Document:

exv10w2

EXHIBIT 10.2

SIXTH AMENDMENT TO CREDIT AGREEMENT AND WAIVER

          This SIXTH AMENDMENT TO CREDIT AGREEMENT AND WAIVER, dated as of May ___, 2008 (this
“Amendment”), by and among Handleman Company, a Michigan corporation (“Holdings”),
Handleman Services Company, a Michigan corporation (“Handleman Services”), the other
subsidiaries of Holdings identified on the signature page hereto as “Borrowers” (such Subsidiaries,
together with Handleman Services, are referred to individually as a “Borrower” and
collectively, jointly and severally, as “Borrowers”), certain subsidiaries of Holdings
identified on the signature page hereto as “Credit Parties” (“Credit Parties”), the Lenders
(as defined below) party hereto, and General Electric Capital Corporation (“GE Capital”),
as administrative agent for the Lenders (in such capacity, together with its successors and assigns
in such capacity, “Agent”).

          WHEREAS, Holdings, Borrowers, Credit Parties, the lenders party thereto from time to time
(“Lenders”) and Agent are parties to that certain Credit Agreement, dated April 30, 2007
(as amended, restated, supplemented or modified from time to time, the “Credit Agreement”),
pursuant to which Lenders have agreed to make, and have made, certain loans and other financial
accommodations to Borrowers;

          WHEREAS, Borrowers and Guarantors have requested that Agent and Lenders agree to waive certain
Events of Default that have occurred and are continuing, and amend certain terms and conditions of
the Credit Agreement, in each case, as more fully set forth herein; and

          WHEREAS, Agent and Lenders have agreed to waive such Events of Default and to make such
amendments to the Credit Agreement, in each case, subject to the terms and conditions set forth
herein.

          NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained,
and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

          1. Definitions. All terms used herein which are defined in the Credit Agreement and
not otherwise defined herein are used herein as defined therein.

          2. Amendments to Credit Agreement.

          (a) Section 1.5(a) of the Credit Agreement, Interest and Applicable Margins, is hereby
amended by amending and restating the table entitled “Applicable Margins” as follows:

 

 

“Applicable Margins

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Level I	 	Level II	 	Level III
	Applicable
Revolver Index Margin
	 	 	1.50	%	 	 	150	%	 	 	1.50	%
	Applicable Revolver LIBOR Margin
	 	 	3.00	%	 	 	3.00	%	 	 	3.00	%
	Applicable L/C Margin
	 	 	3.00	%	 	 	3.00	%	 	 	3.00	%
	Applicable Unused Line Fee Margin
	 	 	0.50	%	 	 	0.50	%	 	 	0.50	%”

          (b) Section 5.20 of the Credit Agreement, Deposit Accounts, is hereby amended and
modified by deleting the phrase “April 15, 2008” contained therein and inserting the phrase “August
31, 2008” in its stead.

          (c) Section 6.2 of the Credit Agreement, Liens, is hereby amended and modified by (i)
deleting the word “and” at the end of clause (o) thereof, (ii) deleting the period at the end of
clause (p) thereof and inserting a semicolon and the word “and” in its stead, and (iii) adding the
following new clause (q) to the end thereof to read in its entirety as follows:

“(q) Liens in favor of the Trade Lien Agent under the Trade Lien Agreement,
so long as any such Lien is subject to the Trade Lien Intercreditor
Agreement;”

          (d) Section 6.6(a) of the Credit Agreement, Investments, is hereby amended and
modified by deleting clause (v) in its entirety and inserting the following in lieu hereof:

“(v) maintained in the United Kingdom, whether or not in Blocked Accounts,
but excluding any Blocked Cash, will not exceed $2,000,000 for more than one
Business Day (or in the case of amounts held exclusively for purposes of
payroll, two Business Days); provided, however,
notwithstanding anything to the contrary contained in this Section 6.6(a),
under no circumstances shall Deposit Accounts used for collection of
customer payments be maintained unless such Deposit Account is also a
Blocked Account.”

          (e) Section 6.6 of the Credit Agreement, Investments, is hereby amended and modified
by deleting clause (e) in its entirety and inserting the following in lieu hereof:

“(e) Consolidated Capital Expenditures, License Advances, Exclusive
Distribution Costs and Software Development Costs, in each case, to the
extent permitted by Section 6.7 and Annex G;”

          (f) Section 6.8 of the Credit Agreement is hereby amended by amending and restating the final
parenthetical contained in the introductory paragraph thereof to read in its entirety as follows:

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“(other than purchases or other acquisitions of inventory, materials and
equipment and Capital Expenditures, License Advances, Exclusive Distribution
Costs and Software Development Costs, in each case, in the ordinary course
of business)”

          (g) Article 6 of the Credit Agreement, Negative Covenants, is hereby amended and
modified by inserting the following new Section at the end of such Article:

“6.24 Crave Business Plan. Holdings shall not fail to deliver to
Agent (a) by not later than May 15, 2008, a business plan for Crave
Entertainment Group, Inc., Crave Entertainment, Inc. and SVG Distribution,
Inc. (collectively, the “Crave Entities”), in form and substance
satisfactory to Agent, and (b) by not later than June 30, 2008, a historical
and projected return on investment report for each title owned by the Crave
Entities, which report shall be in form and substance satisfactory to
Agent.”

          (h) Annex A of the Credit Agreement, Definitions, is hereby amended and modified by
adding the following new definitions thereto, in appropriate alphabetical order, to read in its
entirety as follows:

““Permitted Capital Expenditure Amount” means each amount that is
approved in writing by Agent (which approval may be delivered by Agent to
Holdings via email and will not be unreasonably withheld) for such purpose
for such period following receipt of a written request from Holdings
therefor, supported by any schedules and other documentation Agent may
reasonably request (it being understood and agreed that no amount approved
by Agent shall be used for any purpose other than the purpose detailed in
the applicable request).

“Sixth Amendment Effective Date” means May ___, 2008.

“Trade Lien Agent” means the agent for certain trade creditors
under the Trade Lien Agreement, and its successors and assigns in such
capacity.

“Trade Lien Agreement” means a Trade Lien Agreement, by and among
the Borrowers, the Guarantors, the Trade Lien Agent and the trade creditors
from time to time party thereto, in form and substance satisfactory to Agent
and Lenders.

“Trade Lien Intercreditor Agreement” means an Intercreditor and Lien
Subordination Agreement, by and among Agent, the Term Loan Agent and the
Trade Lien Agent, and acknowledged by the Borrowers and the Guarantors, in
form and substance satisfactory to Agent and Lenders, as the same may be
amended, supplemented or otherwise modified from time to time and any
annexes, exhibits, schedules to any of the foregoing.”

          (i) Annex A of the Credit Agreement, Definitions, is hereby further amended and
modified by amending and restating the definitions of “Commitments”, “Fixed Charge Coverage Ratio”
and “Revolving Loan Commitment” to read in their entirety as follows:

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““Commitments” means (a) as to any Lender, the aggregate of such
Lender’s Revolving Loan Commitment (including without duplication the Swing
Lien Lender’s Swing Line Commitment as a subset of its Revolving Loan
Commitment) as set forth on Annex J or in the most recent Assignment
Agreement executed by such Lender and (b) as to all Lenders, the aggregate
of all Lenders’ Revolving Loan Commitments (including without duplication
the Swing Line Lender’s Swing Line Commitment as a subset of its Revolving
Loan Commitment), which aggregate commitment shall be Fifty Million
($50,000,000) on the Sixth Amendment Effective Date, as to each of
clause (a) and (b), as such Commitment may be reduced,
amortized or adjusted from time to time in accordance with the Agreement.

“Fixed Charge Coverage Ratio” means the ratio as of the last day of
any Fiscal Month of (a) Consolidated Adjusted EBITDA for the twelve month
period most recently ended, taken as a single accounting period (or in the
case of any period ended on or prior to May 2, 2009, Consolidated Adjusted
EBITDA for the period from May 4, 2008 through the date of determination),
to (b) Consolidated Fixed Charges for such period.

“Revolving Loan Commitment” means (a) as to any Lender, the
aggregate commitment of such Lender to make Revolving Credit Advances or
incur Letter of Credit Obligations as set forth on Annex J or in the
most recent Assignment Agreement executed by such Lender and (b) as to all
Lenders, the aggregate commitment of all Lenders to make Revolving Credit
Advances or incur Letter of Credit Obligations, which aggregate commitment
shall be Fifty Million ($50,000,000) on the Sixth Amendment Effective Date,
as such amount may be adjusted, if at all, from time to time in accordance
with the Agreement.”

          (j) Annex A of the Credit Agreement, Definitions, is hereby further amended and
modified by amending and restating clause (f) of the definition of “Consolidated Adjusted EBITDA”
contained therein to read in its entirety as follows:

“(f) amortization of License Advances and Exclusive Distribution Costs;
plus”

          (k) Annex A of the Credit Agreement, Definitions, is hereby further amended and
modified by deleting the word “Amounts” contained in clause (f) of the definition of “Consolidated
Excess Cash Flow” contained therein and inserting the word “Costs” in it stead.

          (l) Annex A of the Credit Agreement, Definitions, is hereby further amended and
modified by amending and restating clause (vi) of the definition of “Consolidated Fixed Charges”
contained therein to read in its entirety as follows:

“(vi) License Advances paid in cash and Exclusive Distribution Costs paid
in cash; plus”

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          (m) Annex A of the Credit Agreement, Definitions, is hereby further amended and
modified by adding the phrase “Trade Lien Intercreditor Agreement,” immediately after the phrase
“Intercreditor Agreement,” in the definition of the term “Loan Documents” contained therein.

          (n) Annex E of the Credit Agreement, Financial Statements and Projections – Reporting,
is hereby amended and modified by adding the following proviso to the end of subsection (i)
thereof:

“provided, that the Financial Plan required to be submitted on May
5, 2008 shall not be required to include information for the 2010, 2011 and
2012 Fiscal Years of the Credit Parties so long as such information is
delivered to Agent by not later than December 31, 2008.”

          (o) Annex G of the Credit Agreement, Financial Covenants, is hereby amended and
modified by deleting such Annex in its entirety and replacing it with Annex G attached
hereto.

          (p) Annex J of the Credit Agreement, Commitments as of the Closing Date, is hereby
amended and modified by deleting such Annex in its entirety and replacing it with Annex J
attached hereto.

     3. Waiver.

          (a) Credit Parties have advised Agent and Lenders that certain Events of Default have occurred
and are continuing under Section 8.1 of the Credit Agreement due to the failure of Credit Parties
to comply with (i) Section 5.24 of the Credit Agreement by reason of the Credit Parties failing to
retain an investment banker, acceptable to Agent, for the purpose of exploring strategic options
with respect to specified discrete businesses, pursuant to a written agreement in form and
substance acceptable to Agent and Lenders, and failing to deliver a fully-executed copy of such
agreement to Agent, certified as true and correct by an Authorized Officer of Holdings, in each
case, by March 31, 2008, (ii) Section 6.6(a)(v) of the Credit Agreement, by reason of the Credit
Parties maintaining more than $2,000,000 in Deposit Accounts in the United Kingdom for more than
one Business Day prior to the date hereof, (iii) Section 5.20 of the Credit Agreement, by reason of
the Credit Parties failing to deliver control agreements to Agent with respect to all Deposit
Accounts maintained by any Credit Party in the U.K by April 15, 2008 and (iv) Section 4.1(a) and
clause (i) of Annex E of the Credit Agreement, by reason of the Credit Parties failing to include
information for the 2010, 2011 and 2012 Fiscal Years of the Credit Parties in the Financial Plan
delivered to Agent on May 5, 2008 (such Events of Default, the “Specified Events of
Default”).

          (b) At the request of Credit Parties, effective upon the Sixth Amendment Effective Date, each
of Agent and Lenders hereby waives each Specified Event of Default that occurred prior to the date
hereof.

          (c) The waivers set forth in Section 3(b) above shall be effective only in this specific
instance and for the specific purposes set forth herein, and do not allow for any other or further
departure from the terms and conditions of the Credit Agreement (including, without

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limitation, any further violation of Sections 5.24, 6.6(a)(v), 5.20, 4.1(a) and clause (i) of
Annex E of the Credit Agreement), or any further amendment of any other provision of the Credit
Agreement or any other Loan Document, which terms and conditions shall continue in full force and
effect.

     4. Conditions to Effectiveness. This Amendment shall become effective (the “Sixth
Amendment Effective Date”) upon satisfaction in full of the following conditions precedent:

          (a) Immediately after giving effect to this Amendment, (i) the representations and warranties
contained in this Amendment, the Credit Agreement and the other Loan Documents shall be correct on
and as of the date of this Amendment as though made on and as of such date (except where such
representations and warranties relate to an earlier date in which case such representations and
warranties shall be true and correct as of such earlier date) and (ii) no Default or Event of
Default shall have occurred and be continuing (or would result from this Amendment becoming
effective in accordance with its terms).

          (b) Agent shall have received counterparts of this Amendment that bear the signatures of each
of Credit Parties, Agent and Lenders.

          (c) Agent shall have received a copy of an amendment (or similar agreement), in form and
substance reasonably satisfactory to Agent, duly executed by Credit Parties, Term Loan Agent, and
Term Loan Lenders amending and waiving the corresponding provisions of the Term Loan Agreement.

     5. Credit Parties’ Representations and Warranties. Each Credit Party represents and
warrants to Agent and Lenders as follows:

          (a) Such Credit Party (i) is duly organized, validly existing and in good standing under the
laws of the state of its organization and (ii) has all requisite power, authority and legal right
to execute, deliver and perform this Amendment and to perform the Credit Agreement, as amended
hereby.

          (b) The execution, delivery and performance by such Credit Party of this Amendment and the
performance by such Credit Party of the Credit Agreement, as amended hereby (i) have been duly
authorized by all necessary action, (ii) do not and will not violate or create a default under such
Credit Party’s organizational documents, any applicable law or any contractual restriction binding
on or otherwise affecting such Credit Party or any of such Credit Party’s properties, and (iii)
except as provided in the Loan Documents, do not and will not result in or require the creation of
any Lien, upon or with respect to such Credit Party’s property.

          (c) No authorization or approval or other action by, and no notice to or filing with, any
governmental authority is required in connection with the due execution, delivery and performance
by such Credit Party of this Amendment or the performance by such Credit Party of the Credit
Agreement, as amended hereby.

          (d) This Amendment and the Credit Agreement, as amended hereby, constitute the legal, valid
and binding obligations of such Credit Party, enforceable against such Credit Party in accordance
with their terms except to the extent the enforceability thereof may be

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limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect affecting generally the enforcement of creditors’ rights and remedies
and by general principles of equity.

          (e) Immediately after giving effect to this Amendment, (i) the representations and warranties
contained in the Credit Agreement are correct on and as of the date of this Amendment as though
made on and as of the date hereof (except where such representations and warranties relate to an
earlier date in which case such representations and warranties shall be true and correct as of such
earlier date), and (ii) other than the Specified Events of Default, no Default or Event of Default
has occurred and is continuing (or would result from this Amendment becoming effective in
accordance with its terms).

     6. Continued Effectiveness of Credit Agreement. Each Credit Party hereby (a) confirms
and agrees that the Credit Agreement and each other Loan Document to which it is a party is, and
shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects
except that on and after the Amendment Effective Date all references in any such Loan Document to
(i) “the Credit Agreement”, “hereto”, “hereof”, “hereunder”, “thereto”, “thereof”, “thereunder” or
words of like import referring to the Credit Agreement shall mean the Credit Agreement as amended
by this Amendment, (b) confirms and agrees that to the extent that any such Loan Document purports
to assign or pledge to Agent, for the ratable benefit of Lenders, or to grant to Agent, for the
ratable benefit of Lenders a security interest in or Lien on, any Collateral as security for the
Obligations of the Credit Party, or any of their respective Subsidiaries from time to time existing
in respect of the Credit Agreement and the other Loan Documents, such pledge, assignment and/or
grant of the security interest or Lien is hereby ratified and confirmed in all respects, (c) the
execution and delivery of this Amendment does not limit any other action that Agent is entitled to
take, or that the Credit Parties are required to perform, under the Fifth Amendment Fee Letter, and
(d) confirms and agrees that no amendment of any terms or provisions of the Credit Agreement, or
the amendments and waivers granted hereunder shall relieve any Credit Party from complying with
such terms and provisions other than as expressly amended or waived hereby or from complying with
any other term or provision thereof or herein.

     7. Release. Each Credit Party hereby acknowledges and agrees that: (a) neither it nor
any of its Affiliates has any claim or cause of action against Agent or any Lender (or any of their
respective Affiliates, officers, directors, employees, attorneys, consultants or agents) and (b)
Agent and each Lender has heretofore properly performed and satisfied in a timely manner all of its
obligations to Credit Parties and their Affiliates under the Credit Agreement and the other Loan
Documents. Notwithstanding the foregoing, Credit Parties wish (and Agent and Lenders agree) to
eliminate any possibility that any past conditions, acts, omissions, events or circumstances would
impair or otherwise adversely affect Agent’s or any Lenders’ rights, interests, security and/or
remedies under the Credit Agreement and the other Loan Documents. Accordingly, for and in
consideration of the agreements contained in this Amendment and other good and valuable
consideration, each Credit Party (for itself and its Affiliates and the successors, assigns, heirs
and representatives of each of the foregoing) (collectively, the “Releasors”) does hereby
fully, finally, unconditionally and irrevocably release and forever discharge Agent and each Lender
and each of their respective Affiliates, officers, directors, employees, attorneys, consultants and
agents (collectively, the “Released Parties”) from any and

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all debts, claims, obligations, damages, costs, attorneys’ fees, suits, demands, liabilities,
actions, proceedings and causes of action, in each case, whether known or unknown, contingent or
fixed, direct or indirect, and of whatever nature or description, and whether in law or in equity,
under contract, tort, statute or otherwise, which any Releasor has heretofore had or now or
hereafter can, shall or may have against any Released Party by reason of any act, omission or thing
whatsoever done or omitted to be done, arising out of, connected with or related in any way to the
Credit Agreement or any other Loan Document, or any act, event or transaction related or attendant
thereto, or the agreements of any Agent or any Lender contained therein, or the possession, use,
operation or control of any of the assets of any Credit Party, or the making of any Loans or other
advances, or the management of such Loans or advances or the Collateral.

     8. Miscellaneous.

          (a) This Amendment may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement. Delivery of an executed counterpart of
this Amendment by telefacsimile or electronic method shall be equally as effective as delivery of
an original executed counterpart of this Amendment.

          (b) Section and paragraph headings herein are included for convenience of reference only and
shall not constitute a part of this Amendment for any other purpose.

          (c) This Amendment shall be governed by, and construed in accordance with, the laws of the
State of New York. Each of the parties to this Amendment hereby irrevocably waives all rights to
trial by jury in any action, proceeding or counterclaim arising out of or relating to this
Amendment.

          (d) Borrowers will pay on demand all reasonable fees, costs and expenses of Agent and Lenders
in connection with the preparation, execution and delivery of this Amendment or otherwise payable
under the Credit Agreement, including, without limitation, reasonable fees disbursements and other
charges of counsel to Agent and Lenders.

          (e) This Amendment is a Loan Document executed pursuant to the Credit Agreement and shall be
construed, administered and interpreted in accordance with the terms thereof. Accordingly, it
shall be an Event of Default under the Credit Agreement if any representation or warranty made or
deemed made by any Credit Party under or in connection with this Amendment shall have been
incorrect when made or deemed made or if any Credit Party fails to perform or comply with any
covenant or agreement contained herein.

[remainder of this page intentionally left blank]

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ANNEX J (from Annex A — Commitments definition)

TO

CREDIT AGREEMENT

COMMITMENTS AS OF THE CLOSING DATE

	 	 	 
	Revolving Loan Commitment	 	Lender(s)
	$50,000,000 (including a Swing Line
Commitment of $25,000,000)

	 	General Electric Capital Corporation

 

 

ANNEX G (Section 6.7)

to

CREDIT AGREEMENT

FINANCIAL COVENANTS

 Borrowers shall not breach or fail to comply with any of the following financial covenants,
each of which shall be calculated in accordance with GAAP consistently applied:

	 	(f)	 	Consolidated Adjusted EBITDA. Holdings shall not permit Consolidated
Adjusted EBITDA as at the end of the most-recently-ended Fiscal Month for the trailing
twelve-month period then ended (or in the case of any period ended on or prior to May
2, 2009, for the period from May 4, 2008 through the date of determination) to be less
than the correlative amount indicated below:

	 	 	 
	 	 	Consolidated Adjusted
	Fiscal Month Ended On or About	 	EBITDA
	May 31, 2008
	 	($1,637,000)
	June 30, 2008
	 	($1,478,000)
	July 31, 2008
	 	($2,445,000)
	August 30, 2008
	 	($383,000)
	September 30, 2008
	 	$1,613,000
	October 31, 2008
	 	$8,347,000
	November 30, 2008
	 	$23,677,000
	December 31, 2008
	 	$28,676,000
	January 31, 2009
	 	$20,335,000
	February 28, 2009
	 	$21,581,000
	March 31, 2009
	 	$22,018,000
	April 30, 2009 and each Fiscal Month
ended thereafter
	 	$23,331,000

	 	(g)	 	Maximum Consolidated Capital Expenditures, License Advances, Exclusive
Distribution Costs and Software Development Costs. Holdings shall not make or
incur any Capital Expenditures, License Advances, Exclusive Distribution Costs or
Software Development Costs. Holdings shall not permit its Subsidiaries to make or
incur Consolidated Capital Expenditures, License Advances, Exclusive Distribution Costs
and Software Development Costs in an aggregate amount for all of its Subsidiaries to
exceed the lesser of (i) the Permitted Capital Expenditure Amount for such period, and
(ii) the amount specified below for such period.

10

 

	 	 	 	 	 
	Period	 	Amount
	April 20, 2008 through Fiscal Month ended
on or about May 31, 2008
	 	$	3,350,000	 
	April 20, 2008 through Fiscal Month ended
on or about June 30, 2008
	 	$	5,000,000	 
	April 20, 2008 through Fiscal Month ended
on or about July 31, 2008
	 	$	6,450,000	 
	April 20, 2008 through Fiscal Month ended
on or about August 31, 2008
	 	$	7,800,000	 
	April 20, 2008 through Fiscal Month ended
on or about September 30, 2008
	 	$	9,250,000	 
	April 20, 2008 through Fiscal Month ended
on or about October 31, 2008
	 	$	10,000,000	 
	April 20, 2008 through Fiscal Month ended
on or about November 30, 2008
	 	$	10,750,000	 
	April 20, 2008 through Fiscal Month ended
on or about December 31, 2008
	 	$	11,500,000	 
	April 20, 2008 through Fiscal Month ended
on or about January 31, 2009
	 	$	12,250,000	 
	April 20, 2008 through Fiscal Month ended
on or about February 28, 2009
	 	$	13,000,000	 
	April 20, 2008 through Fiscal Month ended
on or about March 31, 2009
	 	$	13,750,000	 
	April 20, 2008 through Fiscal Month ended
on or about April 30, 2009
	 	$	14,500,000	 
	Any period after April 30, 2009
	 	An amount to be agreed between
Borrowers and Agent

	 	(h)	 	Maximum Lease Obligations. Holdings shall not create, incur or suffer
to exist, or permit any of its Subsidiaries to create, incur or suffer to exist, any
obligations as lessee (i) for the payment of rent for any personal property in
connection with any sale and leaseback transaction, or (ii) for the payment of rent for
any personal property under leases or agreements to lease other than (A) obligations in
respect of Capital Leases which would not cause the aggregate amount of all obligations
under Capital Leases entered into after the Closing Date owing by Holdings and its
Subsidiaries in the aggregate in any Fiscal Year to exceed the amounts set forth in
paragraph (b) of this Annex G, and (B) Operating Lease Obligations which would
not cause the aggregate amount of all Operating Lease Obligations owing by Holdings and
its Subsidiaries in the aggregate in any Fiscal Year to exceed $10,000,000.
	 
	 	(i)	 	Minimum Availability. The Credit Parties shall not permit Borrowing
Availability (without duplication, after giving effect to the Term Loan Reserve, the
Minimum Availability Amount and all other Reserves then in effect) to be less than
zero.

11

 

	 	(j)	 	Minimum Asset Coverage. Credit Parties shall not permit, at any time,
(i) the positive difference between (A) the Borrowing Base at such time (without taking
into account the Term Loan Reserve, the Minimum Availability Amount or any other
Reserves) and (B) the principal amount of all Indebtedness outstanding (including
without limitation, all undrawn letters of credit) under the Term Loan Agreement and
this Agreement at such time (such positive difference, the “Minimum Asset Coverage”) to
be less than the correlative amount indicated below under the heading “Minimum Asset
Coverage” for such period, or (ii) the percentage obtained by dividing (A) the amount
specified in clause (i)(B) above at such time by (B) the amount specified in clause
(i)(A) above at such time to be greater than the percentage specified below under the
heading “Maximum Coverage Percentage” for such period:

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Maximum	 
	 	 	Minimum Asset	 	 	Coverage	 
	Period	 	Coverage	 	 	Percentage	 
	May 1,
2008 through May 31, 2008
	 	$	25,000,000	 	 	 	74.1	%
	June 1,
2008 through June 30, 2008
	 	$	30,000,000	 	 	 	69.3	%
	July 1,
2008 through July 31, 2008
	 	$	30,000,000	 	 	 	68.9	%
	August 1, 2008 through August 31, 2008
	 	$	30,000,000	 	 	 	69.8	%
	September 1, 2008 through September 30, 2008
	 	$	35,000,000	 	 	 	69.9	%
	October 1, 2008 through October 31, 2008
	 	$	60,000,000	 	 	 	60.4	%
	November 1, 2008 through November 30, 2008
	 	$	90,000,000	 	 	 	53.8	%
	December 1, 2008 through December 31, 2008
	 	$	70,000,000	 	 	 	56.5	%
	January 1, 2009 and all times thereafter
	 	$	60,000,000	 	 	 	60.0	%

	 	(k)	 	Minimum Fixed Charge Coverage Ratio. Holdings shall not permit the
Fixed Charge Coverage Ratio as at any date specified below to be less than the
correlative amount indicated below:

12

 

	 	 	 
	 	 	Fixed Charge
	Fiscal Month Ended On or About	 	Coverage Ratio
	May 31, 2008

	 	(0.45) : 1.00
	June 30, 2008
	 	(0.18) : 1.00
	July 31, 2008
	 	(0.20) : 1.00
	August 30, 2008
	 	(0.03) : 1.00
	September 30, 2008
	 	0.09 : 1.00
	October 31, 2008
	 	0.40 : 1.00
	November 30, 2008
	 	1.02 : 1.00
	December 31, 2008
	 	1.08 : 1.00
	January 31, 2009 and each Fiscal Month
ended thereafter
	 	1.00 : 1.00

	 	(l)	 	Certain Calculations. For purposes of determining compliance with (i)
the financial covenants set forth in this Annex G, (ii) the Fixed Charge
Coverage Ratio requirements, and (iii) Borrowing Availability, in each case, in
connection with a proposed Permitted Acquisition or a proposed Restricted Junior
Payment, Consolidated Adjusted EBITDA, the components of Consolidated Fixed Charges and
Borrowing Availability shall be calculated with respect to such period on a pro-forma
basis (including pro forma adjustments approved by Agent in its sole discretion) using
the historical audited (if available) financial statement of any business so acquired
or to be acquired (in connection with a proposed Permitted Acquisition) and the
consolidated financial statements of Holdings and its Subsidiaries which shall be
reformulated as if the Permitted Acquisition or Restricted Junior Payment had been
consummated at the beginning of such period.
	 
	 	(m)	 	Unless otherwise specifically provided herein, any accounting term used in the
Agreement shall have the meaning customarily given such term in accordance with GAAP,
and all financial computations hereunder shall be computed in accordance with GAAP
consistently applied. That certain items or computations are explicitly modified by
the phrase “in accordance with GAAP” shall in no way be construed to limit the
foregoing. If any “Accounting Changes” (as defined below) occur and such changes
result in a change in the calculation of the financial covenants, standards or terms
used in the Agreement or any other Loan Document, then Borrowers, Agent and Lenders
agree to enter into negotiations in order to amend such provisions of the Agreement so
as to equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating Borrowers’ and their Subsidiaries’ financial condition shall be
the same after such Accounting Changes as if such Accounting Changes had not been made;
provided, however, that the agreement of Requisite Lenders to any
required amendments of such provisions shall be sufficient to bind all Lenders.
“Accounting Changes” means (i) changes in accounting principles required by the
promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public Accountants
(or successor thereto or any agency with similar functions),

13

 

	 	 	 	(ii) changes in accounting principles concurred in by any Borrower’s certified public
accountants; (iii) purchase accounting adjustments under A.P.B. 16 or 17 and EITF
88-16, and the application of the accounting principles set forth in FASB 109,
including the establishment of reserves pursuant thereto and any subsequent reversal
(in whole or in part) of such reserves; and (iv) the reversal of any reserves
established as a result of purchase accounting adjustments. All such adjustments
resulting from expenditures made subsequent to the Closing Date (including
capitalization of costs and expenses or payment of pre-Closing Date liabilities)
shall be treated as expenses in the period the expenditures are made and deducted as
part of the calculation of Consolidated Adjusted EBITDA in such period. If Agent,
Borrowers and Requisite Lenders agree upon the required amendments, then after
appropriate amendments have been executed and the underlying Accounting Change with
respect thereto has been implemented, any reference to GAAP contained in the
Agreement or in any other Loan Document shall, only to the extent of such Accounting
Change, refer to GAAP, consistently applied after giving effect to the
implementation of such Accounting Change. If Agent, Borrowers and Requisite Lenders
cannot agree upon the required amendments within thirty (30) days following the date
of implementation of any Accounting Change, then all Financial Statements delivered
and all calculations of financial covenants and other standards and terms in
accordance with the Agreement and the other Loan Documents shall be prepared,
delivered and made without regard to the underlying Accounting Change. For purposes
of Section 8.1, a breach of a Financial Covenant contained in this
Annex G shall be deemed to have occurred as of any date of determination by
Agent or as of the last day of any specified measurement period, regardless of when
the Financial Statements reflecting such breach are delivered to Agent.

14exv10w1

Exhibit 10.1

ASSIGNMENT AND ASSUMPTION AGREEMENT

     This
Assignment and Assumption Agreement (“Agreement”) is made
and entered into this 1st
day of April, 2008, by and between COMMODITY SPECIALISTS COMPANY (“Assignor”) and RED TRAIL
ENERGY, LLC (“Assignee”).

     Whereas Assignor is the lessee to that certain Railroad Car Lease Agreement with Trinity
Industries Leasing Company, dated November 13, 2002 (the “Agreement”), as well as the associated
Riders (the “Riders”) as identified on Exhibit A hereto; and

     Whereas Assignor desires to assign the Agreement and Riders to Assignee, and Assignee desires
to take assignment of the Agreement and Riders in accordance with this Assignment and Assumption
Agreement;

     Now, therefore, in consideration of the mutual agreement contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor and
Assignee agree as follows:

	 	1.	 	Assignment — Assignor hereby assigns to Assignee all of its rights,
title, interest, duties and obligations under the Agreement and Riders, effective on the
Effective Date (as defined below).
	 
	 	2.	 	Liability — Assignee hereby assumes Assignor’s duties, obligations, and
rights under the Agreement and Riders, effective on the Effective Date (as defined
below). For the avoidance of doubt, Assignee is responsible for any liability under the
Agreement and Riders regardless of whether that liability occurred before or after the
Effective Date (as defined below). Assignee agrees to indemnify, defend and hold
harmless Assignor from any and all claims, causes of action, costs, demands, damages,
expenses, liabilities, and losses including, without limitation, reasonable attorney’s
fees arising out of or in connection with the Agreement and Riders.
	 
	 	3.	 	Effective Date — The assignment shall be effective on April 1, 2008 (the
“Effective Date”).
	 
	 	4.	 	Due Authorization — Assignor and Assignee represent and warrant that they
have the requisite power and authority to execute, deliver, and perform this Agreement.
Assignor and Assignee further represent and warrant that this Assignment and Assumption
Agreement has been duly executed and delivered and is a valid and binding obligation on
each of them.
	 
	 	5.	 	Entire Agreement — This Assignment and Assumption Agreement evidences the
entire agreement between Assignor and Assignee with respect to the subject matter hereof
and supersedes all prior agreements, understandings, proposals, offers,
negotiations, and discussions, whether oral or written, between or among Assignor and
Assignee.
	 
	 	6.	 	Binding Effect — This Assignment and Assumption Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the Assignor and
Assignee.

1

 

[Assignment and Assumption Agreement]

	 	7.	 	Law and Jurisdiction — This Assignment and Assumption Agreement will be governed and
construed in accordance with the laws of the State of Texas, without reference to the choice
of law principles thereof. Disputes between Assignor and Assignee arising out of or in
connection with this Assignment and Assumption Agreement will be subject to the exclusive
jurisdiction of the state and federal courts in the State of Texas.
	 
	 	8.	 	Counterparts — This Assignment and Assumption Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute the same instrument.

* * *

[Signature Page Follows]

2

 

[Assignment and Assumption Agreement]

IN WITNESS WHEREOF, Assignor and Assignee have executed this Agreement as of the day and year first
above written.

	 	 	 	 	 
	COMMODITY SPECIALISTS COMPANY,

as Assignor

 	 	 
	By:  	/s/ O. William Mikkelson
 	 	 
	 	Name:  	O. William Mikkelson 	 	 
	 	Title:  	Co-Pres. & CFO 	 	 
	 
	RED TRAIL ENERGY, LLC,

as Assignee

 	 	 
	By:  	/s/ Mark E. Klimpel
 	 	 
	 	Name:  	Mark E. Klimpel 	 	 
	 	Title:  	CFO 	 	 
	 
	ACKNOWLEDGED AND AGREED TO BY: 

TRINITY INDUSTRIES LEASING COMPANY,

 	 	 
	By:  	/s/ Thomas C. Jardine
 	 	 
	 	Name:  	Thomas C. Jardine  	 	 
	 	Title:  	Vice President 	 	 

3

 

	 	 	 	 	 

[Assignment and Assumption Agreement]

	 	 	 	 	 	 	 
	STATE OF MINNESOTA

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	COUNTY OF WASHINGTON

	 	 	)	 	 	 

     On this, the 8th day of April, 2008, before a Notary Public in an for said County
and State, personally appeared O. William Mikkelson, who being by me duly sworn, says that (s)he is the Co
President & CFO of Commodity Specialists Company, that said instrument was signed on April,
2008, on behalf of said corporation by authority of its Board of Directors, and (s)he
acknowledged that the execution of the foregoing instrument was the free act and deed of said
corporation.

     IN WITNESS WHEREOF, I have hereunto set my hand and official seal on the date above
mentioned.

	 	 	 	 	 
	 	 	 
	 	
/s/ Jean A. Johnson
 	 
	 	Name:  	 	 
	 	Notary Public 	 
	 
	My Commission Expires: Jan 31, 2010

Residing in Washington County

 	 

4

 

[Assignment and Assumption Agreement]

	 	 	 	 	 	 	 
	STATE OF NORTH DAKOTA

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	COUNTY OF STARK

	 	 	)	 	 	 

     On
this, the 7 day of April, 2008, before a Notary Public in an for said County and
State, personally appeared Mark Klimpel, who being by me duly sworn, says that
(s)he is the C.F.O of Red Trail Energy, LLC, that said instrument was signed on
                                         , 2008, on behalf of said corporation by authority of its Board of Directors, and (s)he
acknowledged that the execution of the foregoing instrument was the free act and deed of said
corporation.

     IN WITNESS WHEREOF, I have hereunto set my hand and official seal on the date above mentioned.

	 	 	 	 	 
	 	 	 
	 	/s/ Deell Hoff
 	 
	 	Name:  	 	 
	 	Notary Public 	 
	 
	My Commission Expires:

Residing in Oct 21, 2011

 	 
	 	 	 
	 	 	 
	 	 	 
	 

5

 

[Assignment and Assumption Agreement]

	 	 	 	 	 	 	 
	STATE OF TEXAS

	 	 	)	 	 	 
	 

	 	 	)	 	 	 
	COUNTY OF DALLAS

	 	 	)	 	 	 

     On
this, the
4th day of April, 2008, before a Notary Public in an for said County and State,
personally appeared Thomas C. Jardine, who being by me duly sworn, says that he is the Vice
President of Trinity Industries Leasing Company, that said instrument
was signed on April
4th,
2008, on behalf of said corporation by authority of its Board of Directors, and he acknowledged
that the execution of the foregoing instrument was the free act and deed of said corporation.

     IN WITNESS WHEREOF, I have hereunto set my hand and official seal on the date above
mentioned.

	 	 	 	 	 
	 	 	 
	 	
/s/ Danielle Henderson
 	 
	 	Name:  	Danielle Henderson 	 
	 	Notary Public 	 
	 
	 	My Commission Expires: 6/9/08 

Residing in Cedar Hill, TX

 	 
	 	 	 
	 	
 	 

6

 

	 	 	 	 	 

[Assignment and Assumption Agreement]

EXHIBIT A

	 	 	 
	Document:

	 	Rider Six (6) dated November 15, 2005
	 
	 	 
	Rental Rate:

	 	$691.00 per car per month
	 
	 	 
	Scheduled Maturity Date:

	 	November 5, 2011
	 
	 	 
	Equipment:

	 	6,351 cubic foot quadruple covered hopper cars
	 
	 	 
	Quantity:

	 	Five (5)
	 
	 	 
	Road Numbers & Mark:

	 	TILX 637673, 637674, 637675, 637676, 637677
	 
	 	 
	Document:

	 	Rider Seven (7) dated September 25, 2006
	 
	 	 
	Rental Rate:

	 	$694.00 per car per month
	 
	 	 
	Scheduled Maturity Date:

	 	January 31, 2013
	 
	 	 
	Equipment:

	 	6,351 cubic foot quadruple covered hopper cars
	 
	 	 
	Quantity:

	 	Fifty (50)
	 
	 	 
	Road Numbers & Mark:

	 	TILX 637733, 637734, 637735, 637736, 637737,
637738, 637739, 637740, 637741, 637742,
637743, 637744, 637745, 637746, 637747,
637748, 637749, 637750, 637751, 637752,
637753, 637754, 637755, 637756, 637757,
637758, 637759, 637760, 637761, 637762,
637763, 637764, 637765, 637766, 637767,
637768, 637769, 637770, 637771, 637772,
637773, 637774, 637775, 637776, 637777,
637778, 637779, 637780, 637781, 637782

7

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