or the location
of its records concerning the Collateral as set forth in this Security Agreement, (c) change the
type of entity that it is, (d) change its organization identification number, if any, issued by its
state of incorporation or other organization, or (e) change its state of incorporation or
organization, in each case, unless the Subordinated Collateral Agent shall have received at least
thirty days prior written notice of such change and the Subordinated Collateral Agent shall have
acknowledged in writing that either (1) such change will not adversely affect the validity,
perfection or priority of the Subordinated Collateral Agent’s security interest in the Collateral,
or (2) any reasonable action requested by the Subordinated Collateral Agent in connection therewith
has been completed or taken (including any action to continue the perfection of any Liens in favor
of the Subordinated Collateral Agent, on behalf of the Holders, in any Collateral), provided that,
any new location shall be in the continental U.S. The Grantor shall not change its fiscal year
which currently ends on the Friday closest to January 31st of each year.

     4.11. Securities Accounts. The Grantor shall use its commercially reasonable efforts
to assist the Subordinated Collateral Agent in obtaining control under the UCC with respect to any
Collateral consisting of Securities Accounts (with investment or other assets that currently exceed
or are at any time expected to exceed $25,000).

ARTICLE V

EVENTS OF DEFAULT AND REMEDIES

     5.1. Events of Default. The occurrence of any one or more of the following
events shall constitute an Event of Default hereunder:

          (a) Any representation or warranty made by or on behalf of the Grantor under or in connection
with this Security Agreement shall be materially false as of the date on which made.

          (b) The breach by the Grantor of any of the terms or provisions of Article IV or
Article VII.

          (c) The breach by the Grantor (other than a breach which constitutes an Event of Default under
any other Section of this Article V) of any of the terms or provisions of this Security
Agreement which is not remedied within ten days after such breach.

          (d) The occurrence of any “Event of Default” under, and as defined in, the Purchase Agreement.

          (e) Any Equity Interest which is included within the Collateral shall at any time constitute a
Security or the issuer of any such Equity Interest shall take any action to have such interests
treated as a Security unless (i) all certificates or other documents constituting such Security
have been delivered to the Subordinated Collateral Agent and such Security is properly defined as
such under Article 8 of the UCC of the applicable jurisdiction, whether as a result of actions by
the issuer thereof or otherwise, or (ii) the Subordinated Collateral Agent has entered into a
control agreement with the issuer of such Security or with a securities intermediary relating to
such Security and such Security is defined as such under Article 8 of the UCC of the applicable
jurisdiction, whether as a result of actions by the issuer thereof or otherwise.

     5.2. Remedies.

          (a) Upon the occurrence of an Event of Default, the Subordinated Collateral Agent may
exercise any or all of the following rights and remedies:

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     (i) those rights and remedies provided in this Security Agreement, the Purchase
Agreement, or any other Note Document; provided that, this Section 5.2(a) shall not be
understood to limit any rights or remedies available to the Subordinated Collateral Agent
and the Holders prior to an Event of Default;

     (ii) those rights and remedies available to a secured party under the UCC (whether or
not the UCC applies to the affected Collateral) or under any other applicable law
(including, without limitation, any law governing the exercise of a bank’s right of setoff
or bankers’ lien) when a debtor is in default under a security agreement;

     (iii) give notice of sole control or any other instruction under any Deposit Account
Control Agreement or and other control agreement with any securities intermediary and take
any action therein with respect to such Collateral;

     (iv) without notice (except as specifically provided in Section 8.1 or elsewhere
herein), demand or advertisement of any kind to the Grantor or any other Person, enter the
premises of the Grantor where any Collateral is located (through self-help and without
judicial process) to collect, receive, assemble, process, appropriate, sell, lease, assign,
grant an option or options to purchase or otherwise dispose of, deliver, or realize upon,
the Collateral or any part thereof in one or more parcels at public or private sale or sales
(which sales may be adjourned or continued from time to time with or without notice and may
take place at the Grantor’s premises or elsewhere), for cash, on credit or for future
delivery without assumption of any credit risk, and upon such other terms as the
Subordinated Collateral Agent may deem commercially reasonable; and

     (v) except as limited by Section 11.1, concurrently with written notice to the
Grantor, transfer and register in its name or in the name of its nominee the whole or any
part of the Pledged Collateral, to exchange certificates or instruments representing or
evidencing Pledged Collateral for certificates or instruments of smaller or larger
denominations, to exercise the voting and all other rights as a holder with respect
thereto, to collect and receive all cash dividends, interest, principal and other
distributions made thereon and to otherwise act with respect to the Pledged Collateral as
though the Subordinated Collateral Agent was the outright owner thereof.

          (b) The Subordinated Collateral Agent, on behalf of the Holders, may comply with any
applicable state or federal law requirements in connection with a disposition of the Collateral and
compliance will not be considered to adversely affect the commercial reasonableness of any sale of
the Collateral.

          (c) The Subordinated Collateral Agent shall have the right upon any such public sale or sales
and, to the extent permitted by law, upon any such private sale or sales, to purchase for the
benefit of the Subordinated Collateral Agent and the Holders, the whole or any part of the
Collateral so sold, free of any right of equity redemption, which equity redemption the Grantor
hereby expressly releases.

          (d) Until the Subordinated Collateral Agent is able to effect a sale, lease, or other
disposition of Collateral, the Subordinated Collateral Agent shall have the right to hold or use
Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of
preserving Collateral or its value or for any other purpose deemed appropriate by the Subordinated
Collateral Agent. The Subordinated Collateral Agent may, if it so elects, seek the appointment of
a receiver or keeper to take possession of Collateral and to enforce any of the Subordinated
Collateral Agent’s remedies (for the benefit of the Subordinated Collateral Agent and Holders),
with respect to such appointment without prior notice or hearing as to such appointment.

          (e) [Intentionally Omitted].

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          (f) Notwithstanding the foregoing, neither the Subordinated Collateral Agent nor the Holders
shall be required to (i) make any demand upon, or pursue or exhaust any of their rights or remedies
against, the Grantor, any other obligor, guarantor, pledger or any other Person with respect to the
payment of the Secured Obligations or to pursue or exhaust any of their rights or remedies with
respect to any Collateral therefor or any direct or indirect guarantee thereof, (ii) marshal the
Collateral or any guarantee of the Secured Obligations or to resort to the Collateral or any such
guarantee in any particular order, or (iii) effect a public sale of any Collateral.

          (g) The Grantor recognizes that the Subordinated Collateral Agent may be unable to effect a
public sale of any or all the Pledged Collateral and may be compelled to resort to one or more
private sales thereof in accordance with clause (a) above. The Grantor also acknowledges
that any private sale may result in prices and other terms less favorable to the seller than if
such sale were a public sale and, notwithstanding such circumstances, agrees that any such private
sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue
of such sale being private. The Subordinated Collateral Agent shall be under no obligation to
delay a sale of any of the Pledged Collateral for the period of time necessary to permit the
Grantor or the issuer of the Pledged Collateral to register such securities for public sale under
the Securities Act of 1933, as amended, or under applicable state securities laws, even if the
Grantor and the issuer would agree to do so.

     5.3. Grantor’s Obligations Upon Default. Upon the request of the Subordinated
Collateral Agent after the occurrence and during the continuance of an Event of Default, the
Grantor will:

          (a) assemble and make available to the Subordinated Collateral Agent the Collateral and all
books and records relating thereto at any place or places specified by the Subordinated Collateral
Agent, whether at the Grantor’s premises or elsewhere;

          (b) permit the Subordinated Collateral Agent, by the Subordinated Collateral Agent’s
representatives and agents, to enter, occupy and use any premises where all or any part of the
Collateral, or the books and records relating thereto, or both, are located, to take possession of
all or any part of the Collateral or the books and records relating thereto, or both, to remove all
or any part of the Collateral or the books and records relating thereto, or both, and to conduct
sales of the Collateral, without any obligation to pay the Grantor for such use and occupancy;

          (c) prepare and file, or cause an issuer of Pledged Collateral to prepare and file, with the
Securities and Exchange Commission or any other applicable government agency, registration
statements, a prospectus and such other documentation in connection with the Pledged Collateral as
the Subordinated Collateral Agent may request, all in form and substance satisfactory to the
Subordinated Collateral Agent, and furnish to the Subordinated Collateral Agent, or cause an issuer
of Pledged Collateral to furnish to the Subordinated Collateral Agent, any information regarding
the Pledged Collateral in such detail as the Subordinated Collateral Agent may specify;

          (d) take, or cause an issuer of Pledged Collateral to take, any and all actions necessary to
register or qualify the Pledged Collateral to enable the Subordinated Collateral Agent to
consummate a public sale or other disposition of the Pledged Collateral; and

          (e) at its own expense, cause the independent certified public accountants then engaged by the
Grantor to prepare and deliver to the Subordinated Collateral Agent and each Holder, at any time,
and from time to time, promptly upon the Subordinated Collateral Agent’s request, the following
reports with respect to the Grantor: (i) a reconciliation of all Accounts; (ii) an aging of all
Accounts; (iii) trial balances; and (iv) a test verification of such Accounts.

     5.4. Grant of Intellectual Property License. For the purpose of enabling the
Subordinated Collateral Agent to exercise the rights and remedies under this Article V at
such time as the Subordinated Collateral Agent

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shall be lawfully entitled to exercise such rights and remedies, the Grantor hereby (a) grants to
the Subordinated Collateral Agent, for the benefit of the Subordinated Collateral Agent and the
Holders, an irrevocable, nonexclusive license (exercisable without payment of royalty or other
compensation to the Grantor) to use, license or sublicense any intellectual property rights now
owned or hereafter acquired by the Grantor, and wherever the same may be located, and including in
such license access to all media in which any of the licensed items may be recorded or stored and
to all computer software and programs used for the compilation or printout thereof and (b)
irrevocably agrees that the Subordinated Collateral Agent may sell any of the Grantor’s Inventory
directly to any person, including without limitation persons who have previously purchased the
Grantor’s Inventory from the Grantor and in connection with any such sale or other enforcement of
the Subordinated Collateral Agent’s rights under this Security Agreement, may sell Inventory which
bears any trademark owned by or licensed to the Grantor and any Inventory that is covered by any
copyright owned by or licensed to the Grantor and the Subordinated Collateral Agent may finish any
work in process and affix any trademark owned by or licensed to the Grantor and sell such
Inventory as provided herein.

ARTICLE VI

ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY

     6.1. Account Verification. The Subordinated Collateral Agent may at any time, in the
Subordinated Collateral Agent’s own name, in the name of a nominee of the Subordinated Collateral
Agent, or in the name of the Grantor communicate (by mail, telephone, facsimile or otherwise) with
the Account Debtors of such Grantor, parties to contracts with the Grantor and obligors in respect
of Instruments of the Grantor to verify with such Persons, to the Subordinated Collateral Agent’s
satisfaction, the existence, amount, terms of, and any other matter relating to, Retained
Receivables subject to applicable laws.

     6.2. Authorization for Subordinated Collateral Agent to Take Certain Action.

          (a) The Grantor irrevocably authorizes the Subordinated Collateral Agent at any time and from
time to time in the sole discretion of the Subordinated Collateral Agent and appoints the
Subordinated Collateral Agent as its attorney in fact (i) to execute on behalf of the Grantor as
debtor and to file financing statements necessary or desirable in the Subordinated Collateral
Agent’s sole discretion to perfect and to maintain the perfection and priority of the Subordinated
Collateral Agent’s security interest in the Collateral, (ii) to endorse and collect any cash
proceeds of the Collateral, (iii) to file a carbon, photographic or other reproduction of this
Security Agreement or any financing statement with respect to the Collateral as a financing
statement and to file any other financing statement or amendment of a financing statement (which
does not add new collateral or add a debtor) in such offices as the Subordinated Collateral Agent
in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and
priority of the Subordinated Collateral Agent’s security interest in the Collateral, (iv) to
contact and enter into one or more agreements with the issuers of uncertificated securities which
are Pledged Collateral or with securities intermediaries holding Pledged Collateral as may be
necessary or advisable to give the Subordinated Collateral Agent Control over such Pledged
Collateral, (v) to apply the proceeds of any Collateral received by the Subordinated Collateral
Agent to the Secured Obligations as provided in Section 7.2, (vi) to discharge past due taxes,
assessments, charges, fees or Liens on the Collateral (except for such Liens as are specifically
permitted hereunder), (vii) to contact Account Debtors for any reason, (viii) to demand payment or
enforce payment of the Retained Receivables in the name of the Subordinated Collateral Agent or
the Grantor and to endorse any and all checks, drafts, and other instruments for the payment of
money relating to the Retained Receivables, (ix) to sign the Grantor’s name on any invoice or bill
of lading relating to the Retained Receivables, drafts against any Account Debtor of the Grantor,
assignments and verifications of Retained Receivables, (x) to exercise all of the Grantor’s rights
and remedies with respect to the collection of the Retained Receivables and any other Collateral,
(xi) to settle, adjust, compromise, extend or renew the Retained Receivables, (xii) to settle,
adjust or compromise any legal proceedings brought to collect Retained Receivables, (xiii) to
prepare, file and sign the Grantor’s name on a proof of claim in bankruptcy or similar document
against any Account Debtor of the Grantor, (xiv) to prepare, file and sign the Grantor’s name on
any notice of Lien, assignment or satisfaction of Lien or similar document in connection with the
Retained Receivables, (xv) to change the address for delivery of mail addressed to the

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Grantor to such address as the Subordinated Collateral Agent may designate and to receive, open and
dispose of all mail addressed to the Grantor, and (xvi) to do all other acts and things necessary
to carry out this Security Agreement; and the Grantor agrees to reimburse the Subordinated
Collateral Agent on demand for any payment made or any expense incurred by the Subordinated
Collateral Agent in connection with any of the foregoing; provided that, this authorization shall
not relieve the Grantor of any of its obligations under this Security Agreement or under the
Purchase Agreement.

          (b) All acts of said attorney or designee are hereby ratified and approved. The powers
conferred on the Subordinated Collateral Agent, for the benefit of the Subordinated Collateral
Agent and Holders, under this Section 6.2 are solely to protect the Subordinated Collateral
Agent’s interests in the Collateral and shall not impose any duty upon the Subordinated Collateral
Agent or any Holder to exercise any such powers. The Subordinated Collateral Agent agrees that,
except for the powers granted in Section 6.2(a)(i)-(vi) and Section 6.2(a)(xvi), it shall not
exercise any power or authority granted to it unless an Event of Default has occurred and is
continuing.

     6.3. Proxy. THE GRANTOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS THE SUBORDINATED
COLLATERAL AGENT AS THE PROXY AND ATTORNEY-IN-FACT (AS SET FORTH IN SECTION 6.2 ABOVE) OF
THE GRANTOR WITH RESPECT TO THE PLEDGED COLLATERAL, INCLUDING THE RIGHT TO VOTE SUCH
PLEDGED COLLATERAL, WITH FULL POWER OF SUBSTITUTION TO DO SO. IN ADDITION TO THE RIGHT TO VOTE ANY
SUCH PLEDGED COLLATERAL, THE APPOINTMENT OF THE SUBORDINATED COLLATERAL AGENT AS PROXY AND
ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES AND
REMEDIES TO WHICH A HOLDER OF SUCH PLEDGED COLLATERAL WOULD BE ENTITLED (INCLUDING GIVING
OR WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF
SHAREHOLDERS AND VOTING AT SUCH MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND
WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY SUCH PLEDGED COLLATERAL ON THE
RECORD BOOKS OF THE ISSUER THEREOF) BY ANY PERSON (INCLUDING THE ISSUER OF SUCH PLEDGED COLLATERAL
OR ANY OFFICER OR AGENT THEREOF), UPON THE OCCURRENCE OF A DEFAULT.

     6.4.
Nature of Appointment; Limitation of Duty. THE APPOINTMENT
OF THE SUBORDINATED COLLATERAL AGENT AS PROXY AND ATTORNEY-IN-FACT IN THIS ARTICLE VI IS
COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE UNTIL THE DATE ON WHICH THIS SECURITY
AGREEMENT IS TERMINATED IN ACCORDANCE WITH SECTION 8.14.
NOTWITHSTANDING ANYTHING
CONTAINED HEREIN, NEITHER THE SUBORDINATED COLLATERAL AGENT, NOR ANY HOLDER, NOR ANY OF
THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL HAVE
ANY DUTY TO EXERCISE ANY RIGHT OR POWER GRANTED HEREUNDER OR OTHERWISE OR TO PRESERVE THE SAME AND
SHALL NOT BE LIABLE FOR ANY FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO, EXCEPT IN RESPECT OF
DAMAGES ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. AS FINALLY
DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED THAT, IN NO EVENT SHALL THEY BE
LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.

ARTICLE VII

COLLECTION AND APPLICATION OF COLLATERAL PROCEEDS; DEPOSIT ACCOUNTS

     7.1. Collection of Retained Receivables.

          (a) On or before the First Amendment Effective Date, the Grantor shall execute and deliver to
the Subordinated Collateral Agent a Deposit Account Control Agreement for Merchant Deposit Account
maintained by the Grantor at U.S. Bank National Association (the “Merchant Deposit Account”),
which

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Merchant Deposit Account is identified as such on Exhibit B. The Grantor shall cause to be
deposited in that Merchant Deposit Account on each Business Day all proceeds of Collateral other
than proceeds of Sales Receivables and Servicing Accounts and Retained Receivables. On or before
the First Amendment Effective Date, the Grantor shall execute and deliver to the Subordinated
Collateral Agent a Deposit Control Account Agreement for a deposit account (the “Collateral
Deposit Account”) maintained with the Bank Agent. Grantor shall cause to be deposited in the
Collateral Deposit Account on each Business Day all proceeds of Servicing Accounts, Sales
Receivables and settlement payments from the CIT Bank under the CIT Documents and Retained
Receivables. On each Business Day, all funds on deposit in the Merchant Deposit Account shall be
transferred to the Collateral Deposit Account. On or before the First Amendment Effective Date,
the Grantor will establish lock box service (the “Lock Boxes”) with the bank(s) set forth in
Exhibit B, which lock boxes shall be subject to irrevocable lockbox agreements in a form
acceptable to the Subordinated Collateral Agent designating the Subordinated Collateral Agent as
the secured party (a “Lock Box Agreement”).

          (b) The Grantor shall direct all of its Account Debtors to forward payments directly to Lock
Boxes subject to Lock Box Agreements. The Subordinated Collateral Agent shall have sole access to
the Lock Boxes at all times and the Grantor shall take all actions necessary to grant the
Subordinated Collateral Agent such sole access. At no time shall the Grantor remove any item from
the Lock Box without the Subordinated Collateral Agent’s prior written consent or from the
Collateral Deposit Account without the Subordinated Collateral Agent’s consent. If notwithstanding
the foregoing instructions, the Grantor receives any proceeds of any Underlying Receivables, the
Grantor shall receive such payments as the Subordinated Collateral Agent’s trustee, and shall
immediately deposit all cash, checks or other similar payments related to or constituting payments
made in respect of Retained Receivables received by it to a Lock Box. At any time the Subordinated
Collateral Agent is the “Controlling Secured Party” (as defined in the Collateral Deposit Account
Control Agreement), the Subordinated Collateral Agent shall hold and apply funds received into the
Collateral Deposit Account as provided by the terms of Section 7.2.

     7.2.
Application of Proceeds; Deficiency. All amounts deposited in the Collateral
Deposit Account shall be applied by the Subordinated Collateral Agent against the Secured
Obligations. Any such proceeds of the Collateral shall be applied as determined by the Holders. The
balance, if any, after all of the Secured Obligations have been satisfied, shall be deposited by
the Subordinated Collateral Agent into the Grantor’s general operating account. The Grantor shall
remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay all Secured Obligations, including any attorneys’ fees and other expenses
incurred by the Subordinated Collateral Agent or any Holder to collect such deficiency.

ARTICLE VIII

GENERAL PROVISIONS

     8.1. Waivers. The Grantor hereby waives notice of the time and place of any public
sale or the time after which any private sale or other disposition of all or any part of the
Collateral may be made. To the extent such notice may not be waived under applicable law, any
notice made shall be deemed reasonable if sent to the Grantor, addressed as set forth in
Article IX, at least ten days prior to (i) the date of any such public sale or (ii) the
time after which any such private sale or other disposition may be made. To the maximum extent
permitted by applicable law, the Grantor waives all claims, damages, and demands against the
Subordinated Collateral Agent or any Holder arising out of the repossession, retention or sale of
the Collateral, except such as arise solely out of the gross negligence or willful misconduct of
the Subordinated Collateral Agent or such Holder as finally determined by a court of competent
jurisdiction. To the extent it may lawfully do so, the Grantor absolutely and irrevocably waives
and relinquishes the benefit and advantage of, and covenants not to assert against the
Subordinated Collateral Agent or any Holder, any valuation, stay, appraisal, extension,
moratorium, redemption or similar laws and any and all rights or defenses it may have as a surety
now or hereafter existing which, but for this provision, might be applicable to the sale of any
Collateral made under the judgment, order or decree of any court, or privately under the power of
sale conferred by this Security Agreement, or otherwise. Except as otherwise specifically provided
herein, the Grantor hereby waives presentment, demand, protest or

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any notice (to the maximum extent permitted by applicable law) of any kind in connection with this
Security Agreement or any Collateral.

     8.2. Limitation on Subordinated Collateral Agent’s and Holders’ Duty with Respect to
the Collateral. The Subordinated Collateral Agent shall have no obligation to clean-up or
otherwise prepare the Collateral for sale. The Subordinated Collateral Agent and each Holder shall
use reasonable care with respect to the Collateral in its possession or under its control. Neither
the Subordinated Collateral Agent nor any Holder shall have any other duty as to any Collateral in
its possession or control or in the possession or control of any agent or nominee of the
Subordinated Collateral Agent or such Holder, or any income thereon or as to the preservation of
rights against prior parties or any other rights pertaining thereto. To the extent that applicable
law imposes duties on the Subordinated Collateral Agent to exercise remedies in a commercially
reasonable manner, the Grantor acknowledges and agrees that it is commercially reasonable for the
Subordinated Agent (i) to fail to incur expenses deemed significant by the Subordinated Collateral
Agent to prepare Collateral for disposition or otherwise to transform raw material or work in
process into finished goods or other finished products for disposition, (ii) to fail to obtain
third party consents for access to Collateral to be disposed of, or to obtain or, if not required
by other law, to fail to obtain governmental or third party consents for the collection or
disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection
remedies against Account Debtors or other Persons obligated on Collateral or to remove Liens on or
any adverse claims against Collateral, (iv) to exercise collection remedies against Account Debtors
and other Persons obligated on Collateral directly or through the use of collection agencies and
other collection specialists, (v) to advertise dispositions of Collateral through publications or
media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other Persons, whether or not in the same business as the Grantor, for expressions of
interest in acquiring all or any portion of such Collateral, (vii) to hire one or more professional
auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a
specialized nature, (viii) to dispose of Collateral by utilizing internet sites that provide for
the auction of assets of the types included in the Collateral or that have the reasonable capacity
of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale
rather than retail markets, (x) to disclaim disposition warranties, such as title, possession or
quiet enjoyment, (xi) to purchase insurance or credit enhancements to insure the Subordinated
Collateral Agent against risks of loss, collection or disposition of Collateral or to provide to
the Subordinated Collateral Agent a guaranteed return from the collection or disposition of
Collateral, or (xii) to the extent deemed appropriate by the Subordinated Collateral Agent, to
obtain the services of other brokers, investment bankers, consultants and other professionals to
assist the Subordinated Collateral Agent in the collection or disposition of any of the Collateral.
The Grantor acknowledges that the purpose of this Section 8.2 is to provide non-exhaustive
indications of what actions or omissions by the Subordinated Collateral Agent would be
commercially reasonable in the Subordinated Collateral Agent’s exercise of remedies against the
Collateral and that other actions or omissions by the Subordinated Collateral Agent shall not be
deemed commercially unreasonable solely on account of not being indicated in this Section 8.2.
Without limitation upon the foregoing, nothing contained in this Section 8.2 shall be construed to
grant any rights to the Grantor or to impose any duties on the Subordinated Collateral Agent that
would not have been granted or imposed by this Security Agreement or by applicable law in the
absence of this Section 8.2.

     8.3. Compromises and Collection of Collateral. The Grantor and the Subordinated
Collateral Agent recognize that setoffs, counterclaims, defenses and other claims may be asserted
by obligors with respect to certain of the Retained Receivables, that certain of the Retained
Receivables may be or become uncollectible in whole or in part and that the expense and probability
of success in litigating a disputed Retained Receivable may exceed the amount that reasonably may
be expected to be recovered with respect to a Retained Receivable. In view of the foregoing, the
Grantor agrees that the Subordinated Collateral Agent may at any time and from time to time, if an
Event of Default has occurred and is continuing, compromise with the obligor on any Retained
Receivable, accept in full payment of any Retained Receivable such amount as the Subordinated
Collateral Agent in its sole discretion shall determine or abandon any Retained Receivable, and any
such action by the Subordinated Collateral Agent shall be commercially reasonable so long as the
Subordinated Collateral Agent acts in good faith based on information known to it at the time it
takes any such action.

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     8.4. Secured Party Performance of Debtor Obligations. Without having any obligation to
do so, the Subordinated Collateral Agent may perform or pay any obligation which the Grantor has
agreed to perform or pay in this Security Agreement and the Grantor shall reimburse the
Subordinated Collateral Agent for any amounts paid by the Subordinated Collateral Agent pursuant to
this Section 8.4. The Grantor’s obligation to reimburse the Subordinated Collateral Agent
pursuant to the preceding sentence shall be a Secured Obligation payable on demand.

     8.5. Specific Performance of Certain Covenants. The Grantor acknowledges and agrees
that a breach of any of the covenants contained in Sections 4.1(d), 4.1(e), 4.4, 4.5, 4.6, 4.7,
4.8, 4.9, 4.10, 4.11, 5.3, or 8.7 or in Article VII will cause irreparable injury to the
Subordinated Collateral Agent and the Holders, that the Subordinated Collateral Agent and the
Holders have no adequate remedy at law in respect of such breaches and therefore agrees, without
limiting the right of the Subordinated Collateral Agent or the Holders to seek and obtain specific
performance of other obligations of the Grantor contained in this Security Agreement, that the
covenants of the Grantor contained in the Sections referred to in this Section 8.5 shall be
specifically enforceable against the Grantor.

     8.6. Dispositions Not Authorized. The Grantor is not authorized to sell or otherwise
dispose of the Collateral except as set forth in Section 4.1(d) and notwithstanding any course of
dealing between the Grantor and the Subordinated Collateral Agent or other conduct of the
Subordinated Collateral Agent, no authorization to sell or otherwise dispose of the Collateral
(except as set forth in Section 4.1(d)) shall be binding upon the Subordinated Collateral Agent or
the Holders unless such authorization is in writing signed by the Subordinated Collateral Agent
with the consent or at the direction of the Required Holder(s).

     8.7.
No Waiver; Amendments, Cumulative Remedies. No delay or omission of the
Subordinated Collateral Agent or any Holder to exercise any right or remedy granted under this
Security Agreement shall impair such right or remedy or be construed to be a waiver of any Default
or an acquiescence therein, and any single or partial exercise of any such right or remedy shall
not preclude any other or further exercise thereof or the exercise of any other right or remedy. No
waiver, amendment or other variation of the terms, conditions or provisions of this Security
Agreement whatsoever shall be valid unless in writing signed by the Subordinated Collateral Agent
(with the written approval of the Required Holder(s) or such other Person, if such approval is
required under the Purchase Agreement). All rights and remedies contained in this Security
Agreement or by law afforded shall be cumulative and all shall be available to the Subordinated
Collateral Agent and the Holders until the Secured Obligations have been paid in full.

     8.8.
Limitation by Law, Severability of Provisions. All rights, remedies and powers
provided in this Security Agreement may be exercised only to the extent that the exercise thereof
does not violate any applicable provision of law, and all the provisions of this Security Agreement
are intended to be subject to all applicable mandatory provisions of law that may be controlling
and to be limited to the extent necessary so that they shall not render this Security Agreement
invalid, unenforceable or not entitled to be recorded or registered, in whole or in part. Any
provision in this Security Agreement that is held to be inoperative, unenforceable, or invalid in
any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation, enforceability, or
validity of that provision in any other jurisdiction, and to this end the provisions of this
Security Agreement are  declared to be severable.

     8.9. Reinstatement. This Security Agreement shall remain in full force and effect and
continue to be effective should any petition be filed by or against the Grantor for liquidation or
reorganization, should the Grantor become insolvent or make an assignment for the benefit of any
creditor or creditors or should a receiver or trustee be appointed for all or any significant part
of the Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be,
if at any time payment and performance of the Secured Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the Secured Obligations, whether as a “voidable preference,”
“fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made.
In the event that any

20

 

payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations
shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced,
restored or returned.

     8.10. Benefit of Agreement. The terms and provisions of this Security Agreement shall
be binding upon and inure to the benefit of the Grantor, the Subordinated Collateral Agent and the
Holders and their respective successors and assigns (including all persons who become bound as a
debtor to this Security Agreement), except that the Grantor shall not have the right to assign its
rights or delegate its obligations under this Security Agreement or any interest herein, without
the prior written consent of the Subordinated Collateral Agent. No sales of participations,
assignments, transfers, or other dispositions of any agreement governing the Secured Obligations or
any portion thereof or interest therein shall in any manner impair the Lien granted to the
Subordinated Collateral Agent, for the benefit of the Subordinated Collateral Agent and the
Holders, hereunder.

     8.11. Survival of Representations. All representations and warranties of the Grantor
contained in this Security Agreement shall survive the execution and delivery of this Security
Agreement.

     8.12. Taxes and Expenses. Any taxes (including income taxes) payable or ruled payable
by Federal or State authority in respect of this Security Agreement shall be paid by the Grantor,
together with interest and penalties, if any. The Grantor shall reimburse the Subordinated
Collateral Agent for any and all out-of-pocket expenses and internal charges (including reasonable
attorneys’, auditors’ and accountants’ fees and reasonable time charges of attorneys, paralegals,
auditors and accountants who may be employees of the Subordinated Collateral Agent) paid or
incurred by the Subordinated Collateral Agent in connection with the preparation, execution,
delivery, administration, collection and enforcement of this Security Agreement and in the audit,
analysis, administration, collection, preservation or sale of the Collateral (including the
expenses and charges associated with any periodic or special audit of the Collateral). Any and all
costs and expenses incurred by the Grantor in the performance of actions required pursuant to the
terms hereof shall be borne solely by the Grantor.

     8.13. Headings. The title of and section headings in this Security Agreement are for
convenience of reference only, and shall not govern the interpretation of any of the terms and
provisions of this Security Agreement.

     8.14. Termination. This Security Agreement shall continue in effect (notwithstanding
the fact that from time to time there may be no Secured Obligations outstanding) until (i) the
Purchase Agreement has terminated pursuant to its express terms and (ii) all of the Secured
Obligations have been indefeasibly paid and performed in full and no commitments of the
Subordinated Collateral Agent or the Holders which would give rise to any Secured Obligations are
outstanding.

     8.15. Entire Agreement. This Security Agreement embodies the entire agreement and
understanding between the Grantor and the Subordinated Collateral Agent relating to the Collateral
and supersedes all prior agreements and understandings between the Grantor and the Subordinated
Collateral Agent relating to the Collateral.

     8.16.
CHOICE OF LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS.

     8.17. CONSENT TO JURISDICTION. THE GRANTOR HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY U.S. FEDERAL OR ILLINOIS STATE COURT SITTING IN
CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR ANY OTHER NOTE DOCUMENT AND THE GRANTOR HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS
TO

21

 

THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE SUBORDINATED COLLATERAL AGENT OR
ANY HOLDER TO BRING PROCEEDINGS AGAINST THE GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION. ANY
JUDICIAL PROCEEDING BY THE GRANTOR AGAINST THE SUBORDINATED COLLATERAL AGENT OR ANY HOLDER OR ANY
AFFILIATE OF THE SUBORDINATED COLLATERAL AGENT OR ANY HOLDER INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS SECURITY AGREEMENT OR ANY
OTHER NOTE DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS.

     8.18.WAIVER OF JURY TRIAL. THE GRANTOR, THE SUBORDINATED COLLATERAL AGENT AND EACH
HOLDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH THIS SECURITY AGREEMENT OR ANY OTHER NOTE DOCUMENT OR THE RELATIONSHIP ESTABLISHED
THEREUNDER.

     8.19. Indemnity. The Grantor hereby agrees to indemnify the Subordinated Collateral
Agent and the Holders, and their respective successors, assigns, agents and employees, from and
against any and all liabilities, damages, penalties, suits, costs, and expenses of any kind and
nature (including, without limitation, all expenses of litigation or preparation therefor whether
or not the Subordinated Collateral Agent or any Holder is a party thereto) imposed on, incurred by
or asserted against the Subordinated Collateral Agent or the Holders, or their respective
successors, assigns, agents and employees, in any way relating to or arising out of this Security
Agreement, or the manufacture, purchase, acceptance, rejection, ownership, delivery, lease,
possession, use, operation, condition, sale, return or other disposition of any Collateral
(including, without limitation, latent and other defects, whether or not discoverable by the
Subordinated Collateral Agent or the Holders or the Grantor, and any claim for trademark
infringement).

     8.20. Counterparts. This Security Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and any of the parties
hereto may execute this Security Agreement by signing any such counterpart.

     8.21. Effect of Changes in SPV Credit Documents. The SPV Credit Documents may be
amended, modified, supplemented, restated or extended from time to
time (each, a “change”),
provided that, for purposes of this Agreement, no such change shall affect the defined terms in the
SPV Credit Documents as such terms have been incorporated herein by reference in a manner which
impairs or diminishes the Collateral. Notwithstanding anything herein to the contrary, and for the
avoidance of doubt, the parties hereto expressly agree that any conveyance, assignment,
reconveyance or reassignment executed in accordance with the provisions of any such SPV Credit
Document shall not be considered to be a change to such SPV Credit Document.

     8.22. Springing Account Agreement. To the extent the Subordinated Collateral Agent
enters into a springing account control agreement with U.S. Bank National Association pertaining
to Account No. 104757791017, the Subordinated Collateral Agent will not deliver a written notice
pursuant thereto terminating Grantor’s access to, and granting the Subordinated Collateral Agent
exclusive control over, such account until the occurrence and continuance of an Event Default.

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ARTICLE IX

NOTICES

     Except as otherwise specified herein, all notices, requests, demands, consents, instructions
or other communications to or upon the Grantor or Subordinated Collateral Agent under this Security
Agreement shall be given as provided in paragraph 12I of the Purchase Agreement.

ARTICLE X

SUBORDINATED COLLATERAL AGENT

     Prudential Capital Partners II, L.P. has been appointed Subordinated Collateral Agent for the
Purchasers pursuant to the Collateral Agency Agreement. It is expressly understood and agreed by
the parties to this Security Agreement that any authority conferred upon the Subordinated
Collateral Agent hereunder is subject to the terms of the delegation of authority made by the
Purchasers to the Subordinated Collateral Agent pursuant to the Collateral Agency Agreement, and
that the Subordinated Collateral Agent has agreed to act (and any successor Subordinated
Collateral Agent shall act) as such hereunder only on the express conditions contained in the
Collateral Agency Agreement. Any successor Subordinated Collateral Agent appointed pursuant to the
Collateral Agency Agreement shall be entitled to all the rights, interests and benefits of the
Subordinated Collateral Agent hereunder.

ARTICLE XI

STOCK OF FINGERHUT SPV; LIMITATION ON ACTIONS

     11.1 The parties hereto acknowledge that the pledge hereunder of the membership interests
(the “Fingerhut SPV Stock”) of Grantor in the Fingerhut SPV is (i) junior in priority to the
pledge of the Fingerhut SPV Stock to the SPV Secured Parties under the SPV Share Pledge and (ii)
prohibited by the terms of the Receivables Contribution and Purchase Agreement, unless certain
limitations with respect to the pledge of the Fingerhut SPV Stock as set forth herein are
observed. Accordingly, in order to induce the SPV Collateral Agent to permit the pledge of the
Fingerhut SPV Stock, the parties hereto agree to the following limitations relating only to the
pledge of the Fingerhut SPV Stock and not to any other Pledged Collateral.

     To induce the SPV Collateral Agent to permit the pledge of the Fingerhut SPV Stock, the
parties hereto agree to the following limitations:

          (a) Notwithstanding anything to the contrary contained herein:

               (i) Prior to the date that is one year and one day after all Obligations under (and as
defined in) the SPV Revolving Credit Agreement have been paid in full, the Subordinated Collateral
Agent, for itself and for the Holders, agrees that, with respect to the Fingerhut SPV Stock, it
will not, without the prior written consent of the SPV Collateral Agent take any action adverse to
the SPV Collateral Agent or the SPV Secured Parties, including, without limitation, (A) causing the
Fingerhut SPV to violate or breach any term or provision in any SPV Credit Document, (B) amending
or altering any of the Fingerhut SPV’s organizational documents, (C) causing the Fingerhut SPV to
incur any debt, other than, in each case, as may be allowed in the SPV Credit Documents or (D)
otherwise take any action which would compromise or call into question the intended bankruptcy
remote structure of the transactions contemplated by the Receivables Contribution and Purchase
Agreement and the other SPV Credit Documents; provided, that any termination of the Receivables
Contribution and Purchase Agreement in accordance with the terms thereof shall not be deemed to be
adverse to the interests of the SPV Collateral Agent or the SPV Secured Parties;

               (ii) Prior to the date on which the Obligations under (and as defined in) the SPV
Credit Documents have been paid in full, in the event that the Subordinated Collateral Agent
receives any payments or funds constituting Receivables Property, the Subordinated Collateral Agent
shall hold such

23

 

payments or funds in trust for the benefit of the SPV Collateral Agent, and shall
promptly transfer such payments or funds to the SPV Collateral Agent;

               (iii) Prior to the date on which the Obligations under (and as defined in) the SPV
Credit Documents have been paid in full, (A) this Article XI shall not be amended, restated,
supplemented or otherwise modified without the prior written consent of the SPV Collateral Agent
and the provisions of this Article XI shall be contained in any agreement that amends and restates
this Security Agreement and (B) the Subordinated Collateral Agent for itself and for the Holders
agrees that no such party shall enter into any additional agreement that would adversely affect
the rights of any SPV Secured Party under the SPV Revolving Credit Agreement set forth in Article
XI hereof;

               (iv) Prior to the date that is one year and one day after all Obligations under (and as
defined in) the SPV Credit Documents have been paid in full, neither the Subordinated Collateral
Agent nor any Holder shall object to or contest in any administrative, legal or equitable action
or proceeding (including, without limitation, any insolvency, bankruptcy, receivership,
liquidation, reorganization, winding up, readjustment, composition or other similar proceeding
relating to the Grantor or the Fingerhut SPV or their respective property) or object to or contest
in any other manner (1) the interests of the Fingerhut SPV and its successors and assigns in any
of the assets transferred (or purported to be transferred) by Grantor to the Fingerhut SPV
pursuant to the Receivables Contribution and Purchase Agreement and/or (2) the interests of the
SPV Collateral Agent, and/or any SPV Secured Party in the Receivables Property or otherwise take
any action which would compromise or call into question the intended bankruptcy remote structure
of the transactions contemplated by the SPV Credit Documents. Neither the Subordinated Collateral
Agent nor any Holder shall object to or contest in any manner the receipt of any payment by the
SPV Collateral Agent with respect to the Receivables Property in accordance with the terms of the
SPV Credit Documents; and

               (v) Prior to the date that is ninety-five (95) days after all Obligations under (and as
defined in) the SPV Credit Documents have been paid in full, neither the Subordinated Collateral
Agent nor any Holder shall exercise or seek to exercise any rights or remedies, including any
action of foreclosure, with respect to the Fingerhut SPV Stock or institute any action or
proceeding with respect to such rights or remedies, including any action of foreclosure.

     The provisions of this Article XI shall continue to be effective or be reinstated, as the
case may be, if at any time any payment made pursuant to the Receivables Contribution and Purchase
Agreement is rescinded or must otherwise be returned by the SPV Collateral Agent or any of the
lenders upon the insolvency, bankruptcy or reorganization of the Grantor or the Fingerhut SPV or
otherwise, all as though such payment had not been made.

          (b) The SPV Collateral Agent shall be a third-party beneficiary with respect to this Article
XI.

          (c) The provisions of this Article XI provide for relative rights of the Subordinated
Collateral Agent and the SPV Collateral Agent, respectively, and are not intended for the benefit
of the Grantor or the Fingerhut SPV, nor shall such provisions limit or modify the obligations of
the Grantor under the Note Documents or the SPV Credit Documents, respectively.

ARTICLE XII

AMENDMENT AND RESTATEMENT

     This Security Agreement is intended to and does amend and restate the Amended Security
Agreement in its entirety and the Liens under the Amended Security Agreement shall be continuing in
all respects.

24

 

ARTICLE XIII

COLLATERAL HELD BY BANK AGENT

     Notwithstanding any provision to the contrary herein, any Collateral that constitutes Pledged
Collateral that is held by, or required to be delivered to, the Subordinated Collateral Agent
hereunder shall be deemed to be held by, or such requirement shall be deemed to be satisfied by
delivery to, the Bank Agent in accordance with the Intercreditor Agreement.

ARTICLE XIV

INTERCREDITOR AGREEMENT

     Notwithstanding anything herein to the contrary, the lien and security interest in the
Fingerhut SPV Stock granted to the Subordinated Collateral Agent, for the benefit of the Holders,
pursuant to this Security Agreement and the exercise of any right or remedy in respect of the
Fingerhut SPV Stock by the Subordinated Collateral Agent and the Holders hereunder are subject to
the provisions of the Intercreditor Agreement. In the event of any conflict or inconsistency
between a provision of the Intercreditor Agreement and this Security Agreement that relates solely
to the rights or obligations of, or relationships between, the SPV Secured Parties and the
Subordinated Collateral Agent, the provisions of the Intercreditor Agreement shall control.

ARTICLE XV

CONFIRMATION OF GRANT OF SECURITY INTEREST

     The Grantor hereby confirms the grant to the Subordinated Collateral Agent, for the ratable
benefit of the Holders, after giving effect to this Security Agreement, under the Original Security
Agreement and the Amended Security Agreement.

[Signature Page Follows]

25

 

     IN WITNESS WHEREOF, the Grantor and the Subordinated Collateral Agent have executed this
Security Agreement as of the date first above written.

	 	 	 	 	 

	 	 	GRANTOR:
	 
	 	 	 	 
	 	 	FINGERHUT DIRECT MARKET, INC.
	 
	 	 	 	 
	 

	 	By:	 	/s/ Mark P. Wagener
	 

	 	 	 	 
	 

	 	Name:	 	Mark P. Wagener
	 

	 	 	 	 
	 

	 	Title:	 	EVP and CFO
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	SUBORDINATED COLLATERAL AGENT:
	 
	 	 	 	 
	 	 	PRUDENTIAL CAPITAL PARTNERS II, L.P., as
Subordinated Collateral Agent
	 
	 	 	 	 
	 

	 	By:
	 	Stetson Street Partners, L.P., its general partner
	 
	 	 	 	 
	 

	 	By:	 	/s/ ILLEGIBLE
	 

	 	 	 	 
	 

	 	 	 	Vice President

 

EXHIBIT A

(See Sections 3.2, 3.3, 3.4, 3.9 and 9.1 of Security Agreement)

GRANTOR’S INFORMATION AND COLLATERAL LOCATIONS

	I.	 	Name of Grantor: Fingerhut Direct Marketing, Inc.
	 
	II.	 	State of Incorporation or Organization: Delaware
	 
	III.	 	Type of Entity: Corporation
	 
	IV.	 	Organizational Number assigned by State of Incorporation or Organization: 3567832
	 
	V.	 	Federal Employer Identification Number: 61-1425164
	 
	VI.	 	Place of Business (if it has only one) or Chief Executive Office (if more than one place
of business) and Mailing Address:
	 
		 	6509 Flying Cloud Drive

Eden Prairie, MN 55344

Attention: Chief Financial
Officer
	 
	VII.	 	Locations of Collateral:

	 	(a)	 	Properties Owned by the Grantor:
	 
	 	 	 	None.
	 
	 	(b)	 	Properties Leased by the Grantor (Include Landlord’s Name):

	 	 	 	 	 
	 	 	Address	 	Landlord
	1 . Warehouse

	 	6250 Ridgewood Road 
St. Cloud, MN
	 	Welsh Fingerhut MN, LLC
	 
	 	 	 	 
	2. Returns Center

	 	20 McLeland Road
 St. Cloud, MN
	 	Albo, LLC
	 
	 	 	 	 
	3. Data Center

	 	5480 Feltl Road 
Minnetonka, MN
	 	Time Warner Telecom Inc.
	 
	 	 	 	 
	4. Secondary Data Center

	 	511 11th Avenue South 
Minneapolis, MN
	 	Time Warner Telecom, Inc.
	 
	 	 	 	 
	5. Corporate Headquarters

	 	7777 Golden Triangle Drive 
Eden Prairie, MN
	 	Liberty Property Limited Partnership
	 
	 	 	 	 
	6. Corporate Headquarters

	 	6509 Flying Cloud Drive 
Eden Prairie, MN
	 	Superior Eden Prairie Holdings LLC

28

 

	 	 	 	 	 
	 	 	Address	 	Landlord
	7. Call Center

	 	11 McLeland Road 
St. Cloud, MN
	 	Sundance III, LLC
	 
	 	 	 	 
	8. Call Center

	 	1250 Industrial Park Road, 
Eveleth Industrial Park 
Eveleth, MN
	 	Dante A. Tini, John D. Tini and Donna Tini

	 	(c)	 	Public Warehouses or other Locations pursuant to Bailment or Consignment
Arrangements (include name of Warehouse Operator or other Bailee or Consignee):
	 
	 	 	 	None.

 

EXHIBIT B

(See Section 3.5 of Security Agreement)

DEPOSIT ACCOUNTS

FINGERHUT BANK ACCOUNTS

	 	 	 	 	 	 	 	 	 
	Bank Name	 	Account Number	 	Reason for Account	 	Source of Funding
	DEPOSIT
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	US Bank

	 	 	104757791017	 	 	Main operating account
	 	Main operating account. No funds flow from this account to JPM unless significant amount of excess cash. If excess cash, then line would be paid down from this account.
	 
	 	 	 	 	 	 	 	 
	US Bank

	 	 	204790175432	 	 	Operating disbursement account
	 	N/A
	 
	 	 	 	 	 	 	 	 
	US Bank

	 	 	152100018984	 	 	Controlled disbursement account
	 	N/A
	 
	 	 	 	 	 	 	 	 
	US Bank

	 	 	104774082853	 	 	Restricted account used for payments on sales/order
	 	Payments into this account are related to non-CIT credit sales (i.e., merchant credit cards). Cash is swept from this account on a periodic basis by JPM.
	 
	 	 	 	 	 	 	 	 
	US Bank

	 	 	104757791504	 	 	Zero balance account — Non-credit sales
	 	N/A
	 
	 	 	 	 	 	 	 	 
	US Bank

	 	 	104774083463	 	 	Payments of CIT accounts — Miscellaneous customer payments
	 	Payments into this account flow into the Huntington Lockbox. Can be trust and non-trust. Generally customer payments sent to St. Cloud and not directly to the Lockbox. Daily cash receipts from non-trust account.
	 
	 	 	 	 	 	 	 	 
	US Bank

	 	 	10457791009	 	 	Fingerhut Fulfillment, Inc. zero balance account
	 	N/A
	 
	 	 	 	 	 	 	 	 
	JP Morgan Chase

	 	 	758660021	 	 	Inventory loan account — Collection account
	 	N/A
	 
	 	 	 	 	 	 	 	 
	JP Morgan Chase

	 	 	737302588	 	 	Funding account — Money is swept from this account to US Bank operating account — Funding Account
	 	N/A
	 
	 	 	 	 	 	 	 	 
	CIT Bank

	 	 	9003	 	 	Cash collateral account
	 	Daily sales wire is sent from CIT to JPM to paydown inventory line. Fingerhut purchases receivables from CIT two days later.
	 
	 	 	 	 	 	 	 	 
	LOCKBOX
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Huntington Bank

	 	 	01661780221	 	 	Lockbox account for collection of customer payments.
	 	Daily cash receipts in respect of credit card receivables.

 

EXHIBIT C

(See Section 3.7 of Security Agreement)

LETTER
OF CREDIT RIGHTS 

None.

CHATTEL PAPER

None.

 

EXHIBIT D

(See Section 3.12 of Security Agreement and Definition of “Pledged Collateral”)

LIST OF PLEDGED COLLATERAL, SECURITIES AND OTHER INVESTMENT PROPERTY

STOCKS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Percentage of
	 	 	Certificate	 	Number of	 	Class of	 	Outstanding
	Issuer	 	Number(s)	 	Shares	 	Stock	 	Shares
	Fingerhut Receivables I, LLC
	 	 	1	 	 	 	N/A	 	 	Limited Liability Company Interests	 	 	100	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fingerhut Fulfillment, Inc.
	 	 	N/A	 	 	 	N/A	 	 	Common Stock	 	 	100	%

 

EXHIBIT E

(See Section 3.1 of Security Agreement)

OFFICES IN WHICH FINANCING STATEMENTS HAVE BEEN FILED)

     Delaware Secretary of State

 

EXHIBIT F

(See Section 3.8 of Security Agreement)

COMMERCIAL TORT CLAIMS

None.

 

EXHIBIT G

(See Section 3.13 of Security Agreement)

SECURITIES ACCOUNTS

None.

 

EXHIBIT Q

FORM OF RECEIVABLES INTERCREDITOR AGREEMENT

EXECUTION VERSION

INTERCREDITOR AGREEMENT

     THIS INTERCREDITOR AGREEMENT (as amended, restated, supplemented or otherwise modified from
time to time in accordance with the terms hereof, this “Agreement”) is entered into as of May 15,
2008, by and among Goldman Sachs Specialty Lending Group, L.P., as collateral agent under the SPV
Security Agreement and as collateral agent under the SPV Share Pledge (each, as defined below) (in
such capacities, together with its successors and assigns, the “SPV Collateral Agent”), Prudential
Capital Partners II, L.P., as collateral agent for the Purchasers party to the Holdings Securities
Purchase Agreement (as defined below) (in such capacity, together with its successors and assigns,
the “Notes Collateral Agent”), Fingerhut Receivables I, LLC, a Delaware limited liability company
 (“Fingerhut SPV”), and Fingerhut Direct Marketing, Inc., a Delaware corporation (“Fingerhut” or
the “Borrower”).

PRELIMINARY STATEMENTS

     A. The Borrower and the purchasers party thereto (the “Purchasers”) have entered into that
certain Securities Purchase Agreement, dated as of March 23, 2006 and amended as of the date hereof
(as the same and each of the other transaction documents related thereto may be further amended,
restated, supplemented or otherwise modified from time to time, the “Holdings Securities Purchase
Agreement” and collectively, the “Note Facility”), pursuant to which the Borrower issued, and the
Purchasers purchased, $30,000,000 aggregate principal amount of the 13.00% Senior Subordinated
Secured Notes due March 24, 2013 (the “Subordinated Notes”). In connection with the Note Facility,
to secure all of the obligations of the Borrower to the Purchasers and the Notes Collateral Agent,
the Borrower and the Notes Collateral Agent are concurrently herewith entering into that certain
Second Amended and Restated Pledge and Security Agreement dated as of May 15, 2008 (as the same may
be further amended, restated, supplemented or otherwise modified from time to time, the “Holdings
Securities Security Agreement”) pursuant to which the Borrower has granted to the Notes Collateral
Agent a security interest in the Note Collateral (as defined below). The Holdings Securities
Security Agreement amends and restates that certain Amended and Restated Pledge and Security
Agreement dated as of June 21, 2007 between the Borrower and the Notes Collateral Agent.

     B. Pursuant to the SPV Revolving Credit Agreement (as defined in Exhibit A hereto), the
lenders thereunder have agreed to extend a revolving credit facility to Fingerhut SPV, in an
aggregate principal amount of up to $280,000,000, the proceeds of which will be used to acquire
certain Underlying Receivables pursuant to the Receivables Contribution and Purchase Agreement
(each as defined in Exhibit A hereto).

     C. Pursuant to the Receivables Contribution and Purchase Agreement, Fingerhut has agreed to
sell or contribute to Fingerhut SPV, from time to time, all of its right, title and interest in and
to Underlying Receivables and other Purchased Assets arising from all Receivables Accounts (each as
defined in Exhibit A hereto).

     D. Pursuant to that certain Security Agreement (as amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof,

1

 

the
“SPV Security Agreement”) between Fingerhut
SPV and the SPV Collateral Agent, Fingerhut SPV has
pledged all of its right, title and interest in the Receivables Property (as defined in Exhibit A
hereto) and has granted a first priority perfected security interest
therein to the SPV Collateral
Agent, for the benefit of the SPV Secured Parties.

     E. Pursuant to that certain Equity Pledge Agreement (as amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof, the “SPV Share Pledge”)
between the Borrower and the SPV Collateral Agent, the Borrower has pledged all of its right, title
and interest in the Fingerhut SPV Stock (as defined in Exhibit A hereto) and has granted a first
priority perfected security interest therein to the SPV Collateral Agent, for the benefit of the
SPV Secured Parties, solely to secure the obligations of the Borrower under the Holdings Guaranty
and the Holdings Letter Agreement (each as defined in Exhibit A hereto) (such obligations, the
“Holdings Obligations”).

     F. The parties are entering into this Agreement to set forth their understandings with respect
to the Receivables Property and the Note Collateral.

     G. Except as otherwise defined herein, all defined terms herein shall have the meanings
ascribed thereto in Exhibit A hereto or in the UCC or incorporated herein by reference to the SPV
Credit Documents as in effect on the date hereof. For purposes of this Agreement, the term “Note
Collateral” means the following:

	 	(i)	 	All Accounts;
	 
	 	(ii)	 	All Chattel Paper;
	 
	 	(iii)	 	All Commercial Tort Claims;
	 
	 	(iv)	 	All Contracts;
	 
	 	(v)	 	All Deposit Accounts;
	 
	 	(vi)	 	All Documents;
	 
	 	(vii)	 	All Equipment;
	 
	 	(viii)	 	All General Intangibles (including Payment Intangibles);
	 
	 	(xi)	 	All Instruments;
	 
	 	(x)	 	All Inventory;
	 
	 	(xi)	 	All Investment Property;
	 
	 	(xii)	 	All Letter-of-Credit Rights;
	 
	 	(xiii)	 	All Securities Accounts;

2

 

	 	(xiv)	 	All Supporting Obligations;
	 
	 	(xv)	 	All property of Borrower held by the Notes Collateral Agent or
any Holder (as defined in the Holdings Securities Security Agreement),
including, without limitation, all property of every description now or
hereafter in the possession or custody of or in transit to the Notes Collateral
Agent or any Holder for any purpose, including, without limitation,
safekeeping, collection or pledge, for the account of the Borrower, or as to
which Borrower may have any right or power;
	 
	 	(xvi)	 	All other goods and personal property of the Borrower whether
tangible or intangible and whether now or hereafter owned or existing, leased,
consigned by or to, or acquired by Borrower and wherever located; and
	 
	 	(xvii)	 	To the extent not otherwise included, all Proceeds of each of the foregoing
and all accessions to, substitutions and replacements for, and rents, profits
and products of each of the foregoing;

excluding, however, in each case, the Receivables Property now existing or hereafter arising and
all books, records, ledger cards, files, correspondence, computer programs, tapes, disks and
related data that evidence or contain information relating to the Receivables Property. To the
extent that any security interest arises in any Receivables Account or in any asset under the
Holdings Securities Security Agreement prior to its becoming Receivables Property, such security
interest is deemed to have terminated automatically on the date it becomes a Receivables Account or
Receivables Property; provided that such security interest shall be automatically
reinstated on the date when any such Receivables Property is reconveyed to Fingerhut and ceases to
be Receivables Property pursuant to the terms of the SPV Credit Documents.

     Accordingly, in consideration of the foregoing and the mutual covenants hereinafter set
forth, the parties hereto agree as follows:

     Section 1. Security Interests.

     (a) Pursuant to the Holdings Securities Security Agreement, the Borrower has granted a
perfected security interest (subject only to (x) the first priority security interest of the SPV
Collateral Agent in the Fingerhut SPV Stock and (y) certain Liens securing the Senior Debt (as
defined in the Subordination and Intercreditor Agreement) as set forth in the Subordination and
Intercreditor Agreement) in the Note Collateral to the Notes Collateral Agent, for the benefit of
itself and the Purchasers (the “Note Facility Secured
Parties”). In accordance with the Holdings
Securities Security Agreement, the Notes Collateral Agent has agreed that the Note Collateral does
not and will not include or constitute at any time Receivables Property, and the Notes Collateral
Agent hereby releases automatically, without any further action by any party, any and all liens,
security interests and any other interest or claim in or to the Receivables Property.

3

 

     (b) Pursuant to the Receivables Contribution and Purchase Agreement, Fingerhut shall
transfer to Fingerhut SPV all of its right, title and interest in the Receivables Property.

     (c) Pursuant to the SPV Security Agreement, Fingerhut SPV has granted a first priority
perfected security interest in the Receivables Property to the SPV Collateral Agent, for the
benefit of the SPV Secured Parties. The SPV Collateral Agent agrees that the Receivables Property
does not and will not include or constitute at any time Note Collateral.

     (d) Pursuant to the SPV Share Pledge, solely to secure the Holdings Obligations, the
Borrower has granted a first priority perfected security interest in the Fingerhut SPV Stock to the
SPV Collateral Agent, for the benefit of the SPV Secured Parties.

     (e) Each of the parties hereto hereby acknowledges that the SPV Collateral Agent, for the
benefit of the SPV Secured Parties, has a first priority perfected security interest in (i) the
Fingerhut SPV Stock, solely to secure the Holdings Obligations, and (ii) all of the Receivables
Property, including remittances relating thereto, and agrees not to object or contest in any
administrative, legal or equitable action or proceeding (including, without limitation, any
insolvency, bankruptcy, receivership, liquidation, reorganization, winding up, readjustment,
composition or other similar proceeding relating to Fingerhut, Fingerhut SPV or their respective
property) or object to or contest in any other manner the validity, priority or perfection of such
security interest or otherwise take any action which would compromise or call into question the
intended bankruptcy remote structure of the transactions contemplated by the SPV Credit Documents.
The Notes Collateral Agent hereby expressly acknowledges that pursuant to the Holdings Securities
Security Agreement, the Notes Collateral Agent has (x) a junior, subordinated security
interest in the Fingerhut SPV Stock, which is, to the extent the lien of the SPV Collateral Agent
on such Fingerhut SPV Stock secures the Holdings Obligations, junior and subordinate to such liens,
and (y) no interest in any of the Receivables Property; provided, however, that at any time
that any of the Receivables Property ceases to be Receivables Property and is reconveyed to
Fingerhut, then at such time (i) such assets shall no longer be deemed to be Receivables Property,
(ii) the security interest of the Notes Collateral Agent therein shall automatically attach, (iii)
such reconveyed assets shall be deemed to be Note Collateral, and (iv) any remittance which is not
proceeds of Receivables Property will be deemed Note Collateral.

     (f) Each of the parties hereto hereby acknowledges that the Notes Collateral Agent, for the
benefit of the Note Facility Secured Parties, has a perfected security interest in all of the Note
Collateral (subject only to certain Liens securing the Senior Debt (as defined in the Subordination
and Intercreditor Agreement) as set forth in the Subordination and Intercreditor Agreement and,
with respect to the Fingerhut SPV Stock only, the Lien created pursuant to the SPV Share Pledge),
including remittances relating thereto, and agrees not to object to or contest in any
administrative, legal or equitable action or proceeding (including, without limitation, any
insolvency, bankruptcy, receivership, liquidation, reorganization, winding up, readjustment,
composition or other similar proceeding relating to the Borrower or any of its property) or object
to or contest in any other manner the validity, priority or perfection of such security interest.
The SPV Collateral Agent hereby expressly acknowledges that the SPV Collateral Agent has no
interest in any of the Note Collateral (including remittances relating thereto), except its first
priority security interest in the Fingerhut SPV Stock.

4

 

     (g) Nothing herein shall be deemed to waive any rights of the Notes Collateral Agent or the
SPV Collateral Agent in the event of any transfer or other disposition of the Note Collateral or
Receivables Property, as the case may be, in violation of the agreements relating thereto or to
preclude the exercise by the Notes Collateral Agent or the SPV Collateral Agent of rights and
remedies provided for under the Note Facility or the SPV Credit Documents (referred to collectively
herein as, the “Credit Documents”), as applicable.

     (h) The SPV Collateral Agent hereby agrees that: (i) Fingerhut may pledge to the Notes
Collateral Agent all of its right, title and interest in and to its equity interests in Fingerhut
SPV, together with all dividends and other rights relating thereto pursuant to the Holdings
Securities Security Agreement or such other pledge agreement if such other pledge agreement
contains provisions consistent with the provisions set forth in Article XI of the Holdings
Securities Security Agreement, (ii) Borrower and each of Borrower’s other subsidiaries (excluding,
in any event, Fingerhut SPV) (a “Guarantor”) may grant to the Notes Collateral Agent a security
interest in the Note Collateral, (iii) a Guarantor may grant to the Notes Collateral Agent a
security interest in all of its personal property, (iv) the security interests granted under the
Holdings Securities Security Agreement, other than with respect to the Receivables Property may
continue to secure the obligations of Borrower to the Notes Collateral Agent and (v) the SPV
Collateral Agent shall not take a lien, pledge or other encumbrance on the Fingerhut SPV Stock
other than to secure the Holdings Obligations..

     (i) The Notes Collateral Agent, the Purchasers and the Note Facility Secured Parties hereby
acknowledge that they have not entered into the Holdings Securities Purchase Agreement, the
Holdings Securities Security Agreement or this Agreement in reliance on the creditworthiness of
Fingerhut SPV and are relying solely on the assets of Borrower to secure the obligations of the
Borrower thereunder and hereunder. The SPV Collateral Agent, the lenders under the SPV Revolving
Credit Agreement and the SPV Secured Parties hereby acknowledge that they have not entered into
the SPV Credit Documents or this Agreement in reliance on the creditworthiness of the Borrower and
are relying solely on the assets of Fingerhut SPV to secure the obligations of Fingerhut SPV
thereunder and hereunder.

     Section 2. Cooperation.

     (a) In the event that the SPV Collateral Agent gets written notice or has actual knowledge
that the SPV Collateral Agent shall be deemed to have a perfected security interest in any of the
Note Collateral (except the Fingerhut SPV Stock) at any time hereafter, the SPV Collateral Agent
shall (i) promptly notify all other parties to this Agreement, and (ii) take any and all steps
necessary, at the direction of the Borrower, to have such perfected security interest released or
assigned to the Notes Collateral Agent, on behalf of the Note Facility Secured Parties.

     (b) In the event that the Notes Collateral Agent shall be deemed to have a perfected security
interest in any of the Receivables Property at any time hereafter, the Notes Collateral Agent shall
(i) promptly notify all other parties to this Agreement, and (ii) take any and all steps necessary
to have such perfected security interest released or assigned to the SPV Collateral Agent for the
benefit of the SPV Secured Parties.

5

 

     (c) The Notes Collateral Agent hereby agrees promptly to transfer and return to, or in
accordance with the written direction of, the SPV Collateral Agent, at such account or other place
as the SPV Collateral Agent may so instruct, any funds or other property that are received by the
Notes Collateral Agent and that are identified to the Notes Collateral Agent in writing as not
constituting Note Collateral but instead constituting Receivables Property or Fingerhut SPV Stock.
For purposes of maintaining the perfection of the SPV Collateral Agent’s interest therein, the SPV
Collateral Agent hereby appoints the Notes Collateral Agent as its agent in respect of such funds
or other property and the Notes Collateral Agent accepts such appointment; provided, that
the Notes Collateral Agent’s sole duty as such agent shall be to hold such funds and other property
in trust for the benefit of the SPV Collateral Agent and to transfer such funds or other property
to or at the written direction of the SPV Collateral Agent as aforesaid.

     (d) Subject to the SPV Collateral Agent’s obligations under the JPM Intercreditor
Agreement, the SPV Collateral Agent hereby agrees promptly to transfer and return to, or in
accordance with the directions of, the Notes Collateral Agent, at such account or other place as
the Notes Collateral Agent may instruct, any funds or other property (excluding Fingerhut SPV
Stock) that are received by the SPV Collateral Agent and that are identified to the SPV Collateral
Agent, in writing by Fingerhut or the Notes Collateral Agent, as not constituting Receivables
Property but instead constituting Note Collateral. For purposes of maintaining the perfection of
the Notes Collateral Agent’s interest therein, the Notes Collateral Agent hereby appoints the SPV
Collateral Agent as its agent in respect of such funds and other property and the SPV Collateral
Agent accepts such appointment; provided, that the SPV Collateral Agent’s sole duty as such
agent shall be to hold such funds or other property in trust for the benefit of the Notes.
Collateral Agent and to transfer such funds or other property to the Notes Collateral Agent’s
Collection Account at the direction of the Notes Collateral Agent or Fingerhut as aforesaid.

     (e) The Borrower and the SPV Collateral Agent hereby agree that they shall not modify the
provisions of the Holdings Guaranty, the Holdings Letter Agreement or
the SPV Share Pledge in any
manner that adversely affects the Notes Collateral Agent and the Purchasers party to the Holdings
Securities Purchase Agreement, without the consent of the Notes Collateral Agent, such consent not
to be unreasonably withheld, conditioned or delayed.

     Section 3. Sales Receivables and Servicing Accounts.

     Fingerhut hereby directs Fingerhut SPV to pay the portion of the cash consideration
that is paid by Fingerhut SPV to Fingerhut pursuant to the Receivables Contribution and Purchase
Agreement to the Collection Account established by Fingerhut.

     Section 4. Representations.

     Each of the parties hereto represents and warrants to the other parties that (a) its
execution, delivery and performance of this Agreement has been duly authorized by all necessary
corporate proceedings, (b) the execution, delivery and performance by it of this Agreement is
within its corporate powers and does not conflict with its charter, by-laws or operating agreement
or with any law, rule, regulation, writ or order binding upon it or its

6

 

properties, and (c) this Agreement constitutes its legally valid and enforceable obligation,
enforceable against it in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors’ rights generally or by general principles of equity.

     Section 5. Notices.

     All notices required to be given hereunder shall be given in writing and shall be effective
when received at the address for the recipient as set forth beneath its signature on the signature
pages hereof. Any party may change its address for notice by written notice to the other parties
hereto.

     Section 6. No Proceedings.

     Each of the parties hereto (other than the SPV Collateral Agent) agrees that it will
not institute against Fingerhut SPV or join any person in instituting against Fingerhut SPV, any
case or other proceeding under any applicable bankruptcy, insolvency, reorganization, debt
arrangement, dissolution or other similar law now or hereafter in effect so long as one year and
one day shall not have elapsed since the Obligations under the SPV Revolving Credit Agreement (as
defined therein) have been paid in full.

     Section 7. Miscellaneous.

     (a) Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor
consent to any departure by any party herefrom, shall in any event be effective unless the same
shall be in writing and signed by all of the parties hereto, and, in the case of a waiver, shall be
effective only in the specific instance and for the specific purpose for which given.

     (b) Conflict. In the event of any conflict between the provisions of this Agreement
and the provisions of any of the Credit Documents, the provisions of this Agreement shall govern
and prevail.

     (c) Termination. In the event that all obligations secured by the Note Collateral
shall have been paid in full and the Note Facility and liens created thereunder shall have been
terminated or released, then the Notes Collateral Agent shall promptly notify the other parties
hereto, and the Notes Collateral Agent thereafter shall no longer have any rights or obligations
hereunder. In the event that the Obligations under the SPV Revolving Credit Agreement (as defined
therein) have been paid in full and the other SPV Credit Documents and liens created thereunder
shall have been terminated or released, then the SPV Collateral Agent shall promptly notify the
other parties hereto, and the SPV Collateral Agent thereafter shall no longer have any rights or
obligations hereunder.

     (d) Binding Effect. This Agreement shall become effective when it shall have been
executed and delivered by each of the parties hereto and thereafter shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns.

7

 

     (e) No Benefit To Third Parties. The terms and provisions of this Agreement shall be
for the sole benefit of the Notes Collateral Agent and the Note Facility Secured Parties under the
Note Facility and the SPV Collateral Agent and the SPV Secured Parties under the SPV Credit
Documents, the other parties hereto and their respective successors and assigns, and no other
person, firm, entity or corporation shall have any right, benefit, priority, or interest under, or
because of this Agreement. This Agreement shall define the relative rights of the Notes Collateral
Agent and the Note Facility Secured Parties, on the one hand, and the SPV Collateral Agent and the
SPV Secured Parties, on the other hand. Nothing in this Agreement shall (i) impair or otherwise
affect, as among Fingerhut, and the Notes Collateral Agent and the Note Facility Secured Parties,
on the one hand, and as between Fingerhut SPV and Fingerhut, and the SPV Collateral Agent and the
SPV Secured Parties, on the other hand, the obligation of (x) Fingerhut to the Notes Collateral
Agent and the Note Facility Secured Parties pursuant to and under the Note Facility or (y) either
Fingerhut SPV or Fingerhut to the SPV Collateral Agent and the SPV Secured Parties pursuant to and
under the SPV Credit Documents or (ii) affect the relative rights of the Notes Collateral Agent,
the Note Facility Secured Parties, the SPV Collateral Agent or the SPV Secured Parties with respect
to any other creditors of either Fingerhut SPV or Fingerhut.

     (f) GOVERNING LAW; JURISDICTION. THIS AGREEMENT
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO CONFLICTS OF LAWS (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW). EACH OF THE PARTIES HERETO HEREBY AGREES TO THE NONEXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK LOCATED IN NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. EACH OF THE PARTIES HERETO HEREBY WAIVES
ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED
HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.

     (g) Execution in Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original and all of which
when taken together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Agreement by facsimile or by e-mail transmission shall be
effective as delivery of a manually executed counterpart of this Agreement.

     (h) Effect of Changes in SPV Credit Documents. The SPV Credit Documents may be amended,
modified, supplemented, restated or extended from time to time (each, a “change”);
provided, for the purposes of this Agreement, no such change shall affect the defined
terms in the SPV Credit Documents as such terms have been incorporated herein by reference in a
manner which impairs or diminishes the Note Collateral. Notwithstanding anything herein to the
contrary, and for the avoidance of doubt, the parties hereto expressly agree that any conveyance,
assignment, reconveyance or reassignment executed in accordance with the

8

 

provisions of any such SPV Credit Document shall not be considered to be a change to such SPV
Credit Document.

     (i) WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE
PARTIES HERETO WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE PARTIES HERETO ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN ANY OF THEM IN CONNECTION WITH THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT
WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.

     (j) Intercreditor Agreement Governs. In the event of any conflict or inconsistency
between a provision of this Agreement and any of (i) the Note Facility, (ii) the Holdings
Securities Security Agreement and (iii) the SPV Credit Documents, that relates solely to the
rights or obligations of, or relationships between, the SPV Secured Parties and the Note Facility
Secured Parties, the provisions of this Agreement shall control.

     (k) Agent for Perfection. If the SPV Collateral Agent takes possession of share
certificates evidencing the Fingerhut SPV Stock, SPV Collateral Agent shall be deemed to be holding
the Fingerhut SPV Stock as agent and “representative” (as such term is used in the Uniform
Commercial Code as in effect in each applicable jurisdiction) for the Note Facility Secured Parties
as well as the SPV Secured Parties; provided that Notes Collateral Agent and each Note
Facility Secured Party hereby waives and releases SPV Collateral Agent from all claims and
liabilities arising pursuant to its role as such representative, except for claims and liabilities
arising from gross negligence or willful misconduct as finally determined pursuant to a final order
of a court of competent jurisdiction. Promptly following the date on which all Obligations under
and as defined in the SPV Revolving Credit Agreement are paid in full, SPV Collateral Agent shall,
subject to the provisions of the JPM Intercreditor Agreement and the Subordination and
Intercreditor Agreement, deliver the Fingerhut SPV Stock, if any, in its possession to the Notes
Collateral Agent (except as may otherwise be required by applicable law or court order).

[Remainder of page intentionally left blank]

[Signature pages follow]

9

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first above written.

	 	 	 	 	 	 	 

	 	 	GOLDMAN SACHS
SPECIALTY LENDING GROUP, L.P.,	 	 
	 	 	as SPV Collateral Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Address:    6011 Connection Drive
	 	 
	 

	 	 	 	      Irving, Texas 75039	 	 
	 

	 	Attention:   Account Manager
	 	 
	 

	 	Facsimile:	 	 
	 
	 	 	 	 	 	 
	 	 	PRUDENTIAL CAPITAL PARTNERS II, L.P.,	 	 
	 	 	as Notes Collateral Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Stetson Street Partners, L.P., its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Address:    c/o Prudential Capital Group
	 	 
	 

	 	 	 	Two Prudential Plaza, Suite 5600
	 	 
	 

	 	 	 	180 N. Stetson Avenue
	 	 
	 

	 	 	 	Chicago, Illinois 60601
	 	 
	 

	 	 	 	Attention: Managing Director
	 	 
	 

	 	Facsimile:    (312) 540-4222
	 	 

					
	 	 	 	 	 
	 
	 	 	 	Signature Page to
	 
	 	 
	 	Prudential Intercreditor Agreement

S-1

 

	 	 	 	 	 	 	 

	 	 	FINGERHUT RECEIVABLES I, LLC,	 	 
	 	 	as Fingerhut SPV	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

Mark P. Wagener
	 	 
	 

	 	Title:
	 	Executive Vice President and Chief	 	 
	 

	 	 	 	Financial Officer	 	 
	 
	 	 	 	 	 	 
	 

	 	Address:   6509 Flying Cloud Drive
	 	 
	 

	 	 	 	Eden Prairie, MN 55344
	 	 
	 

	 	 	 	Attention: Chief Financial Officer
	 	 
	 

	 	Facsimile:  (952) 933-9308
	 	 
	 
	 	 	 	 	 	 
	 	 	FINGERHUT DIRECT MARKETING, INC.,	 	 
	 	 	as Borrower	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

Mark P. Wagener
	 	 
	 

	 	Title:
	 	Executive Vice President and Chief	 	 
	 

	 	 	 	Financial Officer	 	 
	 
	 	 	 	 	 	 
	 

	 	Address:   6509 Flying Cloud Drive
	 	 
	 

	 	 	 	Eden Prairie, MN 55344
	 	 
	 

	 	 	 	Attention: Chief Financial Officer
	 	 
	 

	 	Facsimile:  (952) 933-9308
	 	 

					
	 	 	 	 	 
	 
	 	 	 	Signature Page to
	 
	 	 
	 	Prudential Intercreditor Agreement

S-2

 

EXHIBIT A

     “Accounts” shall have the meaning set forth in Article 9 of the UCC. 

     “Chattel Paper” shall have the meaning set forth in Article 9 of the UCC.

     “Collateral Deposit Account” shall have the meaning set forth in Section 7.1(a) of
the Holdings Securities Security Agreement as in effect on the date hereof.

     “Collection Account” means deposit account No. 758660021 of Fingerhut maintained with
JPMorgan Chase Bank, N.A.

     “Commercial Tort Claim” means any “commercial tort claim,” as such term is defined in
Section 9-102(a)(13) of the UCC (or any other then applicable provision of the UCC) which is set
forth on Schedule II of the Holdings Securities Security Agreement.

     “Contracts” means all contracts, undertakings, franchise agreements or other agreements (other
than rights evidenced by Chattel Paper, Documents or Instruments) in or under which the Borrower
may now or hereafter have any right, title or interest, including, without limitation, with respect
to an Account, any agreement relating to the terms of payment or the terms of performance thereof.

     “Control” shall have the meaning set forth in Article 8 or, if applicable, in Section 9-104,
9-105, 9-106 or 9-107 of Article 9 of the UCC.

     “Deposit Accounts” shall have the meaning set forth in Article 9 of the UCC.

     “Documents” shall have the meaning set forth in Article 9 of the UCC.

     “Equipment” means any “equipment,” as such term is defined in Section 9-102(a)(33) of the UCC
(or any other then applicable provision of the UCC), now or hereafter owned or acquired by the
Borrower or in which the Borrower now holds or hereafter acquires any interest and, in any event,
shall include, without limitation, all machinery, equipment, fixtures, furniture, furnishings,
trade fixtures, vehicles, trucks, mainframe, personal and other computers, terminals and printers
and related components and accessories, all copiers, telephonic, video, electronic data-processing,
data storage equipment and other equipment of any nature whatsoever, and any and all additions,
substitutions and replacements of any of the foregoing, wherever located, together with all
attachments, components, parts, equipment and accessories installed thereon or affixed thereto.

     “Fingerhut SPV Stock” means the SPV Pledged Equity; and all SPV Proceeds, dividends,
cash, instruments and other property from time to time received, receivable or otherwise
distributed in respect or exchange for any and all of the SPV Pledged Equity.

     “General Intangibles” shall have the meaning set forth in Article 9 of the UCC.

Exhibit A-1

 

     “Holdings Guaranty” means that certain Guaranty dated as of May 15, 2008 by and among
Borrower and the SPV Collateral Agent, on behalf of the lenders under the SPV Revolving Credit
Agreement, as may be further amended, modified or supplemented from time to time in accordance
with the terms thereof.

     “Holdings Letter Agreement” means that certain Letter Agreement dated as of May 15,
2008, by and between Borrower and the SPV Collateral Agent, and as may be further amended, modified
or supplemented from time to time in accordance with the terms thereof.

     “Instruments” shall have the meaning set forth in Article 9 of the UCC.

     “Inventory” shall have the meaning set forth in Article 9 of the UCC.

     “Investment Property” shall have the meaning set forth in Article 9 of the UCC.

     “JPM Intercreditor Agreement” means the Intercreditor Agreement dated as of May 15,
2008 among JPMorgan Chase Bank, N.A., as administrative agent, and the SPV Collateral Agent on
behalf of secured lenders under the SPV Credit Documents, as the same may be amended or modified
from time to time.

     “Letter-of-Credit Rights” shall have the meaning set forth in Article 9 of the UCC.

     “Payment Intangibles” shall have the meaning set forth in Article 9 of the UCC.

     “Purchased Assets” means (i) Underlying Receivables and (ii) other “Purchased Assets”
(as such term is defined in Section 2.1(a) of the Receivables Contribution and Purchase
Agreement).

     “Receivables Account” shall mean each consumer revolving credit account established
pursuant to a Receivables Account Agreement (as defined in the Servicing Agreement) between CIT
Bank and any Receivables Obligor (as defined in the Servicing Agreement).

     “Receivables Contribution and Purchase Agreement” means that certain Receivables
Contribution and Purchase Agreement dated as of the date hereof among Fingerhut Direct Marketing,
Inc. and Fingerhut Receivables I, LLC, as the same may be amended, modified or supplemented from
time to time in accordance with the terms thereof.

     “Receivables Property” means Receivables Accounts, Underlying Receivables and
Purchased Assets.

     “Sales Receivables” means Payment Intangibles owing to Fingerhut and arising from
sales of Underlying Receivables and other Purchased Assets to Fingerhut SPV pursuant to the
Receivables Contribution and Purchase Agreement.

Exhibit A-2

 

     “Securities Account” means “securities account,” as such term is defined in Section
8-501(a) of the UCC (or any other then applicable provision of the UCC).

     “Servicing Agreement” means the Servicing Agreement dated as of May 15, 2008 by and
among Fingerhut SPV, Fingerhut, as Servicer, and Goldman Sachs Specialty Lending Group, L.P. and
Fortress Credit Corp., as Lead Lenders, as the same may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof.

     “SPV Credit Documents” means the SPV Revolving Credit Agreement, the Receivables
Contribution and Purchase Agreement, the SPV Security Agreement, the SPV Share Pledge, the
Servicing Agreement, the Holdings Guaranty, the Holdings Letter Agreement and each additional
Credit Document (as defined in the SPV Revolving Credit Agreement).

     “SPV Pledged Equity” means all membership interests in Fingerhut SPV, now owned or
hereafter acquired by the Borrower, and the certificates, if any, representing such membership
interests and any other interest of the Borrower in the entries on the books of Fingerhut SPV or
on the books of any securities intermediary pertaining to such membership interests, and all
dividends, distributions, cash, warrants, rights (including, but not limited to, voting rights),
options, instruments, securities and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all of such membership
interests.

     “SPV Proceeds” means: (i) all “proceeds” as defined in Article 9 of the UCC, (ii) dividends
or distributions made with respect to any SPV Pledged Equity and (iii) whatever is receivable or
received when SPV Pledged Equity or proceeds are sold, exchanged, collected or otherwise disposed
of, whether such disposition is voluntary or involuntary.

     “SPV Revolving Credit Agreement” means that certain Revolving Credit Agreement, dated
as of the date hereof (as it may be amended, restated, supplemented or otherwise modified from
time to time in accordance with the terms thereof), by and among Fingerhut SPV, the Lenders party
thereto from time to time, Goldman Sachs Specialty Lending Group, L.P., as Administrative Agent,
SPV Collateral Agent, Lead Arranger, Syndication Agent, Documentation Agent and Lead Lender, and
Fortress Credit Corp., as Lead Lender.

     “SPV Secured Parties” means the Collateral Agent (both for the benefit of the other
secured parties and in its individual capacity), the other Agents, the Lead Lenders, the Lenders
and the Lender Counterparties (each as defined under the SPV Revolving Credit Agreement and shall
include, without limitation, all former Agents, Lenders and Lender Counterparties to the extent
that any Secured Obligations (as defined under the SPV Security Agreement) owing to such Persons
were incurred while such Persons were Agents, Lenders or Lender Counterparties and such Secured
Obligations have not been paid or satisfied in full.

Exhibit A-3

 

     “Subordination and Intercreditor Agreement” means the Subordination and Intercreditor
Agreement dated as of June 21, 2007 among the Borrower, JPMorgan Chase Bank, N.A., as
administrative agent, and the Purchasers, as the same may be amended or modified from time to
time.

     “Supporting Obligations” shall have the meaning set forth in Article 9 of the UCC.

     “UCC” means the Uniform Commercial Code, as in effect from time to time, of the State of
Minnesota or of any other state the laws of which are required as a result thereof to be applied in
connection with the attachment, perfection or priority of, or remedies with respect to, the Notes
Collateral Agent’s or any Purchaser’s Lien on any Note Collateral or the SPV Collateral Agent’s
lien on any Receivables Property.

     “Underlying Receivables” means all amounts payable by a Receivables Obligor (as
defined in the Servicing Agreement) on the related Receivables Account from time to time, and
purchased by or contributed to Fingerhut SPV from Fingerhut under the Receivables Contribution and
Purchase Agreement.

Exhibit A-4

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