Document:

exv10w1

 

EXHIBIT 10.1

SEPARATION AND GENERAL RELEASE AGREEMENT

     This Separation and General Release Agreement (this “Agreement”) is being entered into as of
this 20th day of March 2007, by and between IsoTis, Inc., a Delaware corporation (the “Company”),
and Alan Donze, an individual (“Employee”) (each of the Company and Employee is sometimes
hereinafter referred to individually as a “Party” and collectively as the “Parties”), with respect
to the following facts.

     WHEREAS, Employee and IsoTis SA were the parties to that certain Employment Agreement (the
“2006 Employment Agreement”) dated as of May 17, 2006, and Employee’s position with IsoTis SA was
Vice President of Sales.

     WHEREAS, the Company acquired IsoTis SA in or about January 2007.

     WHEREAS, Employee and the Company are the parties to that certain Employment Agreement dated
as of January 31, 2007, as amended by that certain Amendment to Employment Agreement dated as of
February 22, 2007 (collectively, the “2007 Employment Agreement” and with the superseded 2006
Employment Agreement, the “Employment Agreements”). Terms not defined herein and defined in the
2007 Employment Agreement shall have the meanings ascribed to them in the 2007 Employment
Agreement.

     WHEREAS, Employee is currently employed by the Company as Senior Vice President of Sales (the
“Position”).

     WHEREAS, the Parties wish to terminate their employment relationship subject to the terms and
conditions set forth below.

     WHEREFORE in consideration of the foregoing premises and the terms and conditions set forth
below, the Parties agree as follows:

     1. Termination.

          a. Termination Date. Employee hereby voluntarily resigns his Position and his employment with
the Company as of April 5, 2007 (the “Termination Date”). Except as otherwise provided for in this
Agreement, the rights and obligations of Employee and the Company under the Employment Agreements
shall terminate on the Termination Date and shall have no further force or effect after the
Termination Date.

          b. In lieu of any compensation, benefits or severance under the Employment Agreements, the
Company and Employee agree as follows:

               (1) Employee may retain the Apple computer provided to him by the Company, provided that
Employee removes any Company information or data.

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               (2) On the Termination Date, the Company shall pay to Employee the 2006 Bonus Payment that
would have paid on June 1, 2006 had he remained employed through that date in the amount of one
hundred twenty thousand dollars ($120,000), less applicable withholding.

          c. No Future Compensation or Benefits. Except as provided for in this Agreement, Employee
understands and agrees that he is giving up any right or claim to further compensation from the
Company, and that he has no further rights, and the Company has no further obligations under the
Employment Agreements.

          d. Announcements. Employee and the Company agree that the Company may release an internal
announcement of Employee’s departure from the Company and external announcements as required by law
and/or as it deems appropriate for business purposes. With regard to the circumstances of
Employee’s departure, the announcements shall state that Employee resigned his employment with the
Company and his resignation was accepted. To the extent required by law, the Company shall report
the terms of separation.

     2. Releases by Employee.

          a. Employee Release. In exchange for the consideration set forth in this Agreement,
Employee does hereby release and forever discharge the “Company Releasees” herein, consisting of
the Company, its parent, subsidiary and affiliate corporations, and each of their respective past
and present parents, subsidiaries, affiliates, associates, owners, members, stockholders,
predecessors, successors, assigns, employees, agents, directors, officers, partners,
representatives, lawyers, and all persons acting by, through, under, or in concert with them, or
any of them, of and from any and all manner of claims or causes of action, in law or in equity, of
any nature whatsoever, known or unknown, fixed or contingent (hereinafter called “Claims”), that
Employee now has or may hereafter have against the Company Releasees by reason of any and all acts,
omissions, events or facts occurring or existing prior to the date hereof. The Claims released
hereunder include, without limitation, any alleged breach of any express or implied agreement
(including, without limitation, the Employment Agreements); any alleged torts or other alleged
legal restrictions relating to Employee’s employment by the Company and the termination thereof;
and any alleged violation of any federal, state or local statute or ordinance including, without
limitation, Title VII of the Civil Rights Act of 1964, as amended, 42 USC Section 2000, et
seq.; Americans with Disabilities Act, as amended, 42 U.S.C. § 12101 et
seq.; the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 et seq.;
Civil Rights Act of 1866, and Civil Rights Act of 1991; 42 USC Section 1981, et
seq.; Equal Pay Act, as amended, 29 USC Section 206(d); regulations of the Office of
Federal Contract Compliance, 41 CFR Section 60, et seq.; The Family and Medical
Leave Act, as amended, 29 U.S.C. § 2601 et seq.; the Fair Labor Standards Act of
1938, as amended, 29 U.S.C. § 201 et seq.; the Employee Retirement Income Security
Act, as amended, 29 U.S.C. § 1001 et seq.; and the California Fair Employment and
Housing Act, California Government Code Section 12940, et seq. This release shall
not apply to the Company’s obligations under this Agreement or to the Company’s obligations under
applicable law, including, without limitation, California Labor Code Section 2802, to indemnify,
defend, and hold Employee harmless from and against any claims asserted by any person or entity
against Employee arising from or related to Employee’s employment with the Company.

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          b. Unknown Claims.

               Employee acknowledges that Employee is familiar with the provisions of California Civil Code
Section 1542, which provides as follows:

“A general release does not extend to claims which the creditor does not
know or suspect to exist in his or her favor at the time of executing the
release, which, if known by him or her must have materially affected his or
her settlement with the debtor.”

Employee, being aware of said code section, hereby expressly waives any rights Employee may have
thereunder, as well as under any other statutes or common law principles of similar effect.

          c. No Assignment. Employee represents and warrants to the Company Releasees that
there has been no assignment or other transfer of any interest in any Claim. Employee agrees to
indemnify and hold harmless the Company Releasees from any liability, claims, demands, damages,
costs, expenses and attorneys’ fees incurred as a result of any person asserting such assignment or
transfer of any right or claims under any such assignment or transfer from Employee.

          d. No Actions. Employee agrees that if Employee hereafter commences, joins in, or in
any manner seeks relief through any suit arising out of, based upon, or relating to any of the
Claims released hereunder or in any manner asserts against the Company Releasees any of the Claims
released hereunder, then Employee will pay to the Company Releaseees against whom such Claim(s) is
asserted, in addition to any other damages caused thereby, all attorneys’ fees incurred by such
Company Releasees in defending or otherwise responding to said suit or Claim.

     3. No Admission. Employee and the Company further understand and agree that neither
the payment of money nor the execution of this Agreement, including the release provided for in
Section 2, shall constitute or be construed as an admission of any liability whatsoever by either
Party.

     4. Severability. The provisions of this Agreement are severable, and if any part of
this Agreement is found to be unenforceable, the other paragraphs (or portions thereof) shall
remain fully valid and enforceable.

     5. No Encouragement of Actions. Employee agrees that he will not assist any person or
entity in bringing or pursuing legal action against the Company, its agents, successors,
representatives, employees and related and/or affiliated companies, based on events occurring prior
to the Termination Date; provided, however, that this Section 5 shall not apply to any legal action
arising from or related to this Agreement or to any conduct compelled by or pursuant to applicable
law.

     6. No Disparagement By Employee. Employee shall not make, or cause to be made, any
untrue statements to any person or entity that disparage, are inimical to, or damage the reputation
of, the Company, its officers, directors, employees, or agents; provided that, if a

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legitimate inquiry is made to Employee, he may state that he formerly was associated with the
Company, identify his association and responsibilities and give the dates of his association.

     7. No Disparagement by the Company. The Company shall not make, or cause to be made
any untrue statements to any person or entity that disparage, are inimical to, or damage the
reputation of Employee. Following Employee’s departure from the Company, the Company shall
instruct its employees to advise any third parties requesting Employee by name that Employee is no
longer with the Company and to provide the appropriate contact information for Employee.

     8. Confidential Information. Employee’s obligations under Section 6 of the 2007
Employment Agreement with respect to Confidential Information of the Company shall remain in full
force and effect and shall survive the termination of the Employment Agreements.

     9. Company Property. Employee agrees to search his/her home, office and all other
storage areas for all property owned by the Company and to return all the Company Equipment
(excluding the Apple computer referred to in Section 1.b.(1) of this Agreement) to the Company on
or before the Termination Date.

     10. Choice of Law and Venue. The Parties acknowledge and agree that this Agreement
shall be interpreted in accordance with California law. Any actions arising out of or relating to
this Agreement or Employee’s service with the Company shall be filed in either the Superior Court
of the State of California for the County of Orange, or the Federal District Court for the Central
District of California, unless subject to arbitration, in which case they shall be filed in
accordance with the Parties’ arbitration agreement. 

     11. Sole and Entire Agreement. This Agreement represents the sole and entire
agreement among the Parties and supersedes all prior agreements (including, without limitation, the
Employment Agreement), negotiations, and discussions between the Parties hereto and/or their
respective counsel, excluding any agreements concerning arbitration of disputes, confidentiality,
trade secret information, or assignment of intellectual property rights. Any agreement amending or
superseding this Agreement must be in writing, signed by duly authorized representatives of the
Parties, specifically reference this Agreement; and state the intent of the Parties to amend or
supersede this Agreement.

     12. Arbitration. The Parties hereby agree to submit any claim or dispute arising out
of or relating to the terms of this Agreement to private and confidential arbitration by a single
neutral arbitrator. Subject to the terms of this Section, the arbitration proceedings shall be
governed by the rules of the Judicial Arbitration and Mediation Service (“JAMS”) applicable to
employment disputes as they may be in effect from time to time, and shall take place in Orange
County, California. The arbitrator shall be appointed by agreement of the Parties hereto or, if no
agreement can be reached, by the JAMS pursuant to its rules. The decision of the arbitrator shall
be rendered in writing and be final and binding on all Parties to this Agreement, and judgment
thereon may be entered in any court having jurisdiction. The arbitrator’s fees and/or any other
fees payable to JAMS shall be shared in accordance with the rules of JAMS; provided, however, that
Employee shall not be required to pay any such fees that are unique to arbitration and/or would
exceed the cost of filing the same claim(s) in a court of competent jurisdiction, and any

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shortfall shall be borne by the Company. The Parties shall each bear their own attorneys’
fees, witness expenses, expert fees and other costs, except to the extent they may be awarded
otherwise by the arbitrator in accordance with applicable law. This arbitration procedure is
intended to be the sole and exclusive method of resolving any claim between the Parties, and each
of the Parties hereby waives any right to a jury trial with respect to such claims.

     13. Headings. The headings in this Agreement are provided solely for the Parties’
convenience, and are not intended to be part of, nor to affect or alter the interpretation or
meaning of this Agreement.

     14. Construction of Agreement. Both Parties have been represented by, or had the
opportunity to be represented by counsel in connection with this Agreement. Any rule of
construction to the effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.

     15. Counterparts. For the convenience of the Parties hereto, this Agreement may be
executed in any number of counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same agreement.

     16. Authority to Execute this Agreement. The person or persons executing this
Agreement on behalf of a Party warrants and represents that he or she has the authority to execute
this Agreement on behalf of the Party and has the authority to bind that Party to the performance
of its obligations hereunder.

[Remainder of Page Intentionally Left Blank]

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     IN WITNESS WHEREOF, the parties have entered into this Separate and General Release Agreement
as of the date first set forth above.

	 	 	 	 	 
	 	“COMPANY”

IsoTis, Inc., a Delaware corporation

 	 
	 	By:  	/s/ Pieter Wolters
 	 
	 	Name:  	Pieter Wolters 	 
	 	Title:  	CEO 	 
	 
 
	 	“EMPLOYEE”

 	 
	 	/s/ Alan G. Donze
 	 
	 	Alan Donze 	 
	 	 	 
	 

[Signature Page to Separation and General Release Agreement]

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EXHIBIT 10.1

 

 

FOURTH AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of March 22, 2007

among

NAVARRE CORPORATION,

as Borrower,

THE OTHER PERSONS PARTY HERETO

THAT ARE DESIGNATED AS CREDIT PARTIES,

THE LENDERS SIGNATORY HERETO

FROM TIME TO TIME,

as Lenders,

and

GENERAL ELECTRIC CAPITAL CORPORATION,

as Administrative Agent, Agent and Lender

GE CAPITAL MARKETS, INC.

as Lead Arranger

 

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 
	 	 	 	 	 	 	 	 	 	 
	1.	 	AMOUNT AND TERMS OF CREDIT	 	 	2	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	1.1	 	 	Credit Facilities
	 	 	2	 
	 

	 	 	1.2	 	 	Letters of Credit
	 	 	4	 
	 

	 	 	1.2A	 	 	Swap Related Reimbursement Obligations
	 	 	5	 
	 

	 	 	1.3	 	 	Prepayments
	 	 	6	 
	 

	 	 	1.4	 	 	Use of Proceeds
	 	 	8	 
	 

	 	 	1.5	 	 	Interest and Applicable Margins
	 	 	8	 
	 

	 	 	1.6	 	 	Eligible Accounts
	 	 	10	 
	 

	 	 	1.7	 	 	Eligible Inventory
	 	 	13	 
	 

	 	 	1.8	 	 	Cash Management Systems
	 	 	14	 
	 

	 	 	1.9	 	 	Fees
	 	 	15	 
	 

	 	 	1.10	 	 	Receipt of Payments
	 	 	15	 
	 

	 	 	1.11	 	 	Application and Allocation of Payments
	 	 	16	 
	 

	 	 	1.12	 	 	Loan Account and Accounting
	 	 	16	 
	 

	 	 	1.13	 	 	Indemnity
	 	 	17	 
	 

	 	 	1.14	 	 	Access
	 	 	18	 
	 

	 	 	1.15	 	 	Taxes
	 	 	18	 
	 

	 	 	1.16	 	 	Capital Adequacy; Increased Costs; Illegality
	 	 	19	 
	 

	 	 	1.17	 	 	Single Loan
	 	 	20	 
	 
	 	 	 	 	 	 	 	 	 	 
	2.	 	CONDITIONS PRECEDENT	 	 	21	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	2.1	 	 	Conditions to the Initial Loans
	 	 	21	 
	 

	 	 	2.2	 	 	Further Conditions to Each Loan
	 	 	22	 
	 
	 	 	 	 	 	 	 	 	 	 
	3.	 	REPRESENTATIONS AND WARRANTIES	 	 	23	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	3.1	 	 	Corporate Existence; Compliance with Law
	 	 	23	 
	 

	 	 	3.2	 	 	Executive Offices, Collateral Locations, FEIN
	 	 	23	 
	 

	 	 	3.3	 	 	Corporate Power, Authorization, Enforceable Obligations
	 	 	23	 
	 

	 	 	3.4	 	 	Financial Statements and Projections
	 	 	24	 
	 

	 	 	3.5	 	 	Material Adverse Effect
	 	 	24	 
	 

	 	 	3.6	 	 	Ownership of Property; Liens
	 	 	25	 
	 

	 	 	3.7	 	 	Labor Matters
	 	 	25	 
	 

	 	 	3.8	 	 	Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness
	 	 	26	 
	 

	 	 	3.9	 	 	Government Regulation
	 	 	26	 
	 

	 	 	3.10	 	 	Margin Regulations
	 	 	26	 
	 

	 	 	3.11	 	 	Taxes
	 	 	26	 
	 

	 	 	3.12	 	 	ERISA
	 	 	27	 
	 

	 	 	3.13	 	 	No Litigation
	 	 	28	 
	 

	 	 	3.14	 	 	Brokers
	 	 	28	 
	 

	 	 	3.15	 	 	Intellectual Property
	 	 	28	 
	 

	 	 	3.16	 	 	Full Disclosure
	 	 	28	 
	 

	 	 	3.17	 	 	Environmental Matters
	 	 	29	 

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	 	 	 	 	 	 	 	 	Page
	 

	 	 	3.18	 	 	Insurance
	 	 	29	 
	 

	 	 	3.19	 	 	Deposit and Disbursement Accounts
	 	 	30	 
	 

	 	 	3.20	 	 	Government Contracts
	 	 	30	 
	 

	 	 	3.21	 	 	Customer and Trade Relations
	 	 	30	 
	 

	 	 	3.22	 	 	Agreements and Other Documents
	 	 	30	 
	 

	 	 	3.23	 	 	Solvency
	 	 	30	 
	 

	 	 	3.24	 	 	[Intentionally Deleted]
	 	 	30	 
	 

	 	 	3.25	 	 	Status of Navarre CP, Navarre CLP and Navarre CS
	 	 	30	 
	 

	 	 	3.26	 	 	Second Lien Loan
	 	 	31	 
	 

	 	 	3.27	 	 	Vendor Advances
	 	 	31	 
	 
	 	 	 	 	 	 	 	 	 	 
	4.	 	FINANCIAL STATEMENTS AND INFORMATION	 	 	31	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	4.1	 	 	Reports and Notices
	 	 	31	 
	 

	 	 	4.2	 	 	Communication with Accountants
	 	 	31	 
	 
	 	 	 	 	 	 	 	 	 	 
	5.	 	AFFIRMATIVE COVENANTS	 	 	31	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	5.1	 	 	Maintenance of Existence and Conduct of Business
	 	 	31	 
	 

	 	 	5.2	 	 	Payment of Charges
	 	 	32	 
	 

	 	 	5.3	 	 	Books and Records
	 	 	32	 
	 

	 	 	5.4	 	 	Insurance; Damage to or Destruction of Collateral
	 	 	32	 
	 

	 	 	5.5	 	 	Compliance with Laws
	 	 	34	 
	 

	 	 	5.6	 	 	Supplemental Disclosure
	 	 	34	 
	 

	 	 	5.7	 	 	Intellectual Property
	 	 	34	 
	 

	 	 	5.8	 	 	Environmental Matters
	 	 	34	 
	 

	 	 	5.9	 	 	Landlords’ Agreements
	 	 	35	 
	 

	 	 	5.10	 	 	Further Assurances
	 	 	36	 
	 
	 	 	 	 	 	 	 	 	 	 
	6.	 	NEGATIVE COVENANTS	 	 	36	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	6.1	 	 	Mergers, Subsidiaries, Etc
	 	 	36	 
	 

	 	 	6.2	 	 	Investments; Loans and Advances
	 	 	37	 
	 

	 	 	6.3	 	 	Indebtedness
	 	 	37	 
	 

	 	 	6.4	 	 	Employee Loans and Affiliate Transactions
	 	 	38	 
	 

	 	 	6.5	 	 	Capital Structure and Business
	 	 	39	 
	 

	 	 	6.6	 	 	Guaranteed Indebtedness
	 	 	39	 
	 

	 	 	6.7	 	 	Liens and Related Matters
	 	 	39	 
	 

	 	 	6.8	 	 	Sale of Stock and Assets
	 	 	40	 
	 

	 	 	6.9	 	 	ERISA
	 	 	40	 
	 

	 	 	6.10	 	 	Financial Covenants
	 	 	40	 
	 

	 	 	6.11	 	 	Hazardous Materials
	 	 	40	 
	 

	 	 	6.12	 	 	Sale-Leasebacks
	 	 	41	 
	 

	 	 	6.13	 	 	Cancellation of Indebtedness
	 	 	41	 
	 

	 	 	6.14	 	 	Restricted Payments
	 	 	41	 
	 

	 	 	6.15	 	 	Change of Corporate Name or Location; Change of Fiscal Year
	 	 	41	 
	 

	 	 	6.16	 	 	No Impairment of Intercompany Transfers
	 	 	42	 
	 

	 	 	6.17	 	 	No Speculative Transactions
	 	 	42	 
	 

	 	 	6.18	 	 	Leases; Real Estate Purchases
	 	 	42	 
	 

	 	 	6.19	 	 	Amendments
	 	 	42	 

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	 	 	 	 	 	 	 	 	Page
	 

	 	 	6.20	 	 	Navarre CP, Navarre CLP and Navarre CS
	 	 	42	 
	 
	 	 	 	 	 	 	 	 	 	 
	7.	 	TERM	 	 	42	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	7.1	 	 	Termination
	 	 	42	 
	 

	 	 	7.2	 	 	Survival of Obligations Upon Termination of Financing Arrangements
	 	 	42	 
	 
	 	 	 	 	 	 	 	 	 	 
	8.	 	EVENTS OF DEFAULT; RIGHTS AND REMEDIES	 	 	43	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	8.1	 	 	Events of Default
	 	 	43	 
	 

	 	 	8.2	 	 	Remedies
	 	 	45	 
	 

	 	 	8.3	 	 	Waivers by Credit Parties
	 	 	45	 
	 
	 	 	 	 	 	 	 	 	 	 
	9.	 	ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT	 	 	46	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	9.1	 	 	Assignment and Participations
	 	 	46	 
	 

	 	 	9.2	 	 	Appointment of Agent
	 	 	48	 
	 

	 	 	9.3	 	 	Agent’s Reliance, Etc.
	 	 	49	 
	 

	 	 	9.4	 	 	GE Capital and Affiliates
	 	 	49	 
	 

	 	 	9.5	 	 	Lender Credit Decision
	 	 	50	 
	 

	 	 	9.6	 	 	Indemnification
	 	 	50	 
	 

	 	 	9.7	 	 	Successor Agent
	 	 	50	 
	 

	 	 	9.8	 	 	Setoff and Sharing of Payments
	 	 	51	 
	 

	 	 	9.9	 	 	Advances; Payments; Non-Funding Lenders; Information; Actions in Concert
	 	 	52	 
	 

	 	 	9.10	 	 	Intercreditor Agreement
	 	 	54	 
	 
	 	 	 	 	 	 	 	 	 	 
	10.	 	SUCCESSORS AND ASSIGNS	 	 	54	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	10.1	 	 	Successors and Assigns
	 	 	54	 
	 
	 	 	 	 	 	 	 	 	 	 
	11.	 	MISCELLANEOUS	 	 	54	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	11.1	 	 	Complete Agreement; Modification of Agreement
	 	 	54	 
	 

	 	 	11.2	 	 	Amendments and Waivers
	 	 	55	 
	 

	 	 	11.3	 	 	Fees and Expenses
	 	 	57	 
	 

	 	 	11.4	 	 	No Waiver
	 	 	58	 
	 

	 	 	11.5	 	 	Remedies
	 	 	58	 
	 

	 	 	11.6	 	 	Severability
	 	 	58	 
	 

	 	 	11.7	 	 	Conflict of Terms
	 	 	58	 
	 

	 	 	11.8	 	 	Confidentiality
	 	 	58	 
	 

	 	 	11.9	 	 	GOVERNING LAW
	 	 	59	 
	 

	 	 	11.10	 	 	Notices
	 	 	60	 
	 

	 	 	11.11	 	 	Section Titles
	 	 	61	 
	 

	 	 	11.12	 	 	Counterparts
	 	 	61	 
	 

	 	 	11.13	 	 	WAIVER OF JURY TRIAL
	 	 	61	 
	 

	 	 	11.14	 	 	Press Releases and Related Matters
	 	 	62	 
	 

	 	 	11.15	 	 	Reinstatement
	 	 	62	 
	 

	 	 	11.16	 	 	Advice of Counsel
	 	 	62	 
	 

	 	 	11.17	 	 	No Strict Construction
	 	 	62	 
	 

	 	 	11.18	 	 	Compliance with Federal Law
	 	 	63	 
	 

	 	 	11.19	 	 	Customer Identification — USA Patriot Act Notice
	 	 	63	 

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	 	 	 	 	 	 	 	 	Page
	 
	 	 	 	 	 	 	 	 	 	 
	12.	 	AMENDMENT AND RESTATEMENT	 	 	63	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	12.1	 	 	Interrelationship with the Existing Credit Agreement
	 	 	63	 

iv

 

INDEX OF APPENDICES

	 	 	 	 	 
	Annex A (Recitals)

	 	—
	 	Definitions
	Annex B (Section 1.2)

	 	—
	 	Letters of Credit
	Annex C (Section 1.8)

	 	—
	 	Cash Management System
	Annex D (Section 2.1(a))

	 	—
	 	Closing Checklist
	Annex E (Section 4.1(a))

	 	—
	 	Financial Statements and Projections — Reporting
	Annex F (Section 4.1(b))

	 	—
	 	Collateral Reports
	Annex G (Section 6.10)

	 	—
	 	Financial Covenants
	Annex H (Section 9.9(a))

	 	—
	 	Lenders’ Wire Transfer Information
	Annex I (Section 11.10)

	 	—
	 	Notice Addresses
	Annex J (from Annex A-

   Commitments definition)

	 	—
	 	Commitments as of Closing Date
	 
	Exhibit 1.1(a)(i)

	 	—
	 	Form of Notice of Revolving Credit Advance
	Exhibit 1.1(a)(ii)

	 	—
	 	Form of Revolving Note
	Exhibit 1.1(b)(ii)

	 	—
	 	Form of Swing Line Note
	Exhibit 1.5(e)

	 	—
	 	Form of Notice of Conversion/Continuation
	Exhibit 4.1(b)

	 	—
	 	Form of Borrowing Base Certificate
	Exhibit 9.1(a)

	 	—
	 	Form of Assignment Agreement
	Exhibit B-1

	 	—
	 	Application for Standby Letter of Credit
	Schedule A-1

	 	—
	 	Withdrawal From Eligible Investment Funds
	Schedule 1.1

	 	—
	 	Agent’s Representatives
	Disclosure Schedule 3.1

	 	—
	 	Type of Entity; State of Organization
	Disclosure Schedule 3.2

	 	—
	 	Executive Offices, Collateral Locations, FEIN
	Disclosure Schedule 3.4

	 	—
	 	Financial Statement Exceptions
	Disclosure Schedule 3.4(a)

	 	—
	 	Financial Statements
	Disclosure Schedule 3.4(b)

	 	—
	 	Projections
	Disclosure Schedule 3.4(c)

	 	—
	 	Pro Forma
	Disclosure Schedule 3.6

	 	—
	 	Real Estate and Leases
	Disclosure Schedule 3.7

	 	—
	 	Labor Matters
	Disclosure Schedule 3.8

	 	—
	 	Ventures, Subsidiaries and Affiliates; Outstanding Stock
	Disclosure Schedule 3.11

	 	—
	 	Tax Matters
	Disclosure Schedule 3.12

	 	—
	 	ERISA Plans
	Disclosure Schedule 3.13

	 	—
	 	Litigation
	Disclosure Schedule 3.15

	 	—
	 	Intellectual Property
	Disclosure Schedule 3.17

	 	—
	 	Hazardous Materials
	Disclosure Schedule 3.18

	 	—
	 	Insurance
	Disclosure Schedule 3.19

	 	—
	 	Deposit and Disbursement Accounts
	Disclosure Schedule 3.20

	 	—
	 	Government Contracts
	Disclosure Schedule 3.22

	 	—
	 	Material Agreements
	Disclosure Schedule 3.27

	 	—
	 	Vendor Advances
	Disclosure Schedule 5.1

	 	—
	 	Trade Names
	Disclosure Schedule 6.3

	 	—
	 	Indebtedness
	Disclosure Schedule 6.4(a)

	 	—
	 	Transactions with Affiliates

v

 

	 	 	 	 	 
	Disclosure Schedule 6.7

	 	—
	 	Existing Liens
	Disclosure Schedule 6.8

	 	—
	 	Texas Real Estate Sale Transaction
	Disclosure Schedule 6.14

	 	—
	 	Eric Paulson’s Deferred Compensation Payments

vi

 

          This FOURTH AMENDED AND RESTATED CREDIT AGREEMENT (this “Agreement”), dated as of
March 22, 2007, by and among NAVARRE CORPORATION, a Minnesota corporation (“Borrower”), the
Credit Parties signatory hereto, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (in
its individual capacity, “GE Capital”), for itself, as Lender, and as Agent for Lenders,
and the other Lenders signatory hereto from time to time.

RECITALS

          WHEREAS, Borrower, the other Credit Parties signatory thereto, Agent and the Lenders signatory
thereto are parties to that certain Third Amended and Restated Credit Agreement dated as of June 1,
2005 (as amended or otherwise modified prior to the date hereof, the “Existing Credit
Agreement”);

          WHEREAS, Borrower has requested that Lenders extend a revolving credit facility to Borrower of
up to Ninety Five Million Dollars ($95,000,000) in the aggregate for the purposes of (a) providing
working capital financing for Borrower and Capital Expenditures for Borrower as permitted
hereunder, (b) providing funds for other general corporate purposes of Borrower and (c) providing
funds for other purposes permitted hereunder; and for these purposes, Lenders are willing to make
certain loans and other extensions of credit to Borrower of up to such amount upon the terms and
conditions set forth herein;

          WHEREAS, Borrower has agreed to secure all of its obligations under the Loan Documents by
granting to Agent, for the benefit of Agent and Lenders, a security interest in and lien upon all
of its existing and after-acquired personal and real property;

          WHEREAS, the Credit Parties signatory hereto (other than Borrower) have agreed to guarantee
the Obligations and to grant to Agent, for the benefit of Agent and Lenders, a security interest in
and lien upon all of their existing and after-acquired personal and real property to secure the
Obligations; and

          WHEREAS, capitalized terms used in this Agreement shall have the meanings ascribed to them in
Annex A and, for purposes of this Agreement and the other Loan Documents, the rules of
construction set forth in Annex A shall govern. All Annexes, Disclosure Schedules,
Exhibits and other attachments (collectively, “Appendices”) hereto, or expressly identified
to this Agreement, are incorporated herein by reference, and taken together with this Agreement,
shall constitute but a single agreement. These Recitals shall be construed as part of the
Agreement.

          NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter
contained, and for other good and valuable consideration, the parties hereto agree to amend and
restate the Existing Credit Agreement in its entirety as set forth herein:

 

 

1. AMOUNT AND TERMS OF CREDIT

          1.1 Credit Facilities.

          (a) Revolving Credit Facility.

               (i) Subject to the terms and conditions hereof, each Revolving Lender agrees to make
available to Borrower from time to time until the Commitment Termination Date its Pro Rata
Share of advances (each, a “Revolving Credit Advance”). The Pro Rata Share of the
Revolving Loan of any Revolving Lender shall not at any time exceed its separate Revolving
Loan Commitment. The obligations of each Revolving Lender hereunder shall be several and
not joint. Until the Commitment Termination Date, Borrower may from time to time borrow,
repay and reborrow under this Section 1.1(a); provided, that the amount of
any Revolving Credit Advance to be made at any time shall not exceed Borrowing Availability
at such time. Borrowing Availability may be further reduced by Reserves imposed by Agent
in its reasonable credit judgment for reasons relating to any Credit Party, any Credit
Party’s business or industry and/or the Agent’s ability to collect or realize the full
value of any Collateral. Each Revolving Credit Advance shall be made on notice by Borrower
to one of the representatives of Agent identified in Schedule 1.1 at the address
specified therein. Any such notice must be given no later than (1) 11:00 a.m. (Chicago
time) on the Business Day of the proposed Revolving Credit Advance, in the case of an Index
Rate Loan, or (2) 11:00 a.m. (Chicago time) on the date which is 3 Business Days prior to
the proposed Revolving Credit Advance, in the case of a LIBOR Loan. Each such notice (a
“Notice of Revolving Credit Advance”) must be given in writing (by telecopy or
overnight courier) substantially in the form of Exhibit 1.1(a)(i), and shall
include the information required in such Exhibit and such other information as may be
required by Agent. If Borrower desires to have the Revolving Credit Advances bear interest
by reference to a LIBOR Rate, it must comply with Section 1.5(e).

               (ii) Except as provided in Section 1.12, Borrower shall execute and deliver to
each Revolving Lender a note to evidence the Revolving Loan Commitment of that Revolving
Lender. Each note shall be in the principal amount of the Revolving Loan Commitment of the
applicable Revolving Lender, dated the Closing Date and substantially in the form of
Exhibit 1.1(a)(ii) (each a “Revolving Note” and, collectively, the
“Revolving Notes”). Each Revolving Note shall represent the obligation of Borrower
to pay the amount of Revolving Lender’s Revolving Loan Commitment or, if less, such
Revolving Lender’s Pro Rata Share of the aggregate unpaid principal amount of all Revolving
Credit Advances to Borrower together with interest thereon as prescribed in Section
1.5. The entire unpaid balance of the Revolving Loan and all other non-contingent
Obligations shall be immediately due and payable in full in immediately available funds on
the Commitment Termination Date.

          (b) Swing Line Facility.

               (i) Agent shall notify the Swing Line Lender upon Agent’s receipt of any Notice of
Revolving Credit Advance. Subject to the terms and conditions

2

 

hereof, the Swing Line Lender may, in its discretion, make available from time to time
until the Commitment Termination Date advances (each, a “Swing Line Advance”) in
accordance with any such notice. The provisions of this Section 1.1(b) shall not
relieve Revolving Lenders of their obligations to make Revolving Credit Advances under
Section 1.1(a); provided that if the Swing Line Lender makes a Swing Line Advance
pursuant to any such notice, such Swing Line Advance shall be in lieu of any Revolving
Credit Advance that otherwise may be made by Revolving Credit Lenders pursuant to such
notice. The aggregate amount of Swing Line Advances outstanding shall not exceed at any
time the lesser of (A) the Swing Line Commitment and (B) the lesser of the Maximum Amount
and the Borrowing Base, in each case, less the outstanding balance of the Revolving Loan at
such time (“Swing Line Availability”). Until the Commitment Termination Date,
Borrower may from time to time borrow, repay and reborrow under this Section
1.1(b). Each Swing Line Advance shall be made pursuant to a Notice of Revolving Credit
advance delivered by Borrower to Agent in accordance with Section 1.1(a). Any such
notice must be given no later than 11:00 a.m. (Chicago time) on the Business Day of the
proposed Swing Line Advance. Unless the Swing Line Lender has received at least one
Business Day’s prior written notice from Requisite Lenders instructing it not to make a
Swing Line Advance, the Swing Line Lender shall, notwithstanding the failure of any
condition precedent set forth in Sections 2.2, be entitled to fund that Swing Line
Advance, and to have such Revolving Lender make Revolving Credit Advances in accordance
with Section 1.1(b)(iii) or purchase participating interests in accordance with
Section 1.1(b)(iv). Notwithstanding any other provision of this Agreement or the
other Loan Documents, the Swing Line Loan shall constitute an Index Rate Loan. Borrower
shall repay the aggregate outstanding principal amount of the Swing Line Loan upon demand
therefor by Agent.

               (ii) Borrower shall execute and deliver to the Swing Line Lender a promissory note to
evidence the Swing Line Commitment. Such note shall be in the principal amount of the
Swing Line Commitment of the Swing Line Lender, dated the Closing Date and substantially in
the form of Exhibit 1.1(b)(ii) (the “Swing Line Note”). The Swing Line
Note shall represent the obligation of Borrower to pay the amount of the Swing Line
Commitment or, if less, the aggregate unpaid principal amount of all Swing Line Advances
made to Borrower together with interest thereon as prescribed in Section 1.5. The
entire unpaid balance of the Swing Line Loan and all other noncontingent Obligations shall
be immediately due and payable in full in immediately available funds on the Commitment
Termination Date if not sooner paid in full.

               (iii) The Swing Line Lender, at any time and from time to time in its sole and
absolute discretion but at least once per week, may on behalf of Borrower (and Borrower
hereby irrevocably authorizes the Swing Line Lender to so act on its behalf) request each
Revolving Lender (including the Swing Line Lender) to make a Revolving Credit Advance to
Borrower (which shall be an Index Rate Loan) in an amount equal to that Revolving Lender’s
Pro Rata Share of the principal amount of the Swing Line Loan (the “Refunded Swing Line
Loan”) outstanding on the date such notice is given. Unless any of the events
described in Sections 8.1(h) or 8.1(i) has occurred (in which event the procedures
of Section 1.1(b)(iv) shall apply) and regardless of whether

3

 

the conditions precedent set forth in this Agreement to the making of a Revolving
Credit Advance are then satisfied, each Revolving Lender shall disburse directly to Agent,
its Pro Rata Share of a Revolving Credit Advance on behalf of the Swing Line Lender, prior
to 2:00 p.m. (Chicago time), in immediately available funds on the Business Day next
succeeding the date that notice is given. The proceeds of those Revolving Credit Advances
shall be immediately paid to the Swing Line Lender and applied to repay the Refunded Swing
Line Loan.

               (iv) If, prior to refunding a Swing Line Loan with a Revolving Credit Advance pursuant
to Section 1.1(b)(iii), one of the events described in Sections 8.1(h) or
8.1(i) has occurred, then, subject to the provisions of Section 1.1(b)(v)
below, each Revolving Lender shall, on the date such Revolving Credit Advance was to have
been made for the benefit of Borrower, purchase from the Swing Line Lender an undivided
participation interest in the Swing Line Loan in an amount equal to its Pro Rata Share of
such Swing Line Loan. Upon request, each Revolving Lender shall, prior to 2:00 p.m.
(Chicago time) in immediately available funds on the Business Day next succeeding the date
such request is made, promptly transfer to the Swing Line Lender, in immediately available
funds, the amount of its participation interest.

               (v) Each Revolving Lender’s obligation to make Revolving Credit Advances in accordance
with Section 1.1(b)(iii) and to purchase participation interests in accordance with
Section 1.1(b)(iv) shall be absolute and unconditional and shall not be affected by
any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other
right that such Revolving Lender may have against the Swing Line Lender, Borrower or any
other Person for any reason whatsoever; (B) the occurrence or continuance of any Default or
Event of Default; (C) any inability of Borrower to satisfy the conditions precedent to
borrowing set forth in this Agreement at any time or (D) any other circumstance, happening
or event whatsoever, whether or not similar to any of the foregoing. If any Revolving
Lender does not make available to Agent or the Swing Line Lender, as applicable, the
amount required pursuant to Sections 1.1(b)(iii) or 1.1(b)(iv), as the case may be,
the Swing Line Lender shall be entitled to recover such amount on demand from such
Revolving Lender, together with interest thereon for each day from the date of non-payment
until such amount is paid in full at the Federal Funds Rate for the first two Business Days
and at the Index Rate thereafter.

          (c) Reliance on Notices. Agent shall be entitled to rely upon, and shall be fully
protected in relying upon, any Notice of Revolving Credit Advance, Notice of
Conversion/Continuation or similar notice believed by Agent to be genuine. Agent may assume that
each Person executing and delivering any notice in accordance herewith was duly authorized, unless
the responsible individual acting thereon for Agent has actual knowledge to the contrary.

          1.2 Letters of Credit . Subject to and in accordance with the terms and conditions
contained herein and in Annex B, Borrower shall have the right to request, and Revolving
Lenders agree to incur, or purchase participations in, Letter of Credit Obligations in respect of
Borrower.

4

 

          1.2A Swap Related Reimbursement Obligations.

          (a) Borrower agrees to reimburse GE Capital in immediately available funds in the amount of
any payment made by GE Capital under a Swap Related L/C (such reimbursement obligation, whether
contingent upon payment by GE Capital under the Swap Related L/C or otherwise, being herein called
a “Swap Related Reimbursement Obligation”). No Swap Related Reimbursement Obligation for
any Swap Related L/C may exceed the amount of the payment obligations owed by Borrower under the
interest rate protection or hedging agreement or transaction supported by the Swap Related L/C.

          (b) A Swap Related Reimbursement Obligation shall be due and payable by Borrower within one
(1) Business Day after the date on which the related payment is made by GE Capital under the Swap
Related L/C.

          (c) Any Swap Related Reimbursement Obligation shall, during the period in which it is unpaid,
bear interest at the rate per annum equal to the LIBOR Rate plus one percent (1%), as if the unpaid
amount of the Swap Related Reimbursement Obligation were a LIBOR Loan, and not at any otherwise
applicable Default Rate. Such interest shall be payable upon demand. The following additional
provisions apply to the calculation and charging of interest on Swap Related Reimbursement
Obligations by reference to the LIBOR Rate:

               (i) The LIBOR Rate shall be determined for each successive one-month LIBOR Period
during which the Swap Related Reimbursement Obligation is unpaid, notwithstanding the
occurrence of any Event of Default and even if the LIBOR Period were to extend beyond the
Commitment Termination Date.

               (ii) If a Swap Related Reimbursement Obligation is paid during a monthly period for
which the LIBOR Rate is determined, interest shall be pro-rated and charged for the portion
of the monthly period during which the Swap Related Reimbursement Obligation was unpaid.
Section 1.13(b) shall not apply to any payment of a Swap Related Reimbursement
Obligation during the monthly period.

               (iii) Notwithstanding the last paragraph of the definition of “LIBOR Rate”, if the
LIBOR Rate is no longer available from Telerate News Service, the LIBOR Rate with respect
to Swap Related Reimbursement Obligations shall be determined by GE Capital from such
financial reporting service or other information available to GE Capital as in GE Capital’s
reasonable discretion indicates GE Capital’s cost of funds.

          (d) Except as provided in the foregoing provisions of this Section 1.2A and in
Section 11.3, Borrower shall not be obligated to pay to GE Capital or any of its Affiliates
any Letter of Credit Fee, or any other fees, charges or expenses, in respect of a Swap Related L/C
or arranging for any interest rate protection or hedging agreement or transaction supported by the
Swap Related L/C. GE Capital and its Affiliates shall look to the beneficiary of a Swap Related
L/C for payment of any such letter of credit fees or other fees, charges or expenses and such
beneficiary may factor such fees, charges, or expenses into the pricing of any interest rate
protection or hedging arrangement or transaction supported by the Swap Related L/C.

5

 

          (e) If any Swap Related L/C is revocable prior to its scheduled expiry date, GE Capital agrees
not to revoke the Swap Related L/C unless the Commitment Termination Date or an Event of Default
has occurred.

          (f) GE Capital or any of its Affiliates shall be permitted to (i) provide confidential or
other information furnished to it by any of the Credit Parties (including, without limitation,
copies of any documents and information in or referred to in the Closing Checklist, Financial
Statements and Compliance Certificates) to a beneficiary or potential beneficiary of a Swap Related
L/C and (ii) receive confidential or other information from the beneficiary or potential
beneficiary relating to any agreement or transaction supported or to be supported by the Swap
Related L/C. However, no confidential information shall be provided to any Person under this
paragraph unless the Person has agreed to comply with the covenant substantially as contained in
Section 11.8 of this Agreement.

          1.3 Prepayments.

          (a) Voluntary Prepayments; Reductions in Revolving Loan Commitments. Borrower may at
any time on at least five (5) days’ prior written notice to Agent permanently reduce (but not
terminate) the Revolving Loan Commitment; provided that (A) any such reductions shall be in
a minimum amount of $3,000,000 and integral multiples of $250,000 in excess of such amount, (B) the
Revolving Loan Commitment shall not be reduced to an amount less than the amount of the Revolving
Loan outstanding, and (C) after giving effect to such reductions, Borrower shall comply with
Section 1.3(b)(i). Borrower may at any time on at least ten (10) days’ prior written
notice to Agent terminate the Revolving Loan Commitment; provided that upon such
termination all Loans and other Obligations shall be immediately due and payable in full and all
Letter of Credit Obligations shall be cash collateralized or otherwise satisfied in accordance with
Annex B hereto. Any voluntary prepayment and any reduction or termination of the Revolving
Loan Commitment must be accompanied by payment of the Fee required by Section 1.9(c), if
any, plus the payment of any LIBOR funding breakage costs in accordance with Section
1.13(b). Upon any such reduction or termination of the Revolving Loan Commitment, Borrower’s
right to request Revolving Credit Advances, or request that Letter of Credit Obligations be
incurred on its behalf, or request Swing Line Advances, shall simultaneously be permanently reduced
or terminated, as the case may be; provided that a permanent reduction of the Revolving
Loan Commitment shall require a corresponding pro rata reduction in the L/C Sublimit. Each notice
of partial prepayment shall designate the Loan or other Obligations to which such prepayment is to
be applied.

          (b) Mandatory Prepayments.

               (i) If at any time the outstanding balances of the Revolving Loan and the Swing Line
Loan exceed the lesser of (A) the Maximum Amount and (B) the Borrowing Base, Borrower shall
immediately repay the aggregate outstanding Revolving Credit Advances to the extent
required to eliminate such excess. If any such excess remains after repayment in full of
the aggregate outstanding Revolving Credit Advances, Borrower shall provide cash
collateral for the Letter of Credit Obligations in the manner set forth in Annex B
to the extent required to eliminate such excess.

6

 

               (ii) Immediately upon receipt by any Credit Party of any proceeds of any asset
disposition (excluding proceeds of asset dispositions permitted by Sections 6.8(a)
and, as long as no Default or Event of Default then exists, 6.8(d), but including
any sale of Stock of any Subsidiary of any Credit Party, Borrower shall, unless such
prepayment is waived in writing by the Requisite Lenders, prepay the Loans in an amount
equal to all such proceeds, net of (A) commissions and other reasonable and customary
transaction costs, fees and expenses properly attributable to such transaction and payable
by Borrower in connection therewith (in each case, paid to non-Affiliates), (B) transfer
taxes, (C) amounts payable to holders of senior Liens (to the extent such Liens constitute
Permitted Encumbrances hereunder (but excluding, in any event, Liens securing obligations
under the Second Lien Credit Agreement)), if any, and (D) an appropriate reserve for income
taxes in accordance with GAAP in connection therewith. Any such prepayment shall be
applied in accordance with Section 1.3(c).

               (iii) If Borrower issues or incurs any Indebtedness (other than Indebtedness permitted
under Section 6.3 hereof), no later than the Business Day following the date of
receipt of the proceeds thereof, Borrower shall, unless such prepayment is waived in
writing by the Requisite Lenders, prepay the Loans in an amount equal to all such proceeds,
net of underwriting discounts and commissions and other reasonable costs paid to
non-Affiliates in connection therewith. If Borrower issues Stock, no later than the
Business Day following the date of receipt of the proceeds thereof, Borrower shall, unless
such prepayment is waived in writing by the Requisite Lenders, prepay the Loans in an
amount equal fifty percent (50%) of such proceeds, net of underwriting discounts and
commissions and other reasonable costs paid to non-Affiliates in connection therewith. Any
such prepayment shall be applied in accordance with Section 1.3(c).

          (c) Application of Certain Mandatory Prepayments. Any prepayments made by Borrower
pursuant to Sections 1.3(b)(ii) or (b)(iii) above shall be applied as follows:
first, to Fees and reimbursable expenses of Agent then due and payable pursuant to any of
the Loan Documents; second, to interest then due and payable on the Swing Line Loan;
third, to the principal balance of the Swing Line Loan until the same has been repaid in
full; fourth, to interest then due and payable on the Revolving Credit Advances;
fifth, to the outstanding principal balance of Revolving Credit Advances until the same has
been paid in full; sixth, to any Letter of Credit Obligations, to provide cash collateral
therefor in the manner set forth in Annex B, until all such Letter of Credit Obligations
have been fully cash collateralized in the manner set forth in Annex B; and
seventh, pro rata to all other Obligations then due and owing. The
Revolving Loan Commitment shall be permanently reduced by the amount of any such prepayments to the
extent, when added to the amount of prepayments made in accordance with Section 5.4(d), in
excess of $5,000,000 in the aggregate.

          (d) Application of Prepayments from Insurance Proceeds and Condemnation Proceeds.
Prepayments from insurance or condemnation proceeds in accordance with Section 5.4(d),
shall, unless such prepayment is waived in writing by the Requisite Lenders, be applied as follows:
insurance proceeds from casualties or losses to cash or Inventory shall be applied first,
to the Swing Line Loans and second, to the Revolving Credit Advances. The Revolving Loan
Commitment shall be permanently reduced by the amount of any such prepayments to the

7

 

extent, when added to the amount of prepayments made in accordance with Sections
1.3(b)(ii) or (b)(iii), in excess of $5,000,000 in the aggregate.

          (e) No Implied Consent. Nothing in this Section 1.3 shall be construed to
constitute Agent’s or any Lender’s consent to any transaction that is not permitted by other
provisions of this Agreement or the other Loan Documents.

          1.4 Use of Proceeds.

          Borrower shall utilize the proceeds of the Revolving Loan and the Swing Line Loan solely for
the financing of Borrower’s ordinary working capital, Capital Expenditures as permitted hereunder,
and for other general corporate purposes.

          1.5 Interest and Applicable Margins.

          (a) Borrower shall pay interest to Agent, for the ratable benefit of Lenders in accordance
with the Loans being made by each Lender, in arrears on each applicable Interest Payment Date, at
the Index Rate plus the Applicable Revolver Index Margin per annum or, at the election of Borrower,
at the applicable LIBOR Rate plus the Applicable Revolver LIBOR Margin per annum, based on the
aggregate Revolving Credit Advances outstanding from time to time.

          As of the Closing Date, the Applicable Margins are as follows:

	 	 	 	 	 
	Applicable Revolver Index Margin
	 	 	0.75	%
	 
	 	 	 	 
	Applicable Revolver LIBOR Margin
	 	 	2.00	%
	 
	 	 	 	 
	Applicable L/C Margin
	 	 	2.00	%
	 
	 	 	 	 
	Applicable Unused Line Fee Margin
	 	 	0.25	%

          The Applicable Margins shall be adjusted (up or down) prospectively on a quarterly basis as
determined based upon the average daily Borrowing Availability for the then most recently ended
Fiscal Quarter, commencing with the Fiscal Quarter ending on September 30, 2007. All adjustments
in the Applicable Margins thereafter shall be implemented quarterly on a prospective basis at any
time there is a need for an adjustment (the determination as to whether an adjustment is necessary
to be made by Agent in good faith). Adjustments in Applicable Margins will be determined by
reference to the following grids:

	 	 	 
	If average daily Borrowing Availability for the Fiscal	 	Level of
	Quarter is:	 	Applicable Margins:
	3 $45,000,000

	 	Level I
	3 $35,000,000, but < $45,000,000

	 	Level II
	3 $20,000,000, but < $35,000,000

	 	Level III
	3 $7,500,000, but < $20,000,000

	 	Level IV

8

 

	 	 	 
	If average daily Borrowing Availability for the Fiscal	 	Level of
	Quarter is:	 	Applicable Margins:
	< $7,500,000

	 	Level V

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Level I	 	Level II	 	Level III	 	Level IV	 	Level V
	Applicable
Revolver Index
Margin
	 	 	0.25	%	 	 	0.50	%	 	 	0.75	%	 	 	1.00	%	 	 	1.25	%
	Applicable
Revolver LIBOR
Margin
	 	 	1.50	%	 	 	1.75	%	 	 	2.00	%	 	 	2.25	%	 	 	2.50	%
	Applicable L/C
Margin
	 	 	1.50	%	 	 	1.75	%	 	 	2.00	%	 	 	2.25	%	 	 	2.50	%
	Applicable
Unused Line Fee
Margin
	 	 	0.375	%	 	 	0.375	%	 	 	0.25	%	 	 	0.25	%	 	 	0.25	%

          If any Default or an Event of Default has occurred and is continuing at the time any
reduction in the Applicable Margins is to be implemented, that reduction shall be deferred until
the first day of the first calendar month following the date on which all Defaults or Events of
Default are waived or cured.

          (b) If any payment on any Loan becomes due and payable on a day other than a Business Day, the
maturity thereof will be extended to the next succeeding Business Day (except as set forth in the
definition of LIBOR Period) and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.

          (c) All computations of Fees calculated on a per annum basis and interest shall be made by
Agent on the basis of a 360-day year, in each case for the actual number of days occurring in the
period for which such interest and Fees are payable. The Index Rate is a floating rate determined
for each day. Each determination by Agent of an interest rate and Fees hereunder shall be final,
binding and conclusive on Borrower, absent manifest error.

          (d) So long as an Event of Default has occurred and is continuing under Section 8.1(a),
(h) or (i), or so long as any other Default or Event of Default has occurred and is continuing
and at the election of Agent (or upon the written request of Requisite Lenders) confirmed by
written notice from Agent to Borrower, the interest rates applicable to the Loans and the Letter of
Credit Fees shall be increased by two percentage points (2%) per annum above the rates of interest
or the rate of such Fees otherwise applicable hereunder (“Default Rate”), and all
outstanding Obligations shall bear interest at the Default Rate applicable to such Obligations.
Interest and Letter of Credit Fees at the Default Rate shall accrue from the initial date of such
Default or Event of Default until that Default or Event of Default is cured or waived and shall be
payable upon demand.

          (e) Subject to the conditions precedent set forth in Section 2.2, Borrower shall have
the option to (i) request that any Revolving Credit Advance be made as a LIBOR Loan, (ii) convert
at any time all or any part of outstanding Loans (other than the Swing Line Loan) from Index Rate
Loans to LIBOR Loans, (iii) convert any LIBOR Loan to an Index Rate Loan, subject

9

 

to payment of LIBOR breakage costs in accordance with Section 1.13(b) if such
conversion is made prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue
all or any portion of any Loan (other than the Swing Line Loan) as a LIBOR Loan upon the expiration
of the applicable LIBOR Period and the succeeding LIBOR Period of that continued Loan shall
commence on the first day after the last day of the LIBOR Period of the Loan to be continued. Any
Loan or group of Loans having the same proposed LIBOR Period to be made or continued as, or
converted into, a LIBOR Loan must be in a minimum amount of $1,000,000 and integral multiples of
$500,000 in excess of such amount. Any such election must be made by 11:00 a.m. (Chicago time) on
the 3rd Business Day prior to (1) the date of any proposed Advance which is to bear interest at the
LIBOR Rate, (2) the end of each LIBOR Period with respect to any LIBOR Loans to be continued as
such, or (3) the date on which Borrower wishes to convert any Index Rate Loan to a LIBOR Loan for a
LIBOR Period designated by Borrower in such election. If no election is received with respect to a
LIBOR Loan by 11:00 a.m. (Chicago time) on the 3rd Business Day prior to the end of the LIBOR
Period with respect thereto (or if a Default or an Event of Default has occurred and is continuing
or the additional conditions precedent set forth in Section 2.2 shall not have been
satisfied), that LIBOR Loan shall be converted to an Index Rate Loan at the end of its LIBOR
Period. Borrower must make such election by notice to Agent in writing, by telecopy or overnight
courier. In the case of any conversion or continuation, such election must be made pursuant to a
written notice (a “Notice of Conversion/Continuation”) in the form of Exhibit
1.5(e).

          (f) Notwithstanding anything to the contrary set forth in this Section 1.5, if a court
of competent jurisdiction determines in a final order that the rate of interest payable hereunder
exceeds the highest rate of interest permissible under law (the “Maximum Lawful Rate”),
then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable
hereunder shall be equal to the Maximum Lawful Rate. Thereafter, interest hereunder shall be paid
at the rate(s) of interest and in the manner provided in Sections 1.5(a) through (e),
unless and until the rate of interest again exceeds the Maximum Lawful Rate, and at that time this
paragraph shall again apply. In no event shall the total interest received by any Lender pursuant
to the terms hereof exceed the amount that such Lender could lawfully have received had the
interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. If the
Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at
a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which
such calculation is made. If, notwithstanding the provisions of this Section 1.5(f), a
court of competent jurisdiction shall finally determine that a Lender has received interest
hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent permitted by applicable
law, promptly apply such excess in the order specified in Section 1.11 and thereafter
shall refund any excess to Borrower or as a court of competent jurisdiction may otherwise order.

          1.6 Eligible Accounts. All of the Accounts owned by one or more of the Eligible Credit
Parties and reflected in the most recent Borrowing Base Certificate delivered by Borrower to Agent
shall be “Eligible Accounts” for purposes of this Agreement, except any Account to which
any of the exclusionary criteria set forth below applies. Agent shall have the right to establish
or modify or eliminate Reserves against Eligible Accounts from time to time in its reasonable
credit judgment. In addition, Agent reserves the right, at any time and from time to time after
the Closing Date, to adjust any of the criteria set forth below, to establish new criteria and to adjust advance
rates with respect to Eligible Accounts, in its reasonable credit

10

 

judgment for reasons relating to
any Credit Party, any Credit Party’s business or industry and/or the Agent’s ability to collect or
realize the full value of any Collateral, subject to the approval of Supermajority Revolving
Lenders in the case of adjustments or new criteria or changes in advance rates or the elimination
of Reserves which have the effect of making more credit available. Eligible Accounts shall not
include any Account of any Eligible Credit Party:

          (a) that does not arise from the sale of goods or the performance of services by such Eligible
Credit Party in the ordinary course of its business;

          (b) (i) upon which the right of such Eligible Credit Party to receive payment is not absolute
or is contingent upon the fulfillment of any condition whatsoever or (ii) as to which such Eligible
Credit Party is not able to bring suit or otherwise enforce its remedies against the Account Debtor
through judicial process, or (iii) if the Account represents a progress billing consisting of an
invoice for goods sold or used or services rendered pursuant to a contract under which the Account
Debtor’s obligation to pay that invoice is subject to such Eligible Credit Party’s completion of
further performance under such contract or is subject to the equitable lien of a surety bond
issuer;

          (c) to the extent that any defense, counterclaim, setoff or dispute is asserted as to such
Account;

          (d) that is not a true and correct statement of bona fide indebtedness incurred in the amount
of the Account for merchandise sold to or services rendered and accepted by the applicable Account
Debtor;

          (e) with respect to which an invoice has not been sent to the applicable Account Debtor;

          (f) that (i) is not owned by such Eligible Credit Party or (ii) is subject to any right,
claim, security interest or other interest of any other Person, other than Liens in favor of Agent,
on behalf of itself and Lenders and Liens securing the obligations under the Second Lien Credit
Agreement, as long as such Liens are subject to the Second Lien Intercreditor Agreement;

          (g) that arises from a sale to any director, officer, other employee or Affiliate of any
Credit Party, or to any entity that has any common officer or director with any Credit Party;

          (h) that is the obligation of an Account Debtor that is the United States government or a
political subdivision thereof, or any state, county or municipality or department, agency or
instrumentality thereof unless Agent, in its sole discretion, has agreed to the contrary in writing
and such Eligible Credit Party, if necessary or desirable, has complied with respect to such
obligation with the Federal Assignment of Claims Act of 1940, or any applicable state, county or
municipal law restricting the assignment thereof with respect to such obligation;

          (i) that is the obligation of an Account Debtor located in a foreign country other than Canada
(excluding the province of Newfoundland, the Northwest Territories and the
Territory of Nunavit) unless payment thereof is assured by a letter of credit assigned and
delivered to Agent, satisfactory to Agent as to form, amount and issuer;

11

 

          (j) to the extent such Eligible Credit Party or any of its Subsidiaries is liable for goods
sold or services rendered by the applicable Account Debtor to such Eligible Credit Party or any of
its Subsidiaries or a rebate but only to the extent of the potential offset;

          (k) that arises with respect to goods that are delivered on a bill-and-hold, cash-on-delivery
basis or placed on consignment (provided, that once consigned goods are actually sold by
the relevant Account Debtor, the Accounts generated by such sale shall not be deemed ineligible
pursuant to this clause (k)), guaranteed sale or other terms by reason of which the payment by the
Account Debtor is or may be conditional;

          (l) that is in default; provided, that, without limiting the generality of the
foregoing, an Account shall be deemed in default upon the occurrence of any of the following:

               (i) (x) the Account owing by Account Debtors (other than Approved Obligors) is not
paid within the earlier of: 60 days following its due date or 90 days following its
original invoice date or (y) the Account owing by Approved Obligors is not paid within the
earlier of: 60 days following its due date or 120 days following its original invoice
date;

               (ii) the Account Debtor obligated upon such Account suspends business, makes a general
assignment for the benefit of creditors or fails to pay its debts generally as they come
due; or

               (iii) a petition is filed by or against any Account Debtor obligated upon such Account
under any bankruptcy law or any other federal, state or foreign (including any provincial)
receivership, insolvency relief or other law or laws for the relief of debtors;

          (m) that is the obligation of an Account Debtor if 50% or more of the Dollar amount of all
Accounts owing by that Account Debtor are ineligible under the other criteria set forth in this
Section 1.6;

          (n) as to which Agent’s Lien thereon, on behalf of itself and Lenders, is not a first priority
perfected Lien (or if the applicable agreement would be breached, terminated, terminable or in
default as a result of the applicable Credit Party (i) assigning its rights thereunder to the Agent
or (ii) granting a lien on the relevant Account to the Agent);

          (o) as to which any of the representations or warranties in the Loan Documents are untrue;

          (p) to the extent such Account is evidenced by a judgment, Instrument or Chattel Paper;

          (q) to the extent such Account exceeds any credit limit established by Agent, in its
reasonable credit judgment;

          (r) to the extent that such Account, together with all other Accounts owing by such Account
Debtor and its Affiliates as of any date of determination exceed 15% of all

12

 

otherwise Eligible Accounts (provided, however, that Accounts owing by (i) an Approved Obligor (other
than Best Buy Co., Inc. and its Affiliates) and its Affiliates which constitute less than 25% of
all otherwise Eligible Accounts shall not be deemed ineligible pursuant to this clause (r) or (ii)
Best Buy Co., Inc. and its Affiliates which constitute less than 35% of all otherwise Eligible
Accounts shall not be deemed ineligible pursuant to this clause (r));

          (s) that is payable in any currency other than Dollars or Canadian Dollars;

          (t) to the extent such Account arises from the sale of goods if the applicable Eligible Credit
Party has not acquired title to such goods pursuant to an agreement which is in form and substance
reasonably acceptable to the Agent; or

          (u) that is otherwise unacceptable to Agent in its reasonable credit judgment for reasons
relating to any Credit Party, any Credit Party’s business or industry and/or the Agent’s ability to
collect or realize the full value of any Collateral.

          1.7 Eligible Inventory. All of the inventory owned by one or more of the Eligible Credit
Parties and reflected in the most recent Borrowing Base Certificate delivered by Borrower to Agent
shall be “Eligible Inventory” for purposes of this Agreement, except any Inventory to which
any of the exclusionary criteria set forth below applies. Agent shall have the right to establish,
modify, or eliminate Reserves against Eligible Inventory from time to time in its reasonable credit
judgment. In addition, Agent reserves the right, at any time and from time to time after the
Closing Date, to adjust any of the criteria set forth below, to establish new criteria and to
adjust advance rates with respect to Eligible Inventory in its reasonable credit judgment, subject
to the approval of Supermajority Revolving Lenders in the case of adjustments or new criteria or
changes in advance rates or the elimination of Reserves which have the effect of making more credit
available. Eligible Inventory shall not include any Inventory of any Eligible Credit Party that:

          (a) is not owned by such Eligible Credit Party free and clear of all Liens and rights of any
other Person (including the rights of a purchaser that has made progress payments and the rights of
a surety that has issued a bond to assure the performance of such Eligible Credit Party with
respect to that Inventory), except the Liens in favor of Agent, on behalf of itself and Lenders;

          (b) (i) is not located on premises owned, leased or rented by such Eligible Credit Party and
set forth in Disclosure Schedule (3.2) or (ii) is stored at a leased location, unless Agent
has given its prior consent thereto and unless (x) a reasonably satisfactory landlord waiver has
been delivered to Agent, or (y) Reserves satisfactory to Agent have been established with respect
thereto, (iii) is stored with a bailee or warehouseman unless a reasonably satisfactory,
acknowledged bailee letter has been received by Agent and Reserves reasonably satisfactory to Agent
have been established with respect thereto, or (iv) is located at an owned location subject to a
mortgage in favor of a lender other than Agent, unless a reasonably satisfactory mortgagee
waiver has been delivered to Agent, or (v) is located at any site if the aggregate book value
of Inventory at any such location is less than $100,000;

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          (c) is placed on consignment or is in transit, except for Inventory in transit between
domestic locations of Credit Parties as to which Agent’s Liens have been perfected at origin and
destination;

          (d) is covered by a negotiable document of title, unless such document has been delivered to
Agent with all necessary endorsements, free and clear of all Liens except those in favor of Agent
and Lenders;

          (e) is delisted, excess, obsolete, unsalable, shopworn, seconds, damaged or unfit for sale;

          (f) consists of display items or packing or shipping materials, manufacturing supplies,
work-in-process Inventory or replacement parts;

          (g) consists of goods which have been returned by the buyer;

          (h) is not of a type held for sale in the ordinary course of such Eligible Credit Party’s
business;

          (i) is not subject to a first priority Lien in favor of Agent on behalf of itself and Lenders
subject to Permitted Encumbrances described in clause (e) of the definition of Permitted
Encumbrances and Liens securing the obligations under the Second Lien Credit Agreement, as long as
such Liens are subject to the Second Lien Intercreditor Agreement;

          (j) breaches any of the representations or warranties pertaining to Inventory set forth in the
Loan Documents;

          (k) consists of any costs associated with “freight-in” charges;

          (l) consists of Hazardous Materials or goods that can be transported or sold only with
licenses that are not readily available;

          (m) is not covered by casualty insurance reasonably acceptable to Agent;

          (n) if such Inventory is music related, it has been produced or published by anyone other than
one of the Major Labels;

          (o) consists of owned independent music; or

          (p) the Agent does not have the right, in Agent’s reasonable determination, to freely transfer
without the need for any license, sublicense or consent which has not been obtained; or is
otherwise unacceptable to Agent in its reasonable credit judgment for reasons relating to any
Credit Party, any Credit Party’s business or industry and/or the Agent’s ability to collect or
realize the full value of any Collateral.

          1.8 Cash Management Systems. On or prior to the Closing Date, Borrower will establish and
will maintain until the Termination Date, the cash management systems described in Annex C
(the “Cash Management Systems”).

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          1.9 Fees.

          (a) Borrower shall pay to GE Capital, individually, the Fees specified in the GE Capital Fee
Letter, at the times specified for payment therein.

          (b) As additional compensation for the Revolving Lenders, Borrower shall pay to Agent, for the
ratable benefit of such Lenders, in arrears, on the first Business Day of each month prior to the
Commitment Termination Date and on the Commitment Termination Date, a Fee for Borrower’s non-use of
available funds in an amount equal to the Applicable Unused Line Fee Margin per annum (calculated
on the basis of a 360 day year for actual days elapsed) multiplied by the difference between (x)
the Maximum Amount (as it may be reduced from time to time) and (y) the average for the period of
the daily closing balances of the Revolving Loan and the Swing Line Loan outstanding during the
period for which the such Fee is due.

          (c) If, on or prior to the third anniversary of the Closing Date, Borrower prepays the
Revolving Loan and/or reduces or terminates the Revolving Loan Commitment, whether voluntarily or
involuntarily and whether before or after acceleration of the Obligations or if the Revolving Loan
Commitments are reduced or terminated, Borrower shall pay to Agent, for the benefit of Lenders as
liquidated damages and compensation for the costs of being prepared to make funds available
hereunder an amount equal to the Applicable Percentage (as defined below) multiplied by the amount
of the reduction of the Revolving Loan Commitment. As used herein, the term “Applicable
Percentage” shall mean (x) two percent (2%), in the case of a reduction on or prior to the
first anniversary of the Closing Date, (y) one percent (1%), in the case of a reduction after the
first anniversary of the Closing Date but on or prior to the second anniversary thereof and (z) one
half of one percent (0.5%), in the case of a reduction after the second anniversary of the Closing
Date but on or prior to the third anniversary thereof. The Credit Parties agree that the
Applicable Percentages are a reasonable calculation of Lenders’ lost profits in view of the
difficulties and impracticality of determining actual damages resulting from an early termination
of the Revolving Loan Commitment. Notwithstanding the foregoing, no prepayment fee shall be
payable by Borrower upon a mandatory prepayment made pursuant to Sections 1.3(b) 1.16(c) or
5.4(d); provided that Borrower does not permanently reduce or terminate the Revolving
Loan Commitment upon any such prepayment and, in the case of prepayments made pursuant to
Sections 1.3(b)(ii) or (b)(iii), the transaction giving rise to the applicable prepayment
is a sale of a Subsidiary or division of Borrower expressly permitted under Section 6.

          (d) Borrower shall pay to Agent, for the ratable benefit of Revolving Lenders, the Letter of
Credit Fee as provided in Annex B.

          1.10 Receipt of Payments. Borrower shall make each payment under this Agreement not later than 2:00 p.m. (Chicago
time) on the day when due in immediately available funds in Dollars to the Collection Account. All
payments (including prepayments) to be made by Borrower on account of principal, interest and fees
shall be made without defense, set-off or counterclaim (except as provided in Section 1.15). For
purposes of computing interest and Fees and determining Borrowing Availability as of any date, all
payments shall be deemed received on the first Business Day following the Business Day on which
immediately available funds therefor are received in the Collection Account prior to 2:00 p.m.
Chicago time. Payments

15

 

received after 2:00 p.m. Chicago time on any Business Day or on a day that
is not a Business Day shall be deemed to have been received on the following Business Day.

          1.11 Application and Allocation of Payments.

          (a) So long as no Event of Default has occurred and is continuing, (i) payments consisting of
proceeds of Accounts received in the ordinary course of business shall be applied, first, to the
Swing Line Loan and, second, to the Revolving Loan; (ii) voluntary prepayments shall be applied as
determined by Borrower, subject to the provisions of Section 1.3(a); and (iii) mandatory
prepayments shall be applied as set forth in Sections 1.3(c) and 1.3(d). All payments and
prepayments applied to a particular Loan shall be applied ratably to the portion thereof held by
each Lender as determined by its Pro Rata Share. As to any other payment, and as to all payments
made when an Event of Default has occurred and is continuing or following the Commitment
Termination Date, Borrower hereby irrevocably waives the right to direct the application of any and
all payments received from or on behalf of Borrower, and Borrower hereby irrevocably agrees that
Agent shall have the continuing exclusive right to apply any and all such payments against the
Obligations as Agent may deem advisable notwithstanding any previous entry by Agent in the Loan
Account or any other books and records. In the absence of a specific determination by Agent with
respect thereto, payments shall be applied to amounts then due and payable in the following order:
first, to Fees and Agent’s expenses reimbursable hereunder; second, to interest on
the Swing Line Loan; third, to principal payments on the Swing Line Loan; fourth,
to interest on the other Loans and unpaid Swap Related Reimbursement Obligations, ratably in
proportion to the interest accrued as to each Loan and unpaid Swap Related Reimbursement
Obligation, as applicable; fifth, to principal payments on the other Loans and unpaid Swap
Related Reimbursement Obligations and to provide cash collateral for Letter of Credit Obligations
in the manner described in Annex B, ratably to the aggregate, combined principal balance of
the other Loans, unpaid Swap Related Reimbursement Obligations and outstanding Letter of Credit
Obligations; and sixth, to all other Obligations including expenses of Lenders to the
extent reimbursable under Section 11.3

          (b) Agent is authorized to, and at its sole election may, charge to the Revolving Loan balance
on behalf of Borrower and cause to be paid all Fees, expenses, Charges, costs (including insurance
premiums in accordance with Section 5.4(a)) and interest and principal, other than
principal of the Revolving Loan, owing by Borrower under this Agreement or any of the other Loan
Documents if and to the extent Borrower fails to pay promptly any such amounts as and when due,
even if the amount of such charges would exceed Borrowing Availability at such time. At Agent’s
option and to the extent permitted by law, any charges so made shall constitute part of the
Revolving Loan hereunder.

          1.12 Loan Account and Accounting. Agent shall maintain a loan account (the “Loan
Account”) on its books to record: all Advances, all payments made by Borrower, and all other
debits and credits as provided in this Agreement with respect to the Loans or any other
Obligations. All entries in the Loan Account shall be made in accordance with Agent’s customary
accounting practices as in effect from time to time. The balance in the Loan Account, as recorded
on Agent’s most recent printout or other written statement, shall, absent manifest error, be
presumptive evidence of the amounts due and owing to Agent and Lenders by Borrower;
provided that any failure to so record or any error in so recording shall not

16

 

limit or
otherwise affect Borrower’s duty to pay the Obligations. Agent shall render to Borrower a monthly
accounting of transactions with respect to the Loans setting forth the balance of the Loan Account
for the immediately preceding month. Unless Borrower notifies Agent in writing of any objection to
any such accounting (specifically describing the basis for such objection), within 90 days after
the date thereof, each and every such accounting shall, absent manifest error, be deemed final,
binding and conclusive on Borrower in all respects as to all matters reflected therein. Only those
items expressly objected to in such notice shall be deemed to be disputed by Borrower.
Notwithstanding any provision herein contained to the contrary, any Lender may elect (which
election may be revoked) to dispense with the issuance of Notes to that Lender and may rely on the
Loan Account as evidence of the amount of Obligations from time to time owing to it.

          1.13 Indemnity.

          (a) Each Credit Party that is a signatory hereto shall jointly and severally indemnify and
hold harmless each of Agent, Lenders and their respective Affiliates, and each such Person’s
respective officers, directors, employees, attorneys, agents and representatives (each, an
“Indemnified Person”), from and against any and all suits, actions, proceedings, claims,
damages, losses, liabilities and expenses (including reasonable attorneys’ fees and disbursements
and other costs of investigation or defense, including those incurred upon any appeal) that may be
instituted or asserted against or incurred by any such Indemnified Person as the result of credit
having been extended, suspended or terminated under this Agreement and the other Loan Documents and
the administration of such credit, and in connection with or arising out of the transactions
contemplated hereunder and thereunder and any actions or failures to act in connection therewith,
including any and all Environmental Liabilities and legal costs and expenses arising out of or
incurred in connection with disputes between or among any parties to any of the
Loan Documents (collectively, “Indemnified Liabilities”); provided, that no such
Credit Party shall be liable for any indemnification to an Indemnified Person to the extent that
any such suit, action, proceeding, claim, damage, loss, liability or expense results from that
Indemnified Person’s gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE
RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD
PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH
PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT
OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF
ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.

          (b) To induce Lenders to provide the LIBOR Rate option on the terms provided herein, if (i)
any LIBOR Loans are repaid in whole or in part prior to the last day of any applicable LIBOR Period
(whether that repayment is made pursuant to any provision of this Agreement or any other Loan
Document or occurs as a result of acceleration, by operation of law or otherwise); (ii) Borrower
shall default in payment when due of the principal amount of or interest on any LIBOR Loan; (iii)
Borrower shall refuse to accept any borrowing of, or shall request a termination of any borrowing,
conversion into or continuation of LIBOR Loans after Borrower has given notice requesting the same
in accordance herewith; or (iv) Borrower shall

17

 

fail to make any prepayment of a LIBOR Loan after
Borrower has given a notice thereof in accordance herewith, then Borrower shall indemnify and hold
harmless each Lender from and against all losses, costs and expenses resulting from or arising from
any of the foregoing. Such indemnification shall include any loss (including loss of margin) or
expense arising from the reemployment of funds obtained by it or from fees payable to terminate
deposits from which such funds were obtained. For the purpose of calculating amounts payable to a
Lender under this subsection, each Lender shall be deemed to have actually funded its relevant
LIBOR Loan through the purchase of a deposit bearing interest at the LIBOR Rate in an amount equal
to the amount of that LIBOR Loan and having a maturity comparable to the relevant LIBOR Period;
provided, that each Lender may fund each of its LIBOR Loans in any manner it sees fit, and
the foregoing assumption shall be utilized only for the calculation of amounts payable under this
subsection. This covenant shall survive the termination of this Agreement and the payment of the
Notes and all other amounts payable hereunder. As promptly as practicable under the circumstances,
each Lender shall provide Borrower with its written calculation of all amounts payable pursuant to
this Section 1.13(b), and such calculation shall be binding on the parties hereto unless
Borrower shall object in writing within 10 Business Days of receipt thereof, specifying the basis
for such objection in detail.

          1.14 Access. Each Credit Party that is a party hereto shall, during normal business hours,
from time to time upon 5 Business Day’s prior notice as frequently as Agent determines to be
appropriate: (a) provide Agent and any of its officers, employees and agents access to its
properties, facilities, advisors and employees (including officers) of each Credit Party and to the
Collateral, (b) permit Agent, and any of its officers, employees and agents, to inspect, audit and
make extracts from any Credit Party’s books and records, and (c) permit Agent, and its officers,
employees and agents, to inspect, review, evaluate and make test verifications and counts of the
Accounts, Inventory and other Collateral of any Credit Party. If a Default or Event of Default has
occurred and is continuing or if access is necessary to preserve or protect the Collateral as
determined by the Agent, each such Credit Party shall provide such access to Agent and to each
Lender at all times and without advance notice. Furthermore, so long as any Event of Default has
occurred and is continuing, Borrower shall provide Agent and each Lender with access to its
suppliers and customers. Each Credit Party shall make available to Agent and its counsel, as
quickly as is possible under the circumstances, originals or copies of all books and records that
Agent may reasonably request. Each Credit Party shall deliver any document or instrument necessary
for Agent, as it may from time to time request, to obtain records from any service bureau or other
Person that maintains records for such Credit Party, and shall maintain duplicate records or
supporting documentation on media, including computer tapes and discs owned by such Credit Party.
Agent will give Lenders at least 5 days’ prior notice (10 days’ prior notice for
any audit to be commenced during the period from and including October 1 through and including
January 15) of regularly scheduled audits. Representatives of other Lenders may accompany Agent’s
representatives on regularly scheduled audits at no charge to Borrower.

          1.15 Taxes.

          (a) Any and all payments by Borrower hereunder or under the Notes shall be made, in accordance
with this Section 1.15, free and clear of and without deduction for any and all present or
future Taxes. If Borrower shall be required by law to deduct any Taxes from or in

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respect of any
sum payable hereunder or under the Notes, (i) the sum payable shall be increased as much as shall
be necessary so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 1.15) Agent or Lenders, as applicable, receive
an amount equal to the sum they would have received had no such deductions been made, (ii) Borrower
shall make such deductions, and (iii) Borrower shall pay the full amount deducted to the relevant
taxing or other authority in accordance with applicable law. Within 30 days after the date of any
payment of Taxes, Borrower shall furnish to Agent the original or a certified copy of a receipt
evidencing payment thereof. Agent and Lenders shall not be obligated to return or refund any
amounts received pursuant to this Section.

          (b) Each Credit Party that is a signatory hereto shall indemnify and, within 10 days of demand
therefor, pay Agent and each Lender for the full amount of Taxes (including any Taxes imposed by
any jurisdiction on amounts payable under this Section 1.15) paid by Agent or such Lender,
as appropriate, and any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such Taxes were correctly or legally asserted.

          (c) Each Lender organized under the laws of a jurisdiction outside the United States (a
“Foreign Lender”) as to which payments to be made under this Agreement or under the Notes
are exempt from United States withholding tax under an applicable statute or tax treaty shall
provide to Borrower and Agent a properly completed and executed IRS Form W-8ECI or Form W-8BEN or
other applicable form, certificate or document prescribed by the IRS or the United States
certifying as to such Foreign Lender’s entitlement to such exemption (a “Certificate of
Exemption”). Any foreign Person that seeks to become a Lender under this Agreement shall
provide a Certificate of Exemption to Borrower and Agent prior to becoming a Lender hereunder. No
foreign Person may become a Lender hereunder if such Person fails to deliver a Certificate of
Exemption in advance of becoming a Lender.

          1.16 Capital Adequacy; Increased Costs; Illegality.

          (a) If any Lender shall have determined that any law, treaty, governmental (or
quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve
requirements or similar requirements or compliance by any Lender with any request or directive
regarding capital adequacy, reserve requirements or similar requirements (whether or not having the
force of law), in each case, adopted after the Closing Date, from any central bank or other
Governmental Authority increases or would have the effect of increasing the amount of capital,
reserves or other funds required to be maintained by such Lender and thereby reducing the rate of
return on such Lender’s capital as a consequence of its obligations hereunder, then Borrower shall
from time to time upon demand by such Lender (with a copy of such demand to Agent) pay
to Agent, for the account of such Lender, additional amounts sufficient to compensate such
Lender for such reduction. A certificate as to the amount of that reduction and showing the basis
of the computation thereof submitted by such Lender to Borrower and to Agent shall, absent manifest
error, be final, conclusive and binding for all purposes.

          (b) If, due to either (i) the introduction of or any change in any law or regulation (or any
change in the interpretation thereof) or (ii) the compliance with any guideline or request from any
central bank or other Governmental Authority (whether or not having the force of law), in each case
adopted after the Closing Date, there shall be any increase in the cost

19

 

to any Lender of agreeing
to make or making, funding or maintaining any Loan, then Borrower shall from time to time, upon
demand by such Lender (with a copy of such demand to Agent), pay to Agent for the account of such
Lender additional amounts sufficient to compensate such Lender for such increased cost. A
certificate as to the amount of such increased cost, submitted to Borrower and to Agent by such
Lender, shall be conclusive and binding on Borrower for all purposes, absent manifest error. Each
Lender agrees that, as promptly as practicable after it becomes aware of any circumstances referred
to above which would result in any such increased cost, the affected Lender shall, to the extent
not inconsistent with such Lender’s internal policies of general application, use reasonable
commercial efforts to minimize costs and expenses incurred by it and payable to it by Borrower
pursuant to this Section 1.16(b).

          (c) Notwithstanding anything to the contrary contained herein, if the introduction of or any
change in any law or regulation (or any change in the interpretation thereof) shall make it
unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for
any Lender to agree to make or to make or to continue to fund or maintain any LIBOR Loan, then,
unless that Lender is able to make or to continue to fund or to maintain such LIBOR Loan at another
branch or office of that Lender without, in that Lender’s opinion, adversely affecting it or its
Loans or the income obtained therefrom, on notice thereof and demand therefor by such Lender to
Borrower through Agent, (i) the obligation of such Lender to agree to make or to make or to
continue to fund or maintain LIBOR Loans shall terminate and (ii) Borrower shall forthwith prepay
in full all outstanding LIBOR Loans owing to such Lender, together with interest accrued thereon,
unless Borrower, within 5 Business Days after the delivery of such notice and demand,
converts all LIBOR Loans into Index Rate Loans.

          (d) Within 15 days after receipt by Borrower of written notice and demand from any Lender (an
“Affected Lender”) for payment of additional amounts or increased costs as provided in
Sections 1.15(a), 1.16(a) or 1.16(b), Borrower may, at its option, notify Agent and such
Affected Lender of its intention to replace the Affected Lender. So long as no Default or Event of
Default has occurred and is continuing, Borrower, with the consent of Agent, may obtain, at
Borrower’s expense, a replacement Lender (“Replacement Lender”) for the Affected Lender,
which Replacement Lender must be reasonably satisfactory to Agent. If Borrower obtains a
Replacement Lender within 90 days following notice of its intention to do so, the Affected Lender
must sell and assign its Loans and Commitments to such Replacement Lender for an amount equal to
the principal balance of all Loans held by the Affected Lender and all accrued interest and Fees
with respect thereto through the date of such sale; provided, that Borrower shall have
reimbursed such Affected Lender for the additional amounts or increased costs that it is entitled
to receive under this Agreement through the date of such sale and assignment. Notwithstanding the
foregoing, Borrower shall not have the right to obtain a Replacement Lender if the Affected Lender rescinds its demand for increased costs or
additional amounts within 15 days following its receipt of Borrower’s notice of intention to
replace such Affected Lender. Furthermore, if Borrower gives a notice of intention to replace and
does not so replace such Affected Lender within 90 days thereafter, Borrower’s rights under this
Section 1.16(d) shall terminate and Borrower shall promptly pay all increased costs or
additional amounts demanded by such Affected Lender pursuant to Sections 1.15(a), 1.16(a) and
1.16(b).

          1.17 Single Loan. All Loans to Borrower and all of the other Obligations of Borrower
arising under this Agreement and the other Loan Documents shall

20

 

constitute one general obligation
of Borrower secured, until the Termination Date, by all of the Collateral.

2. CONDITIONS PRECEDENT

          2.1 Conditions to the Initial Loans. No Lender shall be obligated to make any Loan or
incur any Letter of Credit Obligations on the Closing Date, or to take, fulfill, or perform any
other action hereunder, until the following conditions have been satisfied or provided for in a
manner satisfactory to Agent, or waived in writing by Agent and Requisite Lenders:

          (a) Credit Agreement; Loan Documents. This Agreement or counterparts hereof shall
have been duly executed by, and delivered to, Borrower, Agent and Lenders; and Agent shall have
received such documents, instruments, agreements and legal opinions as Agent shall reasonably
request in connection with the transactions contemplated by this Agreement and the other Loan
Documents, including all those listed in the Closing Checklist attached hereto as Annex D,
each in form and substance reasonably satisfactory to Agent.

          (b) Approvals. Agent shall have received (i) satisfactory evidence that the Credit
Parties have obtained all required consents and approvals of all Persons including all requisite
Governmental Authorities, to the execution, delivery and performance of this Agreement and the
other Loan Documents and the consummation of the Related Transactions or (ii) an officer’s
certificate in form and substance reasonably satisfactory to Agent affirming that no such consents
or approvals are required.

          (c) Payment of Fees. Borrower shall have paid the Fees required to be paid on the
Closing Date in the respective amounts specified in Section 1.9 (including the Fees
specified in the GE Capital Fee Letter), and shall have reimbursed Agent for all fees, costs and
expenses of closing presented as of the Closing Date.

          (d) Capital Structure: Other Indebtedness. The capital structure of each Credit Party
and the terms and conditions of all Indebtedness of each Credit Party shall be acceptable to Agent
in its sole discretion.

          (e) Due Diligence. Agent shall have completed its business and legal due diligence
with results reasonably satisfactory to Agent.

          (f) Consummation of Related Transactions. Agent shall have received fully executed,
final and complete copies of each of the Related Transactions Documents, each of which shall be in
full force and effect in form and substance reasonably satisfactory to Agent. The Related
Transactions shall have been consummated in accordance with the terms of the Related Transactions
Documents. The Second Lien Loan shall have been funded.

          (g) Total Indebtedness. After giving effect to the Loans and the Related Transactions
and the payment of all fees and expenses in connection therewith, the aggregate Indebtedness of
Borrower and its Subsidiaries on a consolidated basis shall not exceed $70,000,000.

21

 

          (h) Opening Availability. The Eligible Accounts and Eligible Inventory supporting the
initial Revolving Credit Advance and the initial Letter of Credit Obligations incurred and the
amount of the Reserves to be established on the Closing Date shall be sufficient in value, as
determined by Agent, to provide Borrower with Borrowing Availability, after giving effect to the
initial Revolving Credit Advance, the incurrence of any initial Letter of Credit Obligations and
the consummation of the Related Transactions (on a pro forma basis, with trade payables being paid
currently consistent with past practice, and expenses and liabilities being paid in the ordinary
course of business and without acceleration of sales) of at least $15,000,000.

          2.2 Further Conditions to Each Loan. Except as otherwise expressly provided herein, no
Lender shall be obligated to fund any Advance, convert or continue any Loan as a LIBOR Loan or
incur any Letter of Credit Obligation, if, as of the date thereof:

          (a) any representation or warranty by any Credit Party contained herein or in any other Loan
Document is untrue or incorrect as of such date, except to the extent that such representation or
warranty expressly relates to an earlier date and except for changes therein expressly permitted or
expressly contemplated by this Agreement, and Agent or Requisite Lenders have determined not to
make such Advance, convert or continue any Loan as LIBOR Loan or incur such Letter of Credit
Obligation as a result of the fact that such warranty or representation is untrue or incorrect;

          (b) any event or circumstance having a Material Adverse Effect has occurred since the date
hereof as determined by the Requisite Lenders, and Agent or Requisite Lenders have determined not
to make such Advance, convert or continue any Loan as a LIBOR Loan or incur such Letter of Credit
Obligation as a result of the fact that such event or circumstance has occurred;

          (c) any Default or Event of Default has occurred and is continuing or would result after
giving effect to any Advance (or the incurrence of any Letter of Credit Obligation), and Agent or
Requisite Lenders shall have determined not to make any Advance, convert or continue any Loan as a
LIBOR Loan or incur any Letter of Credit Obligation as a result of that Default or Event of
Default;

          (d) after giving effect to any Advance (or the incurrence of any Letter of Credit
Obligations), the outstanding principal amount of the Revolving Loan would exceed the
lesser of the Borrowing Base and the Maximum Amount, in each case, less the then outstanding
principal amount of the Swing Line Loan; or

          (e) Borrower shall have paid all Fees owing and payable to GE Capital, Agent and Lenders as of
such date under this Agreement and the GE Capital Fee Letter.

The request and acceptance by Borrower of the proceeds of any Advance, the incurrence of any Letter
of Credit Obligations or the conversion or continuation of any Loan into, or as, a LIBOR Loan shall
be deemed to constitute, as of the date thereof, (i) a representation and warranty by Borrower that
the conditions in this Section 2.2 have been satisfied and (ii) a reaffirmation by
Borrower of the granting and continuance of Agent’s Liens, on behalf of itself and Lenders,
pursuant to the Collateral Documents.

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3. REPRESENTATIONS AND WARRANTIES

          To induce Lenders to make the Loans and to incur Letter of Credit Obligations, the Credit
Parties executing this Agreement, jointly and severally, make the following representations and
warranties to Agent and each Lender with respect to all Credit Parties, each and all of which shall
survive the execution and delivery of this Agreement.

          3.1 Corporate Existence; Compliance with Law. Each Credit Party (a) is a corporation,
limited liability company or limited partnership duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation or organization set forth
in Disclosure Schedule (3.1); (b) is duly qualified to conduct business and is in good
standing in each other jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification, except where the failure to be so qualified would not result
in exposure to losses, damages or liabilities in excess of $50,000; (c) has the requisite power and
authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its
properties, to lease the property it operates under lease and to conduct its business as now,
heretofore and proposed to be conducted; (d) subject to specific representations regarding
Environmental Laws, has all material licenses, permits, consents or approvals from or by, and has
made all material filings with, and has given all material notices to, all Governmental Authorities
having jurisdiction, to the extent required for such ownership, operation and conduct; (e) is in
compliance with its charter and bylaws or partnership or operating agreement, as applicable; and
(f) subject to specific representations set forth herein regarding ERISA, Environmental Laws, tax
and other laws, is in compliance with all applicable provisions of law, except where the failure to
comply, individually or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.

          3.2 Executive Offices, Collateral Locations, FEIN. As of the Closing Date, each Credit
Party’s name as it appears in official filings in its state of incorporation or organization, state
of incorporation or organization, organization type, organization number, if any, issued by its
state incorporation or organization, and the current location of each Credit Party’s chief
executive office and the warehouses and premises at which any Collateral is located are set forth
in Disclosure Schedule (3.2), and none of such
locations has changed within 12 months preceding the Closing Date. In addition,
Disclosure Schedule (3.2) lists the federal employer identification number of each Credit
Party.

          3.3 Corporate Power, Authorization, Enforceable Obligations. The execution, delivery and
performance by each Credit Party of the Loan Documents to which it is a party and the creation of
all Liens provided for therein: (a) are within such Person’s power; (b) have been duly authorized
by all necessary corporate, limited liability company or limited partnership action; (c) do not
contravene any provision of such Person’s charter, bylaws or partnership or operating agreement as
applicable; (d) do not violate any law or regulation, or any order or decree of any court or
Governmental Authority; (e) do not conflict with or result in the breach or termination of,
constitute a default under or accelerate or permit the acceleration of any performance required by,
any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Person
is a party or by which such Person or any of its property is bound; (f) do not result in the
creation or imposition of any Lien upon any of the property of such Person other than those in
favor of Agent, on behalf of itself and Lenders, pursuant to the

23

 

Loan Documents; and (g) do not
require the consent or approval of any Governmental Authority or any other Person, except those
referred to in Section 2.1(c), all of which will have been duly obtained, made or complied
with prior to the Closing Date. Each of the Loan Documents shall be duly executed and delivered by
each Credit Party that is a party thereto and each such Loan Document shall constitute a legal,
valid and binding obligation of such Credit Party enforceable against it in accordance with its
terms.

          3.4 Financial Statements and Projections. Except for the Projections and except as
described in Disclosure Schedule 3.4, all Financial Statements concerning Borrower and its
Subsidiaries that are referred to below have been prepared in accordance with GAAP consistently
applied throughout the periods covered (except as disclosed therein and except, with respect to
unaudited Financial Statements, for the absence of footnotes and normal year-end audit adjustments)
and present fairly in all material respects the financial position of the Persons covered thereby
as at the dates thereof and the results of their operations and cash flows for the periods then
ended.

          (a) Financial Statements. The following Financial Statements attached hereto as
Disclosure Schedule (3.4(a)) have been delivered on the date hereof:

               (i) The audited consolidated and consolidating balance sheets at March 31, 2006 and the
related statements of income and cash flows of Borrower and its Subsidiaries for the Fiscal Year
2006 then ended, certified by Grant Thornton, LLP.

               (ii) The unaudited balance sheet(s) at December 31, 2006 and the related statement(s) of
income and cash flows of Borrower and its Subsidiaries for the nine month period then ended.

          (b) Projections. The Projections delivered on the date hereof and attached hereto as
Disclosure Schedule (3.4(b)) have been prepared by Borrower in light of the past operations
of its businesses, and reflect projections for the period beginning on January 1, 2007 and ending
on March 31, 2011 on a month-by-month basis through March 31, 2008 and on a
year-by-year basis thereafter. The Projections are based upon estimates and assumptions
stated therein, all of which Borrower believes to be reasonable and fair in light of current
conditions and current facts known to Borrower and, as of the Closing Date, reflect Borrower’s good
faith and reasonable estimates of the future financial performance of Borrower and of the other
information projected therein for the period set forth therein.

          (c) Pro Forma. The Pro Forma delivered on the date hereof and attached hereto as
Disclosure Schedule (3.4(c)) was prepared by Borrower giving pro forma effect to
the Related Transactions, was based on the unaudited consolidated and consolidating balance sheets
of Borrower and its Subsidiaries dated January 31, 2007 and was prepared in accordance with GAAP,
with only such adjustments thereto as would be required in accordance with GAAP.

          3.5 Material Adverse Effect. Between March 31, 2006 and the Closing Date, (a) no Credit
Party has incurred any obligations, contingent or noncontingent liabilities, liabilities for
Charges, long-term leases or unusual forward or long-term commitments that, alone or in the
aggregate, could reasonably be expected to have a Material Adverse Effect,

24

 

(b) no contract, lease
or other agreement or instrument has been entered into by any Credit Party or has become binding
upon any Credit Party’s assets and no law or regulation applicable to any Credit Party has been
adopted that has had or could reasonably be expected to have a Material Adverse Effect, and (c) no
Credit Party is in default and to the best of Borrower’s knowledge no third party is in default
under any material contract, lease or other agreement or instrument, that alone or in the aggregate
could reasonably be expected to have a Material Adverse Effect. Between March 31, 2006 and the
Closing Date no event has occurred, that alone or together with other events, could reasonably be
expected to have a Material Adverse Effect.

          3.6 Ownership of Property; Liens. As of the Closing Date, the real estate (“Real
Estate”) listed in Disclosure Schedule (3.6) constitutes all of the real property
owned, leased, subleased, or used by any Credit Party. Each Credit Party owns good and marketable
fee simple title to all of its owned Real Estate, and valid and marketable leasehold interests in
all of its leased Real Estate, all as described on Disclosure Schedule (3.6), and copies of
all such leases or a summary of terms thereof reasonably satisfactory to Agent have been delivered
to Agent. Disclosure Schedule (3.6) further describes any Real Estate with respect to
which any Credit Party is a lessor, sublessor or assignor as of the Closing Date. Each Credit
Party also has good and marketable title to, or valid leasehold interests in, all of its personal
property and assets. As of the Closing Date, none of the properties and assets of any Credit Party
are subject to any Liens other than Permitted Encumbrances, and there are no facts, circumstances
or conditions known to any Credit Party that may result in any Liens (including Liens arising
under Environmental Laws) other than Permitted Encumbrances. Each Credit Party has received all
deeds, assignments, waivers, consents, nondisturbance and attornment or similar agreements, bills
of sale and other documents, and has duly effected all recordings, filings and other actions
necessary to establish, protect and perfect such Credit Party’s right, title and interest in and to
all such Real Estate and other properties and assets. Disclosure Schedule (3.6) also
describes any purchase options, rights of first refusal or other similar contractual rights
pertaining to any Real Estate. As of the Closing Date, no portion of any Credit Party’s Real Estate has suffered any material damage by fire or
other casualty loss that has not heretofore been repaired and restored in all material respects to
its original condition or otherwise remedied. As of the Closing Date, all material permits
required to have been issued or appropriate to enable the Real Estate to be lawfully occupied and
used for all of the purposes for which it is currently occupied and used have been lawfully issued
and are in full force and effect.

          3.7 Labor Matters. As of the Closing Date (a) no strikes or other material labor disputes
against any Credit Party are pending or, to any Credit Party’s knowledge, threatened; (b) hours
worked by and payment made to employees of each Credit Party comply with the Fair Labor Standards
Act and each other federal, state, local or foreign law applicable to such matters; (c) all
payments due from any Credit Party for employee health and welfare insurance have been paid or
accrued as a liability on the books of such Credit Party; (d) except as set forth in Disclosure
Schedule (3.7), no Credit Party is a party to or bound by any collective bargaining agreement,
management agreement, consulting agreement, employment agreement, bonus, restricted stock, stock
option, or stock appreciation plan or agreement or any similar plan, agreement or arrangement (and
true and complete copies of any agreements described on Disclosure Schedule (3.7) have been
delivered to Agent); (e) there is no organizing activity involving any Credit Party pending or, to
any Credit Party’s knowledge, threatened by any labor union or group of employees; (f) there are no
representation proceedings pending or, to any

25

 

Credit Party’s knowledge, threatened with the
National Labor Relations Board, and no labor organization or group of employees of any Credit Party
has made a pending demand for recognition; and (g) except as set forth in Disclosure Schedule
(3.7), there are no material complaints or charges against any Credit Party pending or, to the
knowledge of any Credit Party, threatened to be filed with any Governmental Authority or arbitrator
based on, arising out of, in connection with, or otherwise relating to the employment or
termination of employment by any Credit Party of any individual.

          3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness. Except as
set forth in Disclosure Schedule (3.8), as of the Closing Date, no Credit Party has any
Subsidiaries, is engaged in any joint venture or partnership with any other Person, or is an
Affiliate of any other Person. All of the issued and outstanding Stock of each Credit Party is
owned by each of the Stockholders and in the amounts set forth in Disclosure Schedule
(3.8). Except as set forth in Disclosure Schedule (3.8), there are no outstanding
rights to purchase, options, warrants or similar rights or agreements pursuant to which any Credit
Party may be required to issue, sell, repurchase or redeem any of its Stock or other equity
securities or any Stock or other equity securities of its Subsidiaries. All outstanding
Indebtedness and Guaranteed Indebtedness of each Credit Party as of the Closing Date (except for
the Obligations) is described in Section 6.3 (including Disclosure Schedule (6.3)).

          3.9 Government Regulation. No Credit Party is an “investment company” or an “affiliated
person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms
are defined in the Investment Company Act of 1940. No Credit Party is subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act, or any other federal or state
statute that restricts or limits its ability to incur Indebtedness or to perform its obligations
hereunder. The making of the Loans by Lenders to Borrower, the incurrence of the Letter of Credit
Obligations on behalf of Borrower, the application of the proceeds thereof and repayment thereof
and the consummation of the Related Transactions will not violate any provision of any such statute
or any rule, regulation or order issued by the Securities and Exchange Commission.

          3.10 Margin Regulations. No Credit Party is engaged, nor will it engage, principally or as
one of its important activities, in the business of extending credit for the purpose of
“purchasing” or “carrying” any “margin stock” as such terms are defined in Regulation U of the
Federal Reserve Board as now and from time to time hereafter in effect (such securities being
referred to herein as “Margin Stock”). No Credit Party owns any Margin Stock, and none of
the proceeds of the Loans or other extensions of credit under this Agreement will be used, directly
or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of
reducing or retiring any Indebtedness that was originally incurred to purchase or carry any Margin
Stock or for any other purpose that might cause any of the Loans or other extensions of credit
under this Agreement to be considered a “purpose credit” within the meaning of Regulations T, U or
X of the Federal Reserve Board. No Credit Party will take or permit to be taken any action that
might cause any Loan Document to violate any regulation of the Federal Reserve Board.

          3.11 Taxes. All tax returns, reports and statements, including information returns,
required by any Governmental Authority to be filed by any Credit Party

26

 

have been filed with the
appropriate Governmental Authority and all Charges have been paid prior to the date on which any
fine, penalty, interest or late charge may be added thereto for nonpayment thereof (or any such
fine, penalty, interest, late charge or loss has been paid), excluding Charges or other amounts
being contested in accordance with Section 5.2(b). Proper and accurate amounts have been
withheld by each Credit Party from its respective employees for all periods in full and complete
compliance with all applicable federal, state, local and foreign laws and such withholdings have
been timely paid to the respective Governmental Authorities. Disclosure Schedule (3.11)
sets forth as of the Closing Date those taxable years for which any Credit Party’s tax returns are
currently being audited by the IRS or any other applicable Governmental Authority and any
assessments or threatened assessments in connection with such audit, or otherwise currently
outstanding. Except as described in Disclosure Schedule (3.11), no Credit Party has
executed or filed with the IRS or any other Governmental Authority any agreement or other document
extending, or having the effect of extending, the period for assessment or collection of any
Charges. None of the Credit Parties and their respective predecessors are liable for any Charges:
(a) under any agreement (including any tax sharing agreements) or (b) to each Credit Party’s
knowledge, as a transferee. As of the Closing Date, no Credit Party has agreed or been requested
to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or
otherwise, which would have a Material Adverse Effect.

          3.12 ERISA.

          (a) Disclosure Schedule (3.12) lists all Plans and separately identifies all Pension
Plans, including Title IV Plans, Multiemployer Plans, ESOPs and Welfare Plans, including all
Retiree Welfare Plans. Copies of all such listed Plans, together with a copy of the latest form.
IRS/DOL 5500-series for each such Plan have been delivered to Agent. Except with respect to
Multiemployer Plans, each Qualified Plan has been determined by the IRS to qualify under Section
401 of the IRC, the trusts created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the IRC, and nothing has occurred that would cause the loss of such
qualification or tax-exempt status. Each Plan is in compliance with the applicable provisions of
ERISA and the IRC, including the timely filing of all reports required under the IRC or ERISA,
including the statement required by 29 CFR Section 2520.104-23. Neither any Credit Party nor ERISA
Affiliate has failed to make any contribution or pay any amount due as required by either Section
412 of the IRC or Section 302 of ERISA or the terms of any such Plan. Neither any Credit Party nor
ERISA Affiliate has engaged in a “prohibited transaction,” as defined in Section 406 of ERISA and
Section 4975 of the IRC, in connection with any Plan, that would subject any Credit Party to a
material tax on prohibited transactions imposed by Section 502(i) of ERISA or Section 4975 of the
IRC.

          (b) Except as set forth in Disclosure Schedule (3.12): (i) no Title IV Plan has any
Unfunded Pension Liability; (ii) no ERISA Event or event described in Section 4062(e) of ERISA with
respect to any Title IV Plan has occurred or is reasonably expected to occur; (iii) there are no
pending, or to the knowledge of any Credit Party, threatened claims (other than claims for benefits
in the normal course), sanctions, actions or lawsuits, asserted or instituted against any Plan or
any Person as fiduciary or sponsor of any Plan; (iv) no Credit Party or ERISA Affiliate has
incurred or reasonably expects to incur any liability as a result of a complete or partial
withdrawal from a Multiemployer Plan; (v) within the last five years no Title IV Plan

27

 

of any Credit
Party or ERISA Affiliate has been terminated, whether or not in a “standard termination” as that
term is used in Section 404(b)(1) of ERISA, nor has any Title IV Plan of any Credit Party or ERISA
Affiliate (determined at any time within the past five years) with Unfunded Pension Liabilities
been transferred outside of the “controlled group” (within the meaning of Section 4001(a)(14) of
ERISA) of any Credit Party or ERISA Affiliate; (vi) except in the case of any ESOP, Stock of all
Credit Parties and their ERISA Affiliates makes up, in the aggregate, no more than 10% of fair
market value of the assets of any Plan measured on the basis of fair market value as of the latest
valuation date of any Plan; and (vii) no liability under any Title IV Plan has been satisfied with
the purchase of a contract from an insurance company that is not rated AAA by the Standard & Poor’s
Corporation or an equivalent rating by another nationally recognized rating agency.

          3.13 No Litigation. No action, claim, lawsuit, demand, investigation or proceeding is now
pending or, to the knowledge of any Credit Party, threatened against any Credit Party, before any
Governmental Authority or before any arbitrator or panel of arbitrators (collectively,
“Litigation”), (a) that challenges any Credit Party’s right or power to enter into or
perform any of its obligations under the Loan Documents to which it is a party, or the validity or
enforceability of any Loan Document or any action taken thereunder, or (b) that has a reasonable
risk of being determined adversely to any Credit Party and that, if so determined, could reasonably be
expected to have a Material Adverse Effect. Except as set forth on Disclosure Schedule
(3.13), as of the Closing Date there is no Litigation pending or threatened that seeks damages
in excess of $500,000 or injunctive relief against, or alleges criminal misconduct of, any Credit
Party.

          3.14 Brokers. No broker or finder acting on behalf of any Credit Party or Affiliate
thereof brought about the obtaining, making or closing of the Loans or the Related Transactions,
and no Credit Party or Affiliate thereof has any obligation to any Person in respect of any
finder’s or brokerage fees in connection therewith.

          3.15 Intellectual Property. As of the Closing Date, each Credit Party owns or has rights
to use all Intellectual Property necessary to continue to conduct its business as now or heretofore
conducted by it or proposed to be conducted by it, and each Patent, Trademark, Copyright and
License is listed, together with application or registration numbers, as applicable, in
Disclosure Schedule (3.15). Each Credit Party conducts its business and affairs without
infringement of or interference with any Intellectual Property of any other Person in any material
respect. Except as set forth on Disclosure Schedule (3.15), no Credit Party is aware of
any infringement claim by any other Person with respect to any Intellectual Property that (i) seeks
damages in excess of $250,000 or (ii) pursuant to a formal proceeding, seeks injunctive relief.

          3.16 Full Disclosure. No information contained in this Agreement, any of the other Loan
Documents, any Projections, Financial Statements, Pro Forma or Collateral Reports or other written
reports from time to time delivered hereunder or any written statement furnished by or on behalf of
any Credit Party to Agent or any Lender pursuant to the terms of this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading in light of the
circumstances under which they were made. Projections from time to

28

 

time delivered hereunder are or will be based upon
the estimates and assumptions stated therein, all of which Borrower believed at the time of
delivery to be reasonable and fair in light of current conditions and current facts known to
Borrower as of such delivery date, and reflect Borrower’s good faith and reasonable estimates of
the future financial performance of Borrower and of the other information projected therein for the
period set forth therein. The Liens granted to Agent, on behalf of itself and Lenders, pursuant to
the Collateral Documents will at all times be fully perfected first priority Liens in and to the
Collateral described therein, subject, as to priority, only to Permitted Encumbrances. After
giving effect to the Related Transactions, no default or event of default under or with respect to
any of the Related Transactions Documents has occurred and is continuing.

          3.17 Environmental Matters.

          (a) Except as set forth in Disclosure Schedule (3.17), as of the Closing Date: (i) the
Credit Parties are and have been in compliance with all Environmental Laws, except for such
noncompliance that would not result in Environmental Liabilities which could reasonably be expected
to exceed $100,000; (ii) the Credit Parties have obtained, and are in compliance with, all
Environmental Permits required by Environmental Laws for the operations of their respective
businesses as presently conducted or as proposed to be conducted, except where the failure to so
obtain or comply with such Environmental Permits would not result in Environmental Liabilities that
could reasonably be expected to exceed $100,000, and all such Environmental Permits are valid,
uncontested and in good standing; (iii) no Credit Party is involved in operations or knows of any
facts, circumstances or conditions, including any Releases of Hazardous Materials, that are likely
to result in any Environmental Liabilities of such Credit Party which could reasonably be expected
to exceed $100,000, and no Credit Party has permitted any current or former tenant or occupant of
the Real Estate to engage in any such operations; (iv) there is no Litigation arising under or
related to any Environmental Laws, Environmental Permits or Hazardous Material that seeks damages,
penalties, fines, costs or expenses in excess of $25,000 or injunctive relief against, or that
alleges criminal misconduct by, any Credit Party; (v) no notice has been received by any Credit
Party identifying it as a “potentially responsible party” or requesting information under CERCLA or
analogous state statutes, and to the knowledge of the Credit Parties, there are no facts,
circumstances or conditions that may result in any Credit Party being identified as a “potentially
responsible party” under CERCLA or analogous state statutes; and (vi) the Credit Parties have
provided to Agent copies of all existing environmental reports, reviews and audits and all written
information pertaining to actual or potential Environmental Liabilities, in each case relating to
any Credit Party.

          (b) Each Credit Party hereby acknowledges and agrees that Agent (i) is not now, and has not
ever been, in control of any of the Real Estate or any Credit Party’s affairs, and (ii) does not
have the capacity through the provisions of the Loan Documents or otherwise to influence any Credit
Party’s conduct with respect to the ownership, operation or management of any of its Real Estate or
compliance with Environmental Laws or Environmental Permits.

          3.18 Insurance. Disclosure Schedule (3.18) lists all insurance policies of any
nature maintained, as of the Closing Date, for current occurrences by each Credit Party, as well as
a summary of the terms of each such policy.

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          3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19) lists all banks
and other financial institutions at which any Credit Party maintains deposit or other accounts as
of the Closing Date, including any Disbursement Accounts, and such Schedule correctly identifies
the name, address and telephone number of each depository, the name in which the account is held, a
description of the purpose of the account, and the complete account number therefor.

          3.20 Government Contracts. Except as set forth in Disclosure Schedule (3.20), as
of the Closing Date, no Credit Party is a party to any contract or agreement with any Governmental
Authority and no Credit Party’s Accounts are subject to the Federal Assignment of Claims Act (31
U.S.C. Section 3727) or any similar state or local law.

          3.21 Customer and Trade Relations. As of the Closing Date, there exists no actual or, to
the knowledge of any Credit Party, threatened termination or cancellation of, or any material
adverse modification or change in: the business relationship of any Credit Party with any
customer or group of customers whose purchases during the preceding 12 months caused them to be
ranked among the ten largest customers of such Credit Party; or the business relationship of any
Credit Party with any supplier material to its operations.

          3.22 Agreements and Other Documents. As of the Closing Date, each Credit Party has
provided to Agent or its counsel, on behalf of Lenders, accurate and complete copies (or summaries)
of all of the following agreements or documents to which it is subject and each of which is listed
in Disclosure Schedule (3.22): supply agreements and purchase agreements involving
transactions in excess of $5,000,000 per annum; agreements relating to Vendor Advances in excess of
$2,000,000; leases of Equipment having a remaining term of one year or longer and requiring
aggregate rental and other payments in excess of $1,000,000 per annum; licenses and permits held
by the Credit Parties, the absence of which could be reasonably likely to have a Material Adverse
Effect; instruments and documents evidencing any Indebtedness or Guaranteed Indebtedness of such
Credit Party and any Lien granted by such Credit Party with respect thereto; and instruments and
agreements evidencing the issuance of any equity securities, warrants, rights or options to
purchase equity securities of such Credit Party.

          3.23 Solvency. Both before and after giving effect to (a) the Loans and Letter of Credit Obligations to be
made or incurred on the Closing Date or such other date as Loans and Letter of Credit Obligations
requested hereunder are made or incurred, (b) the disbursement of the proceeds of such Loans
pursuant to the instructions of Borrower, (c) the consummation of the other Related Transactions,
and (d) the payment and accrual of all transaction costs in connection with the foregoing, each
Credit Party is and will be Solvent.

          3.24 [Intentionally Deleted].

          3.25 Status of Navarre CP, Navarre CLP and Navarre CS. None of Navarre CP, Navarre CLP and
Navarre CS has engaged in any business or incurred any Indebtedness or any other liabilities
(except in connection with its corporate formation, the Related Transactions Documents and this
Agreement).

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          3.26 Second Lien Loan. As of the Closing Date, Borrower shall have delivered to Agent a
complete and correct copy of the Second Lien Credit Agreement and all related documents (including
all schedules, exhibits, amendments, supplements, modifications, assignments and all other
documents delivered pursuant thereto or in connection therewith). Borrower has the corporate power
and authority to incur the Second Lien Loan. All Obligations hereunder, including the Letter of
Credit Obligations, constitute First Lien Obligations (as defined in the Second Lien Intercreditor
Agreement) and are entitled to the benefits of the provisions thereof. Borrower acknowledges that
Agent and each Lender are entering into this Agreement and are extending the Commitments in
reliance upon the subordination provisions of the Second Lien Intercreditor Agreement and this
Section 3.26.

          3.27 Vendor Advances. As of the last day of the last month to end prior to the Closing
Date, Disclosure Schedule 3.27 sets forth an accurate listing of all outstanding Vendor
Advances.

4. FINANCIAL STATEMENTS AND INFORMATION

          4.1 Reports and Notices.

          (a) Each Credit Party executing this Agreement hereby agrees that from and after the Closing
Date and until the Termination Date, it shall deliver to Agent or to Agent and Lenders, as
required, the Financial Statements, notices, Projections and other information at the times, to the
Persons and in the manner set forth in Annex E.

          (b) Each Credit Party executing this Agreement hereby agrees that from and after the Closing
Date and until the Termination Date, it shall deliver to Agent or to Agent and Lenders, as
required, the various Collateral Reports (including Borrowing Base Certificates in the form of
Exhibit 4.1(b)) at the times, to the Persons and in the manner set forth in Annex
F.

          4.2 Communication with Accountants. Each Credit Party executing this Agreement authorizes
(a) Agent and (b) so long as an Event of Default has occurred and is continuing, each Lender, to
communicate directly with the partner in charge of such Credit Party’s audit at such Credit Party’s
independent certified public accountants, and authorizes and shall request those accountants and
advisors to communicate to Agent and each Lender information relating to any Credit Party with
respect to the business, results of operations and financial condition of any Credit Party.

5. AFFIRMATIVE COVENANTS

          Each Credit Party executing this Agreement jointly and severally agrees as to all Credit
Parties that from and after the date hereof and until the Termination Date:

          5.1 Maintenance of Existence and Conduct of Business. Each Credit Party shall: do or
cause to be done all things necessary to preserve and keep in full force and effect its corporate
existence and its rights and franchises; continue to conduct its business substantially as now
conducted or as otherwise permitted hereunder; at all times maintain, preserve and protect all of
its assets and properties used or useful in the conduct of its business, and keep the same in good
repair, working order and condition in all material respects (taking

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into consideration ordinary
wear and tear) and from time to time make, or cause to be made, all necessary or appropriate
repairs, replacements and improvements thereto consistent with industry practices; and transact
business only in such corporate and trade names as are set forth in Disclosure Schedule
(5.1).

          5.2 Payment of Charges.

          (a) Subject to Section 5.2(b), each Credit Party shall pay and discharge or cause to
be paid and discharged promptly all Charges payable by it, including (i) Charges imposed upon it,
its income and profits, or any of its property (real, personal or mixed) and all Charges with
respect to tax, social security and unemployment withholding with respect to its employees, (ii)
lawful claims for labor, materials, supplies and services or otherwise, and (iii) all storage or
rental charges payable to warehousemen and bailees, in each case, before any thereof shall become
past due.

          (b) Each Credit Party may in good faith contest, by appropriate proceedings, the validity or
amount of any Charges, Taxes or claims described in Section 5.2(a); provided, that
(i) adequate reserves with respect to such contest are maintained on the books of such Credit
Party, in accordance with GAAP; (ii) no Lien shall be imposed to secure payment of such Charges
(other than payments to warehousemen and/or bailees) that is superior to any of the Liens securing
payment of the Obligations and such contest is maintained and prosecuted continuously and with
diligence and operates to suspend collection or enforcement of such Charges, (iii) none of the
Collateral becomes subject to forfeiture or loss as a result of such contest, (iv) such Credit
Party shall promptly pay or discharge such contested Charges, Taxes or claims and all additional
charges, interest, penalties and expenses, if any, and shall deliver to Agent evidence reasonably
acceptable to Agent of such compliance, payment or discharge, if such contest is terminated or
discontinued adversely to such Credit Party or the conditions set forth in this Section 5.2(b) are no longer met, and (v) Agent has not advised Borrower
in writing that Agent reasonably believes that nonpayment or nondischarge thereof could have or
result in a Material Adverse Effect.

          5.3 Books and Records. Each Credit Party shall keep adequate books and records with
respect to its business activities in which proper entries, reflecting all financial transactions,
are made in accordance with GAAP and on a basis consistent with the Financial Statements attached
as Disclosure Schedule (3.4(a)).

          5.4 Insurance; Damage to or Destruction of Collateral.

          (a) The Credit Parties shall, at their sole cost and expense, maintain the policies of
insurance described on Disclosure Schedule (3.18) as in effect on the date hereof or
otherwise in form and amounts and with insurers reasonably acceptable to Agent. Such policies of
insurance (or the loss payable and additional insured endorsements delivered to Agent) shall
contain provisions pursuant to which the insurer agrees to provide 30 days prior written notice to
Agent in the event of any non-renewal, cancellation or amendment of any such insurance policy. If
any Credit Party at any time or times hereafter shall fail to obtain or maintain any of the
policies of insurance required above or to pay all premiums relating thereto, Agent may at any time
or times thereafter obtain and maintain such policies of insurance and pay such premiums

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and take
any other action with respect thereto that Agent deems advisable. Agent shall have no obligation
to obtain insurance for any Credit Party or pay any premiums therefor. By doing so, Agent shall
not be deemed to have waived any Default or Event of Default arising from any Credit Party’s
failure to maintain such insurance or pay any premiums therefor. All sums so disbursed, including
reasonable attorneys’ fees, court costs and other charges related thereto, shall be payable on
demand by Borrower to Agent and shall be additional Obligations hereunder secured by the
Collateral.

          (b) Agent reserves the right at any time upon any change in any Credit Party’s risk profile
(including any change in the product mix maintained by any Credit Party or any laws affecting the
potential liability of such Credit Party) to require additional forms and limits of insurance to,
in Agent’s reasonable opinion, adequately protect both Agent’s and Lender’s interests in all or any
portion of the Collateral and to ensure that each Credit Party is protected by insurance in amounts
and with coverage customary for its industry. If reasonably requested by Agent, each Credit Party
shall deliver to Agent from time to time a report of a reputable insurance broker, reasonably
satisfactory to Agent, with respect to its insurance policies.

          (c) Borrower shall deliver to Agent, in form and substance reasonably satisfactory to Agent,
endorsements to (i) all “All Risk” and business interruption insurance policies naming Agent, on
behalf of itself and Lenders, as loss payee, and (ii) all general liability and other liability
policies naming Agent and Lenders, as additional insured.

          (d) Solely with respect to such “All Risk” and other casualty insurance policies, Borrower
irrevocably makes, constitutes and appoints Agent (and all officers, employees or agents designated
by Agent), so long as any Default or Event of Default has occurred and is continuing or the anticipated insurance proceeds under such insurance policies
exceed $1,000,000, as Borrower’s true and lawful agent and attorney-in-fact for the purpose of
making, settling and adjusting claims under such “All Risk” policies, endorsing the name of
Borrower on any check or other item of payment for the proceeds of such “All Risk” policies and for
making all determinations and decisions with respect to such “All Risk” policies. Agent shall have
no duty to exercise any rights or powers granted to it pursuant to the foregoing power-of-attorney.
Borrower shall promptly notify Agent of any loss, damage, or destruction to the Collateral in the
amount of $250,000 or more, whether or not covered by insurance. After deducting from such
proceeds the expenses, if any, incurred by Agent in the collection or handling thereof, Agent may,
at its option, apply such proceeds to the reduction of the Obligations in accordance with
Section 1.3(d), or permit or require Borrower to use such money, or any part thereof, to
replace, repair, restore or rebuild the Collateral in a diligent and expeditious manner with
materials and workmanship of substantially the same quality as existed before the loss, damage or
destruction. Notwithstanding the foregoing, if the casualty giving rise to such insurance proceeds
could not reasonably be expected to have a Material Adverse Effect and such insurance proceeds do
not exceed $1,000,000 in the aggregate, Agent shall permit Borrower to replace, restore, repair or
rebuild the Collateral; provided that if Borrower has not completed or entered into binding
agreements to complete such replacement, restoration, repair or rebuilding within 180 days of such
casualty, Agent may apply such insurance proceeds to the Obligations in accordance with Section
1.3(d). All insurance proceeds that are to be made available to Borrower to replace, repair,
restore or rebuild the Collateral shall be applied by Agent to reduce the outstanding principal
balance of the Revolving Loan (which application

33

 

shall not result in a permanent reduction of the
Revolving Loan Commitment) and upon such application, Agent shall establish a Reserve against the
Borrowing Base in an amount equal to the amount of such proceeds so applied. All insurance
proceeds made available to any Credit Party that is not a Borrower to replace, repair, restore or
rebuild Collateral shall be deposited in a cash collateral account. Thereafter, such funds shall
be made available to Borrower to provide funds to replace, repair, restore or rebuild the
Collateral as follows: (i) Borrower shall request a Revolving Credit Advance be made to Borrower in
the amount requested to be released; (ii) so long as the conditions set forth in Section
2.2 have been met, Revolving Lenders shall make such Revolving Credit Advance or Agent shall
release funds from the cash collateral account; and (iii) in the case of insurance proceeds applied
against the Revolving Loan, the Reserve established with respect to such insurance proceeds shall
be reduced by the amount of such Revolving Credit Advance. To the extent not used to replace,
repair, restore or rebuild the Collateral, such insurance proceeds shall be applied in accordance
with Section 1.3(d).

          5.5 Compliance with Laws. Each Credit Party shall comply with all federal, state, local
and foreign laws and regulations applicable to it (including, without limitation, rules and
regulations of the Securities and Exchange Commission requiring the filing of certain financial and
other information or materials), including those relating to ERISA and labor matters and
Environmental Laws and Environmental Permits, except to the extent that the failure to comply,
individually or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.

          5.6 Supplemental Disclosure. From time to time as may be reasonably requested by Agent (which request will not be made
more frequently than once each year absent the occurrence and continuance of a Default or an Event
of Default), the Credit Parties shall supplement each Disclosure Schedule hereto, or any
representation herein or in any other Loan Document, with respect to any matter hereafter arising
that, if existing or occurring at the date of this Agreement, would have been required to be set
forth or described in such Disclosure Schedule or as an exception to such representation or that is
necessary to correct any information in such Disclosure Schedule or representation which has been
rendered inaccurate thereby (and, in the case of any supplements to any Disclosure Schedule, such
Disclosure Schedule shall be appropriately marked to show the changes made therein);
provided that (a) no such supplement to any such Disclosure Schedule or representation
shall amend, supplement or otherwise modify any Disclosure Schedule or representation, or be or be
deemed a waiver of any Default or Event of Default resulting from the matters disclosed therein,
except as consented to by Agent and Requisite Lenders in writing, and (b) no supplement shall be
required or permitted as to representations and warranties that relate solely to the Closing Date.

          5.7 Intellectual Property. Each Credit Party will conduct its business and affairs
without infringement of or interference with any Intellectual Property of any other Person in any
material respect.

          5.8 Environmental Matters. Each Credit Party shall and shall cause each Person within its
control to: (a) conduct its operations and keep and maintain its Real Estate in compliance with all
Environmental Laws and Environmental Permits other than noncompliance that could not reasonably be
expected to have a Material Adverse Effect; (b) implement any and all investigation, remediation,
removal and response actions that are

34

 

appropriate or necessary to maintain the value and
marketability of the Real Estate or to otherwise comply with Environmental Laws and Environmental
Permits pertaining to the presence, generation, treatment, storage, use, disposal, transportation
or Release of any Hazardous Material on, at, in, under, above, to, from or about any of its Real
Estate; (c) notify Agent promptly after such Credit Party becomes aware of any violation of
Environmental Laws or Environmental Permits or any Release on, at, in, under, above, to, from or
about any Real Estate that is reasonably likely to result in Environmental Liabilities in excess of
$25,000; and (d) promptly forward to Agent a copy of any order, notice, request for information or
any communication or report received by such Credit Party in connection with any such violation or
Release or any other matter relating to any Environmental Laws or Environmental Permits that could
reasonably be expected to result in Environmental Liabilities in excess of $50,000, in each case
whether or not the Environmental Protection Agency or any Governmental Authority has taken or
threatened any action in connection with any such violation, Release or other matter. If Agent at
any time has a reasonable basis to believe that there may be a violation of any Environmental Laws
or Environmental Permits by any Credit Party or any Environmental Liability arising thereunder, or
a Release of Hazardous Materials on, at, in, under, above, to, from or about any of its Real
Estate, that, in each case, could reasonably be expected to have a Material Adverse Effect, then
each Credit Party shall, upon Agent’s written request (i) cause the performance of such
environmental audits including subsurface sampling of soil and groundwater, and preparation of
such environmental reports, at Borrower’s expense, as Agent may from time to time reasonably
request, which shall be conducted by reputable environmental consulting firms reasonably acceptable
to Agent and shall be in form and substance reasonably acceptable to Agent, and (ii) permit Agent
or its representatives to have access to all Real Estate for the purpose of conducting such
environmental audits and testing as Agent deems appropriate, including subsurface sampling of soil
and groundwater. Borrower shall reimburse Agent for the costs of such audits and tests and the
same will constitute a part of the Obligations secured hereunder.

          5.9 Landlords’ Agreements. Each Credit Party shall obtain a landlord’s agreement,
mortgagee agreement and bailee letter as applicable, from the lessor of each leased property,
mortgagee of owned property or bailee with respect to any warehouse, processor or converter
facility or other location where Collateral is stored or located, which agreement or letter shall
contain a waiver or subordination of all Liens or claims that the landlord, mortgagee or bailee may
assert against the Collateral at that location, and shall otherwise be reasonably satisfactory in
form and substance to Agent. With respect to such locations or warehouse space leased or owned as
of the Closing Date and thereafter, if Agent has not received a landlord or mortgagee agreement or
bailee letter as of the Closing Date (or, if later, as of the date such location is acquired or
leased), Borrower’s Eligible Inventory at that location shall, in Agent’s discretion, be excluded
from the Borrowing Base or be subject to such Reserves as may be established by Agent in its
reasonable credit judgment. After the Closing Date, no real property or warehouse space shall be
leased by any Credit Party and no Inventory shall be shipped to a processor or converter under
arrangements established after the Closing Date without the prior written consent of Agent (which
consent, in Agent’s discretion, may be conditioned upon the exclusion from the Borrowing Base of
Eligible Inventory at that location or the establishment of Reserves acceptable to Agent) or,
unless and until a satisfactory landlord agreement or bailee letter, as appropriate, shall first
have been obtained with respect to such location. Each Credit Party shall timely and fully pay and
perform its obligations under all

35

 

leases and other agreements with respect to each leased location
or public warehouse where any Collateral is or may be located. To the extent permitted hereunder,
if any Credit Party proposes to acquire a fee ownership interest in Real Estate after the Closing
Date, it shall first provide to Agent a mortgage or deed of trust granting Agent a first priority
Lien on such Real Estate, together with environmental audits, mortgage title insurance commitment,
real property survey, local counsel opinion(s), and, if required by Agent, supplemental casualty
insurance and flood insurance, and such other documents, instruments or agreements reasonably
requested by Agent, in each case, in form and substance reasonably satisfactory to Agent.

          5.10 Further Assurances. Each Credit Party executing this Agreement agrees that it shall
and shall cause each other Credit Party to, at such Credit Party’s expense and upon request of
Agent, duly execute and deliver, or cause to be duly executed and delivered, to Agent such further
instruments and do and cause to be done such further acts as may be necessary or proper in the
reasonable opinion of Agent to carry out more effectively the provisions and purposes of this
Agreement or any other Loan Document.

6. NEGATIVE COVENANTS

          Each Credit Party executing this Agreement jointly and severally agrees as to all Credit
Parties that from and after the date hereof until the Termination Date:

          6.1 Mergers, Subsidiaries, Etc. Without the prior written consent of the Requisite
Lenders (which consent may be provided or withheld in the Requisite Lender’s sole discretion), no
Credit Party shall directly or indirectly, by operation of law or otherwise, (a) form or acquire
any Subsidiary, (b) merge with, consolidate with, acquire all or substantially all of the assets or
Stock of, or otherwise combine with or acquire, any Person, or (c) other than purchases of
Inventory and licenses of Intellectual Property, in each case in the ordinary course of business
consistent with practices as in effect on the date hereof, purchase assets from any Person if (i)
such purchase is not a Capital Expenditure or (ii) the amount paid for such purchase does not
reduce the EBITDA, during the period such purchase is made and by the amount paid for such
purchase, of the Credit Party which makes such purchase. Notwithstanding the foregoing, Credit
Parties may form one or more new wholly-owned Subsidiaries as long as (i) no more than ten (10) new
subsidiaries are formed after the date hereof; (ii) as of the date of such formation of such new
Subsidiary, no Event of Default shall have occurred and be continuing; (iii) pursuant to
documentation acceptable to the Agent, each of such new Subsidiaries at the time it is formed
becomes a Credit Party (each, a “New Credit Party”) under this Agreement; and (iv) at the
time that such New Credit Party is formed, all Credit Parties, including each such New Credit
Party, shall have executed and delivered such amendments, restatements or other supplements to this
Agreement and/or the other existing Loan Documents, and such new Loan Documents and other notes,
documents, certificates, opinions and agreements as Agent may deem necessary or appropriate,
including, without limitation, (a) a joinder agreement with respect to this Agreement, the Security
Agreement and the Guaranty and a Mortgage, as applicable, together with all necessary financing
statements and/or fixture filings, as applicable, by each New Credit Party to ensure that the
Obligations are secured by first priority Liens on substantially all of the assets of such New
Credit Party and that each New Credit Party is guarantying the Obligations, (b) a Pledge Amendment
to the Pledge Agreement pledging 100% of the Stock of each such New Credit Party to Agent, and (c)
formation and organization

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documents, certificates, resolutions and legal opinions with respect to
the foregoing which shall, in each case, be in form and substance satisfactory to Agent.

          6.2 Investments; Loans and Advances. No Credit Party shall make or permit to exist any
investment in, or make, accrue or permit to exist loans or advances of money to, any Person,
through the direct or indirect lending of money, holding of securities or otherwise, except that:
(a) Credit Parties may hold investments comprised of notes payable, or stock or other securities
issued by Account Debtors to such Credit Party, as applicable pursuant to negotiated agreements
with respect to settlement of such Account Debtor’s Accounts in the ordinary course of business, so
long as the aggregate amount of such Accounts so settled by the Credit Parties does not exceed
$500,000 in the aggregate outstanding at any time (in the aggregate for the Credit Parties
combined); (b) each Credit Party may maintain its existing equity investments in its Subsidiaries
as of the Closing Date; (c) Borrower may maintain Eligible Certificate of Deposits; (d) so long as no Default or
Event of Default has occurred and is continuing and there is no outstanding Revolving Loan balance,
Borrower may make investments, subject to Control Letters in favor of Agent for the benefit of
Lenders or otherwise subject to a perfected security interest in favor of Agent for the benefit of
Lenders, in Permitted Cash Equivalents; (e) Credit Parties may make Vendor Advances as long as the
aggregate amount of Net Vendor Advances made during any Fiscal Year does not at any time during
such Fiscal Year exceed for each Fiscal Year ending on or prior to March 31, 2007, $15,000,000,
(ii) for each Fiscal Year ending after March 31, 2007 but on or prior to March 31, 2009,
$16,500,000 and (iii) for each Fiscal Year thereafter, $17,500,000 (provided, that the
amount set forth for any Fiscal Year shall be increased by the lesser of (x) $3,000,000 or (y) the
maximum Net Vendor Advances which were, pursuant to this Section, permitted to be made during the
then immediately preceding Fiscal Year less the actual amount of Net Vendor Advances made
during such immediately preceding Fiscal Year; (f) advances by a Credit Party to its employees
expressly permitted by Section 6.4(b) hereof; (g) the Credit Parties may make loans or
advances to the other Credit Parties as permitted under Section 6.3(a)(v); (h) the Borrower
may make (and permit to exist) capital contributions to Navarre CP, Navarre CLP and Navarre CS as
long as each of such Persons uses all of the proceeds thereof on the date received to either make a
payment due pursuant to Section 1.4 of the FUNimation Purchase Agreement or make a
Performance Payment (as defined in the FUNimation Purchase Agreement); (i) a loan by the Borrower
to Eric Paulson pursuant to Eric Paulson’s employment agreement in an aggregate principal amount
not to exceed $400,000 may exist and (j) the Credit Parties may make other investments not
exceeding $250,000 in the aggregate at any time outstanding.

          6.3 Indebtedness.

          (a) No Credit Party shall create, incur, assume or permit to exist any Indebtedness, except
(without duplication) (i) Indebtedness secured by purchase money security interests and Capital
Leases permitted in Section 6.7(c), (ii) the Loans and the other Obligations, (iii)
unfunded pension fund and other employee benefit plan obligations and liabilities to the extent
they are permitted to remain unfunded under applicable law, (iv) existing Indebtedness described in
Disclosure Schedule (6.3) and refinancings thereof or amendments or modifications thereof
that do not have the effect of increasing the principal amount thereof or changing the amortization
thereof (other than to extend the same) and that are otherwise on terms and conditions no less
favorable to any Credit Party, Agent or any Lender, as determined by Agent,

37

 

than the terms of the
Indebtedness being refinanced, amended or modified, (v) Indebtedness consisting of intercompany
loans and advances made by a Credit Party to any other Credit Party; provided, that: (A)
each Credit Party shall have executed and delivered a master subordinated intercompany note ( the
“Intercompany Note”) to evidence any such Indebtedness owing at any time, which
Intercompany Note shall be in form and substance reasonably satisfactory to Agent and shall be
pledged and delivered to Agent pursuant to the applicable Pledge Agreement or Security Agreement as
security for the Obligations; (B) each Credit Party shall record all intercompany transactions on
its books and records in a manner reasonably satisfactory to Agent; (C) the obligations of each
Credit Party under such Intercompany Note shall be subordinated to the Obligations in a manner
reasonably satisfactory to Agent; (D) at the time any such intercompany loan or advance is made by
a Credit Party and after giving effect thereto, each applicable Credit Party shall be Solvent; (E)
no Default or Event of Default would occur and be continuing after giving effect to any such proposed loan or advance and (F) in the case of any
New Credit Party, the related loans to such New Credit Party are permitted pursuant to Section
6.2(h), (vi) obligations for Performance Payments (as defined in the FUNimation Purchase
Agreement) or similar payment obligations incurred by the Borrower, Navarre CP, Navarre CLP and/or
Navarre CS in connection with the FUNimation Acquisition in an aggregate amount not to exceed
$17,000,000, (vii) Indebtedness incurred pursuant to the Second Lien Credit Agreement in a
principal amount not to exceed the difference of (A) $15,000,000 minus (B) the aggregate amount of
all payments of principal made with respect to the Second Lien Loan in the aggregate at any time
outstanding and (viii) hedging obligations under swaps, caps and collar arrangements arranged by GE
Capital.

          (b) No Credit Party shall, directly or indirectly, voluntarily purchase, redeem, defease or
prepay any principal of, premium, if any, interest or other amount payable in respect of any
Indebtedness, other than (i) the Obligations; (ii) Indebtedness (other than Indebtedness under the
Second Lien Credit Agreement) secured by a Permitted Encumbrance if the asset securing such
Indebtedness has been sold or otherwise disposed of in accordance with Sections 6.8(b) or
(c); (iii) Indebtedness permitted by Section 6.3(a)(iv) upon any refinancing
thereof in accordance with Section 6.3(a)(iv); (iv) other Indebtedness (other than
Indebtedness under the Second Lien Credit Agreement) not in excess of $250,000; and (v) as
otherwise permitted in Section 6.14.

          6.4 Employee Loans and Affiliate Transactions.

          (a) No Credit Party shall enter into or be a party to any transaction with any other Credit
Party or any Affiliate thereof except in the ordinary course of and pursuant to the reasonable
requirements of such Credit Party’s business and upon fair and reasonable terms that are no less
favorable to such Credit Party than would be obtained in a comparable arm’s length transaction with
a Person not an Affiliate of such Credit Party. In addition, if any such transaction or series of
related transactions involves payments in excess of $100,000 in the aggregate, the terms of these
transactions must be disclosed in advance to Agent and Lenders. All such transactions existing as
of the date hereof are described in Disclosure Schedule (6.4(a)).

          (b) No Credit Party shall enter into any lending or borrowing transaction with any employees
of any Credit Party, except loans to its respective employees on an arm’s-length basis in the
ordinary course of business consistent with past practices for travel and

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entertainment expenses,
relocation costs and similar purposes and stock option financing up to a maximum of $100,000 to any
employee and up to a maximum of $500,000 in the aggregate at any one time outstanding.

          6.5 Capital Structure and Business. No Credit Party shall (a) make any changes in any of
its business objectives, purposes or operations that could in any way adversely affect the
repayment of the Loans or any of the other Obligations or could reasonably be expected to have or
result in a Material Adverse Effect, (b) make any change in its capital structure as described in
Disclosure Schedule (3.8), including the issuance or sale of any shares of Stock, warrants
or other securities convertible into Stock or any revision of the terms of its outstanding Stock;
provided, that the Borrower may issue or sell its Stock for cash so long as (i) the proceeds thereof are applied in prepayment
of the Obligations as required by Section 1.3(b)(iii), and (ii) no Change of Control occurs
after giving effect thereto, or (c) amend its charter or bylaws in a manner that would adversely
affect Agent or Lenders or such Credit Party’s duty or ability to repay the Obligations. No Credit
Party shall engage in any business other than the businesses currently engaged in by it or
businesses reasonably related thereto.

          6.6 Guaranteed Indebtedness. No Credit Party shall create, incur, assume or permit to
exist any Guaranteed Indebtedness except (a) by endorsement of instruments or items of payment for
deposit to the general account of any Credit Party, and (b) for Guaranteed Indebtedness incurred
for the benefit of any other Credit Party if the primary obligation is expressly permitted by this
Agreement.

          6.7 Liens and Related Matters. (a) No Credit Party shall create, incur, assume or permit
to exist any Lien on or with respect to its Accounts or any of its other properties or assets
(whether now owned or hereafter acquired) except for (a) Permitted Encumbrances; (b) Liens in
existence on the date hereof and summarized on Disclosure Schedule (6.7) securing
Indebtedness described on Disclosure Schedule (6.3) and permitted refinancings, extensions
and renewals thereof, including extensions or renewals of any such Liens; provided that the
principal amount so secured is not increased and the Lien does not attach to any other property;
(c) Liens created after the date hereof by conditional sale or other title retention agreements
(including Capital Leases) or in connection with purchase money Indebtedness with respect to
Equipment and Fixtures acquired by any Credit Party in the ordinary course of business, involving
the incurrence of an aggregate amount of purchase money Indebtedness and Capital Lease Obligations
of not more than $250,000 outstanding at any one time for all such Liens (provided that
such Liens attach only to the assets subject to such purchase money debt and such Indebtedness is
incurred within 20 days following such purchase and does not exceed 100% of the purchase price of
the subject assets); and (d) Liens securing obligations under the Second Lien Credit Agreement, as
long as the principal amount thereof is Indebtedness permitted pursuant to Section
6.3(a)(xii) and such Liens do not attach to any assets that are not subject to Liens securing
the Obligations. In addition, no Credit Party shall become a party to any agreement, note,
indenture or instrument, or take any other action, that would prohibit the creation of a Lien on
any of its properties or other assets in favor of Agent, on behalf of itself and Lenders, as
additional collateral for the Obligations, except operating leases, Capital Leases or Licenses
which prohibit Liens upon the assets that are subject thereto.

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          (b) The Credit Parties shall not, and shall not cause or permit their Subsidiaries to,
directly or indirectly enter into or assume any agreement (other than the Loan Documents or the
Second Lien Credit Agreement and related documents) prohibiting the creation or assumption of any
Lien upon its properties or assets, whether now owned or hereafter acquired and other than (i)
provisions restricting subletting or assignment under any lease governing a leasehold interest or
lease of personal property and (ii) restrictions on assignments or sublicensing of licensed
Intellectual Property.

          (c) Except as provided herein or in the Second Lien Credit Agreement and related documents,
the Credit Parties shall not, and shall not cause or permit their Subsidiaries to, directly or
indirectly create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any such Subsidiary to (1) pay dividends
or make any other distribution on any of such Subsidiary’s Stock owned by a Credit Party, (2) pay
any Indebtedness owed to any Credit Party, (3) make loans or advances to any Credit Party, or (4)
transfer any of its property or assets to any Credit Party.

          6.8 Sale of Stock and Assets. No Credit Party shall sell, transfer, convey, assign or
otherwise dispose of any of its properties or other assets, including the Stock of any of its
Subsidiaries (whether in a public or a private offering or otherwise) or any of its Accounts, other
than (a) the sale of Inventory in the ordinary course of business, (b) the sale, transfer,
conveyance or other disposition by a Credit Party of Equipment, Fixtures or Real Estate that are
obsolete or no longer used or useful in such Credit Party’s business and having an appraised value
not exceeding $100,000 in any single transaction or $500,000 in the aggregate in any Fiscal Year,
(c) a sale, transfer, conveyance or other disposition permitted under Section 6.1 and (d)
the sale by AnimeOnline of the real property located in Decatur, Wise County, Texas as more fully
described on Disclosure Schedule (6.8) (such transaction, the “Texas Real Estate Sale
Transaction”) for an amount not less than the amount set forth on Disclosure Schedule
(6.8), as long as at the time of such sale and after giving effect thereto, no Default or Event
of Default has occurred and is continuing. With respect to any disposition of assets or other
properties permitted pursuant to clauses (b) and (d) above, subject to Section
1.3(b), Agent agrees on reasonable prior written notice to release its Lien on such assets or
other properties in order to permit the applicable Credit Party to effect such disposition and
shall execute and deliver to Borrower, at Borrower’s expense, appropriate UCC-3 termination
statements and other releases as reasonably requested by Borrower.

          6.9 ERISA. No Credit Party shall, or shall cause or permit any ERISA Affiliate to, cause
or permit to occur an event that could result in the imposition of a Lien under Section 412 of the
IRC or Section 302 or 4068 of ERISA or cause or permit to occur an ERISA Event to the extent such
ERISA Event could reasonably be expected to have a Material Adverse Effect.

          6.10 Financial Covenants. Borrower shall not breach or fail to comply with any of the
Financial Covenants.

          6.11 Hazardous Materials. No Credit Party shall cause or permit a Release of any Hazardous
Material on, at, in, under, above, to, from or about any of the Real Estate where such Release
would (a) violate in any respect, or form the basis for any

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Environmental Liabilities under, any
Environmental Laws or Environmental Permits or (b) otherwise adversely impact the value or
marketability of any of the Real Estate or any of the Collateral, other than such violations or
Environmental Liabilities that could not reasonably be expected to have a Material Adverse
Effect.

          6.12 Sale—Leasebacks. No Credit Party shall engage in any sale-leaseback, synthetic lease
or similar transaction involving any of its assets.

          6.13 Cancellation of Indebtedness. No Credit Party shall cancel any claim or debt owing to
it, except for reasonable consideration negotiated on an arm’s-length basis and in the ordinary
course of its business consistent with past practices.

          6.14 Restricted Payments. No Credit Party shall make any Restricted Payment, except (a)
dividends and distributions by Subsidiaries of Borrower paid to Borrower, (b) employee loans
permitted under Section 6.4(b),(c) on any day, the Borrower may repurchase the Borrower’s
own shares of common stock, as long as (i) at the time of such repurchase and after giving effect
thereto, no Default or Event of Default has occurred and is continuing, (ii) after giving effect to
such repurchase, the Borrowing Availability shall be at least $15,000,000 and (iii) the aggregate
consideration paid for all such repurchases during any consecutive twelve month period does not
exceed $250,000, (d) payment of Earnout Amounts (under and as defined in the BCI Eclipse Purchase
Agreement as in effect on November 5, 2003) as long as (i) at the time of such payment and after
giving effect thereto, no Default or Event of Default has occurred and is continuing, (ii) the
aggregate amount of such payments to be made after the Closing Date shall not exceed $300,000 in
any Fiscal Year; (iii) the aggregate amount of all such payments to be made after the Closing Date
shall not at any time exceed $750,000 and (iv) prior to such payment the Borrower has delivered
evidence satisfactory to the Agent demonstrating that, had such payment been made on the last day
of the then most recently completed Fiscal Quarter, Borrower would have been in compliance with the
financial covenants set forth on Annex G to the Credit Agreement as of the end of such
Fiscal Quarter, (e) payment of Performance Payments (under, as defined in and in accordance with
the FUNimation Purchase Agreement) in an aggregate amount not to exceed $17,000,000, (f) payments
made to or for the benefit of Eric Paulson pursuant to his employment agreement as more
particularly described on Disclosure Schedule (6.14).

          6.15 Change of Corporate Name or Location; Change of Fiscal Year. No Credit Party shall
(a) change its name as it appears in official filings in the state of its incorporation or other
organization, (b) change its chief executive office, principal place of business, corporate offices
or warehouses or locations at which Collateral is held or stored, or the location of its records
concerning the Collateral, (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 without at least 30 days prior
written notice to Agent and after Agent’s written acknowledgment that any reasonable action
requested by Agent in connection therewith, including to continue the perfection of any Liens in
favor of Agent, on behalf of Lenders, in any Collateral, has been completed or taken, and provided that any such new location shall be in the
continental United States. Without limiting the foregoing, no Credit Party shall change its name,
identity or corporate structure in any manner that might make any financing or continuation
statement filed

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in connection herewith seriously misleading as such term is defined in and/or used
in the Code or any other then applicable provision of the Code except upon prior written notice to
Agent and Lenders and after Agent’s written acknowledgment that any reasonable action requested by
Agent in connection therewith, including to continue the perfection of any Liens in favor of Agent,
on behalf of Lenders, in any Collateral, has been completed or taken. No Credit Party shall change
its Fiscal Year.

          6.16 No Impairment of Intercompany Transfers. No Credit Party shall directly or indirectly
enter into or become bound by any agreement, instrument, indenture or other obligation (other than
this Agreement and the other Loan Documents) that could directly or indirectly restrict, prohibit
or require the consent of any Person with respect to the payment of dividends or distributions or
the making or repayment of intercompany loans by a Subsidiary of Borrower to Borrower.

          6.17 No Speculative Transactions. No Credit Party shall engage in any transaction
involving commodity options, futures contracts or similar transactions, except solely to hedge
against fluctuations in the prices of commodities owned or purchased by it and the values of
foreign currencies receivable or payable by it and interest swaps, caps or collars.

          6.18 Leases; Real Estate Purchases. No Credit Party shall enter into any operating lease
for Equipment or Real Estate, if the aggregate of all such operating lease payments payable in any
year for Borrower on a consolidated basis would exceed $250,000. No Credit Party shall purchase a
fee simple ownership interest in Real Estate.

          6.19 Amendments. Without the prior written consent of the Requisite Lenders, the Borrower
shall not enter into any amendment, supplement, restatement, other modification or waiver with
respect to any of the Minnesota Sale-Leaseback Documents or the FUNimation Acquisition Documents.
In addition, the Borrower shall not amend, supplement or otherwise modify the Second Lien Credit
Agreement or the related documents in a manner which would violate the Second Lien Intercreditor
Agreement.

          6.20 Navarre CP, Navarre CLP and Navarre CS. Each of Navarre CP, Navarre CLP and Navarre
CS shall not engage in any trade or business, own any assets (other than Stock of FUNimation
Productions and AnimeOnline) or incur any Indebtedness or Guaranteed Indebtedness (other than the
Obligations); provided, however, that each of Navarre CP, Navarre CLP and Navarre CS may
guarantee the Second Lien Loan in the manner provided in the Second Lien Credit Agreement.

7. TERM

          7.1 Termination. The financing arrangements contemplated hereby shall be in effect until
the Commitment Termination Date, and the Loans and all other Obligations shall be automatically due
and payable in full on such date.

          7.2 Survival of Obligations Upon Termination of Financing Arrangements. Except as
otherwise expressly provided for in the Loan Documents, no termination or cancellation (regardless
of cause or procedure) of any financing arrangement under this Agreement shall in any way affect or
impair the obligations, duties and liabilities of

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the Credit Parties or the rights of Agent and
Lenders relating to any unpaid portion of the Loans or any other Obligations, due or not due,
liquidated, contingent or unliquidated or any transaction or event occurring prior to such
termination, or any transaction or event, the performance of which is required after the Commitment
Termination Date. Except as otherwise expressly provided herein or in any other Loan Document, all
undertakings, agreements, covenants, warranties and representations of or binding upon the Credit
Parties, and all rights of Agent and each Lender, all as contained in the Loan Documents, shall not
terminate or expire, but rather shall survive any such termination or cancellation and shall
continue in full force and effect until the Termination Date; provided, that the provisions
of Section 11, the payment obligations under Sections 1.15 and 1.16, and the
indemnities contained in the Loan Documents shall survive the Termination Date.

8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES

          8.1 Events of Default. The occurrence of any one or more of the following events
(regardless of the reason therefor) shall constitute an “Event of Default” hereunder:

          (a) Borrower (i) fails to make any payment of principal of, or interest on, or Fees owing in
respect of, the Loans or any of the other Obligations when due and payable, or (ii) fails to pay or
reimburse Agent or Lenders for any expense reimbursable hereunder or under any other Loan Document
within 10 days following Agent’s demand for such reimbursement or payment of expenses.

          (b) Any Credit Party fails or neglects to perform, keep or observe any of the provisions of
Sections 1.4, 1.8, 5.4(a) or 6, or any of the provisions set forth in Annexes C or
G, respectively.

          (c) Borrower fails or neglects to perform, keep or observe any of the provisions of
Section 4 or any provisions set forth in Annexes E or F, respectively, and the same
shall remain unremedied for 5 days or more.

          (d) Any Credit Party fails or neglects to perform, keep or observe any other provision of this
Agreement or of any of the other Loan Documents (other than any provision embodied in or covered by
any other clause of this Section 8.1) and the same shall remain unremedied for 30 days or
more.

          (e) A default or breach occurs under any other agreement, document or instrument to which any
Credit Party is a party that is not cured within any applicable grace period therefor, and such
default or breach (i) involves the failure to make any payment when due in respect of any
Indebtedness or Guaranteed Indebtedness (other than the Obligations) of any Credit Party in excess
of $250,000 in the aggregate (including (x) undrawn committed or available amounts and (y) amounts
owing to all creditors under any combined or syndicated credit arrangements), or (ii) causes, or
permits any holder of such Indebtedness or Guaranteed Indebtedness or a trustee to cause,
Indebtedness or Guaranteed Indebtedness or a portion thereof in excess of $250,000 in the aggregate
to become due prior to its stated maturity or prior to its regularly scheduled dates of payment, or
cash collateral to be demanded in respect thereof, in

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each case, regardless of whether such default
is waived, or such right is exercised, by such holder or trustee;

          (f) [Intentionally Deleted.]

          (g) Assets of any Credit Party with a fair market value of $250,000 or more are attached,
seized, levied upon or subjected to a writ or distress warrant, or come within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors of any Credit Party and
such condition continues for 30 days or more.

          (h) A case or proceeding is commenced against any Credit Party seeking a decree or order in
respect of such Credit Party (i) under the Bankruptcy Code or any other applicable federal, state
or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) for such Credit Party or for any
substantial part of any such Credit Party’s assets, or (iii) ordering the winding-up or liquidation
of the affairs of such Credit Party, and such case or proceeding shall remain undismissed or
unstayed for 60 days or more or a decree or order granting the relief sought in such case or
proceeding by a court of competent jurisdiction.

          (i) Any Credit Party (i) files a petition seeking relief under the Bankruptcy Code or any
other applicable federal, state or foreign bankruptcy or other similar law, (ii) consents to or
fails to contest in a timely and appropriate manner to the institution of proceedings thereunder or
to the filing of any such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official) for such Credit Party
or for any substantial part of any such Credit Party’s assets, (iii) makes an assignment for the
benefit of creditors, or (iv) takes any action in furtherance of any of the foregoing, or (v)
admits in writing its inability to, or is generally unable to, pay its debts as such debts become
due.

          (j) A final judgment or judgments for the payment of money in excess of $250,000 in the
aggregate at any time are outstanding against one or more of the Credit Parties and the same are
not, within 30 days after the entry thereof, discharged or execution thereof
stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration
of any such stay.

          (k) Any material provision of any Loan Document for any reason ceases to be valid, binding and
enforceable in accordance with its terms (or any Credit Party shall challenge the enforceability of
any Loan Document or shall assert in writing, or engage in any action or inaction based on any such
assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not
valid, binding and enforceable in accordance with its terms), or any Lien created under any Loan
Document ceases to be a valid and perfected first priority Lien (except as otherwise permitted
herein or therein) in any of the Collateral purported to be covered thereby.

          (l) Any Change of Control occurs.

          (m) Any information contained in any Borrowing Base Certificate is untrue or incorrect in any
respect (other than errors which do not cause the Borrowing Base to be

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overstated by more than
$100,000 (in the aggregate) in any Borrowing Base Certificate), or any representation or warranty
herein or in any Loan Document or in any written statement, report, financial statement or
certificate (other than a Borrowing Base Certificate) made or delivered to Agent or any Lender by
any Credit Party is untrue or incorrect in any material respect as of the date when made or deemed
made.

          8.2 Remedies.

          (a) If any Default or Event of Default has occurred and is continuing, Agent may (and at the
written request of the Requisite Lenders shall), without notice, suspend the Revolving Loan
facility with respect to additional Advances and/or the incurrence of additional Letter of Credit
Obligations, whereupon any additional Advances and additional Letter of Credit Obligations shall be
made or incurred in Agent’s sole discretion (or in the sole discretion of the Requisite Lenders, if
such suspension occurred at their direction) so long as such Default or Event of Default is
continuing. If any Default or Event of Default has occurred and is continuing, Agent may (and at
the written request of Requisite Lenders shall), without notice except as otherwise expressly
provided herein, increase the rate of interest applicable to the Loans and the Letter of Credit
Fees to the Default Rate.

          (b) If any Event of Default has occurred and is continuing, Agent may (and at the written
request of the Requisite Lenders shall), without notice: (i) terminate the Revolving Loan facility
with respect to further Advances or the incurrence of further Letter of Credit Obligations; (ii)
declare all or any portion of the Obligations, including all or any portion of any Loan to be
forthwith due and payable, and require that the Letter of Credit Obligations be cash collateralized
as provided in Annex B, all without presentment, demand, protest or further notice of any
kind, all of which are expressly waived by Borrower and each other Credit Party; or (iii) exercise
any rights and remedies provided to Agent under the Loan Documents or at law or equity, including
all remedies provided under the Code; provided, that upon the occurrence of an Event of
Default specified in Sections 8.1(h) or (i), the Commitments shall be immediately
terminated and all of the Obligations, including the Revolving Loan, shall become immediately due
and payable without declaration, notice or demand by any Person.

          8.3 Waivers by Credit Parties. Except as otherwise provided for in this Agreement or by
applicable law, each Credit Party waives: (a) presentment, demand and protest and notice of
presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default,
nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties
at any time held by Agent on which any Credit Party may in any way be liable, and hereby ratifies
and confirms whatever Agent may do in this regard, (b) all rights to notice and a hearing prior to
Agent’s taking possession or control of, or to Agent’s replevy, attachment or levy upon, the
Collateral or any bond or security that might be required by any court prior to allowing Agent to
exercise any of its remedies, and (c) the benefit of all valuation, appraisal, marshaling and
exemption laws.

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9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT

          9.1 Assignment and Participations.

          (a) Subject to the terms of this Section 9.1, any Lender may make an assignment to a
Qualified Assignee of, or sale of participations in, at any time or times, the Loan Documents,
Loans, Letter of Credit Obligations and any Commitment or any portion thereof or interest therein,
including any Lender’s rights, title, interests, remedies, powers or duties thereunder. Any
assignment by a Lender shall: (i) require the consent of Agent (which consent shall not be
unreasonably withheld or delayed with respect to a Qualified Assignee) and the execution of an
assignment agreement (an “Assignment Agreement” substantially in the form attached hereto
as Exhibit 9.1(a) and otherwise in form and substance reasonably satisfactory to, and
acknowledged by, Agent; (ii) be conditioned on such assignee Lender representing to the assigning
Lender and Agent that it is purchasing the applicable Loans to be assigned to it for its own
account, for investment purposes and not with a view to the distribution thereof; (iii) after
giving effect to any such partial assignment, the assignee Lender shall have Commitments in an
amount at least equal to $1,000,000 and the assigning Lender shall have retained Commitments in an
amount at least equal to $1,000,000; (iv) include a payment to Agent of an assignment fee of
$3,500. In the case of an assignment by a Lender under this Section 9.1, the assignee
shall have, to the extent of such assignment, the same rights, benefits and obligations as all
other Lenders hereunder. The assigning Lender shall be relieved of its obligations hereunder with
respect to its Commitments or assigned portion thereof from and after the date of such assignment.
Borrower hereby acknowledges and agrees that any assignment shall give rise to a direct obligation
of Borrower to the assignee and that the assignee shall be considered to be a “Lender”. In all
instances, each Lender’s liability to make Loans hereunder shall be several and not joint and shall
be limited to such Lender’s Pro Rata Share of the applicable Commitment. In the event Agent or any
Lender assigns or otherwise transfers all or any part of the Obligations, Agent or any such Lender
shall so notify Borrower and Borrower shall, upon the request of Agent or such Lender, execute new
Notes in exchange for the Notes, if any, being assigned. Notwithstanding the foregoing provisions
of this Section 9.1(a), any Lender may at any time pledge the Obligations held by it and
such Lender’s rights under this Agreement and the other Loan Documents to a Federal Reserve Bank,
and any lender that is an investment fund may assign the Obligations held by it and such Lender’s
rights under this Agreement and the other Loan Documents to another investment fund managed by the
same investment advisor; provided, that no such pledge to a Federal Reserve Bank shall release such Lender from such Lender’s
obligations hereunder or under any other Loan Document.

          (b) In addition to the other rights provided in this Section 9.1, each Lender may, (x) with
notice to the Agent, grant to an SPV the option to make all or any part of any Loan that such
Lender would otherwise be required to make hereunder (and the exercise of such option by such SPV
and the making of Loans pursuant thereto shall satisfy the obligation of such Lender to make such
Loans hereunder) and such SPV may assign to such Lender the right to receive payment with respect
to any Obligation and (y) without notice to or consent from the Agent or the Borrower, (i) sell
participations to one or more Persons in or to all or a portion of its rights and obligations under
the Loan Documents (including all its rights and obligations with respect to the Revolving Loans
and Letters of Credit) and (ii) transfer its rights to receive payments hereunder to one or more
Affiliates (a “Transferee”); provided, however, that, whether

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as a result of any term of any Loan Document or of such grant, participation or transfer, (i) no such SPV,
participant or Transferee shall have a commitment, or be deemed to have made an offer to commit, to
make Loans hereunder, and, except as provided in the applicable option agreement, none shall be
liable for any obligation of such Lender hereunder, (ii) such Lender’s rights and obligations, and
the rights and obligations of the Loan Parties and the secured parties towards such Lender under
any Loan Document shall remain unchanged and each other party hereto shall continue to deal solely
with such Lender, which shall remain the registered holder of the Obligations, except that (A) each
such participant and SPV shall be entitled to the benefit of Sections 1.15 and 1.16, but
only to the extent such participant or SPV delivers the tax forms such Lender is required to
collect pursuant hereto and then only to the extent of any amount to which such Lender would be
entitled in the absence of any such grant or participation and (B) each such SPV may receive other
payments that would otherwise be made to such Lender with respect to Loans funded by such SPV to
the extent provided in the applicable option agreement and set forth in a notice provided to the
Agent by such SPV and such Lender, provided, however, that in no case (including
pursuant to clause (A) or (B) above) shall an SPV, participant or Transferee have
the right to enforce any of the terms of any Loan Document, and (iii) the consent of such SPV,
participant or Transferee shall not be required (either directly, as a restraint on such Lender’s
ability to consent hereunder or otherwise) for any amendments, waivers or consents with respect to
any Loan Document or to exercise or refrain from exercising any powers or rights such Lender may
have under or in respect of the Loan Documents (including the right to enforce or direct
enforcement of the Obligations), except with respect to an SPV or a participant for those described
in clauses 11.2(c)(ii) or (iii) with respect to amounts, or dates fixed for payment of
amounts, to which such participant or SPV would otherwise be entitled and, in the case of
participants, except for those described in Section 11.2(c)(ii) or (iii) (or amendments,
consents and waivers with respect to Section 11.2(c)(ii) or (iii) the release of all or
substantially all of the Collateral). No party hereto shall institute against any SPV grantee of
an option pursuant to this clause (b) any bankruptcy, reorganization, insolvency,
liquidation or similar proceeding, prior to the date that is one year and one day after the payment
in full of all outstanding commercial paper of such SPV; provided, however, that
each Lender having designated an SPV as such agrees to indemnify each Indemnitee against any
liability that may be incurred by, or asserted against, such Indemnitee as a result of failing to
institute such proceeding (including a failure to get reimbursed by such SPV for any such
liability). The agreement in the preceding sentence shall survive the termination of the
Commitments and the payment in full of the Obligations.

          (c) Except as expressly provided in this Section 9.1, no Lender shall, as between
Borrower and that Lender, or Agent and that Lender, be relieved of any of its obligations hereunder
as a result of any sale, assignment, transfer or negotiation of, or granting of participation in,
all or any part of the Loans, the Notes or other Obligations owed to such Lender.

          (d) Each Credit Party executing this Agreement shall assist any Lender permitted to sell
assignments or participations under this Section 9.1 as reasonably required to enable the
assigning or selling Lender to effect any such assignment or participation, including the execution
and delivery of any and all agreements, notes and other documents and instruments as shall be
requested and the preparation of informational materials for, and the participation of management
in meetings with, potential assignees or participants. Each Credit Party executing this Agreement
shall certify the correctness, completeness and accuracy of all descriptions of the Credit Parties
and their respective affairs contained in any selling materials provided by it and all

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other
information provided by it and included in such materials, except that any Projections delivered by
Borrower shall only be certified by Borrower as having been prepared by Borrower in compliance with
the representations contained in Section 3.4(c).

          (e) A Lender may furnish any information concerning Credit Parties in the possession of such
Lender from time to time to assignees and participants (including prospective assignees and
participants); provided that such Lender shall obtain from assignees or participants
confidentiality covenants substantially equivalent to those contained in Section 11.8.

          (f) So long as no Event of Default has occurred and is continuing, no Lender shall assign or
sell participations in any portion of its Loans or Commitments to a potential Lender or
participant, if, as of the date of the proposed assignment or sale, the assignee Lender or
participant would be subject to capital adequacy or similar requirements under Section
1.16(a), increased costs under Section 1.16(b), an inability to fund LIBOR Loans under
Section 1.16(c), or withholding taxes in accordance with Section 1.15(a).

          (g) In addition to the other rights provided in this Section 9.1, each Lender may grant a
security interest in, or otherwise assign as collateral, any of its rights under this Agreement,
whether now owned or hereafter acquired (including rights to payments of principal or interest on
the Loans), to (A) any federal reserve bank (pursuant to Regulation A of the Federal Reserve
Board), without notice to the Agent or (B) any holder of, or trustee for the benefit of the holders
of, such Lender’s securities by notice to the Agent; provided, however, that no
such holder or trustee, whether because of such grant or assignment or any foreclosure thereon
(unless such foreclosure is made through an assignment in accordance with clause (a)
above), shall be entitled to any rights of such Lender hereunder and no such Lender shall be
relieved of any of its obligations hereunder.

          (h) Nothing contained in this Section 9 shall require the consent of any party for GE
Capital to assign any of its rights in respect of any Swap Related Reimbursement Obligation.

          9.2 Appointment of Agent. GE Capital is hereby appointed to act on behalf of all Lenders as Agent under this Agreement
and the other Loan Documents. The provisions of this Section 9.2 are solely for the
benefit of Agent and Lenders and no Credit Party nor any other Person shall have any rights as a
third party beneficiary of any of the provisions hereof. In performing its functions and duties
under this Agreement and the other Loan Documents, Agent shall act solely as an agent of Lenders
and does not assume and shall not be deemed to have assumed any obligation toward or relationship
of agency or trust with or for any Credit Party or any other Person. Agent shall have no duties or
responsibilities except for those expressly set forth in this Agreement and the other Loan
Documents. The duties of Agent shall be mechanical and administrative in nature and Agent shall
not have, or be deemed to have, by reason of this Agreement, any other Loan Document or otherwise a
fiduciary relationship in respect of any Lender. Except as expressly set forth in this Agreement
and the other Loan Documents, Agent shall not have any duty to disclose, and shall not be liable
for failure to disclose, any information relating to any Credit Party or any of their respective
Subsidiaries or any Account Debtor that is communicated to or obtained by GE Capital or any of its
Affiliates in any capacity. Neither Agent nor any of its Affiliates nor any of their respective
officers,

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directors, employees, agents or representatives shall be liable to any Lender for any
action taken or omitted to be taken by it hereunder or under any other Loan Document, or in
connection herewith or therewith, except for damages caused by its or their own gross negligence or
willful misconduct.

          If Agent shall request instructions from Requisite Lenders, Supermajority Revolving Lenders or
all affected Lenders with respect to any act or action (including failure to act) in connection
with this Agreement or any other Loan Document, then Agent shall be entitled to refrain from such
act or taking such action unless and until Agent shall have received instructions from Requisite
Lenders, Supermajority Revolving Lenders or all affected Lenders, as the case may be, and Agent
shall not incur liability to any Person by reason of so refraining. Agent shall be fully justified
in failing or refusing to take any action hereunder or under any other Loan Document (a) if such
action would, in the opinion of Agent, be contrary to law or the terms of this Agreement or any
other Loan Document, (b) if such action would, in the opinion of Agent, expose Agent to
Environmental Liabilities or (c) if Agent shall not first be indemnified to its satisfaction
against any and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Without limiting the foregoing, no Lender shall have any right
of action whatsoever against Agent as a result of Agent acting or refraining from acting hereunder
or under any other Loan Document in accordance with the instructions of Requisite Lenders,
Supermajority Revolving Lenders or all affected Lenders, as applicable.

          9.3 Agent’s Reliance, Etc. Neither Agent nor any of its Affiliates nor any of their
respective directors, officers, agents or employees shall be liable for any action taken or omitted
to be taken by it or them under or in connection with this Agreement or the other Loan Documents,
except for damages caused by its or their own gross negligence or willful misconduct. Without
limiting the generality of the foregoing, Agent: (a) may treat the payee of any Note as the
holder thereof until Agent receives written notice of the assignment or transfer thereof signed by
such payee and in form reasonably satisfactory to Agent; (b) may consult with legal counsel,
independent public accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible
to any Lender for any statements, warranties or representations made in or in connection with this
Agreement or the other Loan Documents; (d) shall not have any duty to ascertain or to inquire as to
the performance or observance of any of the terms, covenants or conditions of this Agreement or the
other Loan Documents on the part of any Credit Party or to inspect the Collateral (including the
books and records) of any Credit Party; (e) shall not be responsible to any Lender for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement
or the other Loan Documents or any other instrument or document furnished pursuant hereto or
thereto; and (f) shall incur no liability under or in respect of this Agreement or the other Loan
Documents by acting upon any notice, consent, certificate or other instrument or writing (which may
be by telecopy, telegram, cable or telex) believed by it to be genuine and signed or sent by the
proper party or parties.

          9.4 GE Capital and Affiliates. With respect to its Commitments and Loans hereunder, GE
Capital shall have the same rights and powers under this Agreement and the other Loan Documents as
any other Lender and may exercise the same as though it were not Agent; and the term “Lender” or
“Lenders” shall, unless otherwise expressly indicated, include

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GE Capital in its individual
capacity. GE Capital and its Affiliates may lend money to, invest in, and generally engage in any
kind of business with, any Credit Party, any of their Affiliates and any Person who may do business
with or own securities of any Credit Party or any such Affiliate, all as if GE Capital were not
Agent and without any duty to account therefor to Lenders. GE Capital and its Affiliates may
accept fees and other consideration from any Credit Party for services in connection with this
Agreement or otherwise without having to account for the same to Lenders. GE Capital and its
affiliates may also make Loans under the Second Lien Credit Agreement and/or act as agent
thereunder. Each Lender acknowledges and waives the potential conflict of interest between GE
Capital as a Lender holding interests in the Loans and GE Capital as Agent and GE Capital as lender
and/or agent under the Second Lien Credit Agreement.

          9.5 Lender Credit Decision. Each Lender acknowledges that it has, independently and
without reliance upon Agent or any other Lender and based on the Financial Statements referred to
in Section 3.4(a) and such other documents and information as it has deemed appropriate,
made its own credit and financial analysis of the Credit Parties and its own decision to enter into
this Agreement. Each Lender also acknowledges that it will, independently and without reliance
upon Agent or any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or not taking action
under this Agreement. Each Lender acknowledges the potential conflict of interest of each other
Lender as a result of Lenders holding disproportionate interests in the Loans, and expressly
consents to, and waives any claim based upon, such conflict of interest.

          9.6 Indemnification. Lenders agree to indemnify Agent (to the extent not reimbursed by
Credit Parties and without limiting the obligations of Borrower hereunder), ratably according to
their respective Pro Rata Shares, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by, or asserted against Agent in any way
relating to or arising out of this Agreement or any other Loan Document or any action taken or
omitted to be taken by Agent in connection therewith; provided, that no Lender shall be
liable for any portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from Agent’s gross negligence or
willful misconduct. Without limiting the foregoing, each Lender agrees to reimburse Agent promptly
upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees)
incurred by Agent in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and
each other Loan Document, to the extent that Agent is not reimbursed for such expenses by Credit
Parties.

          9.7 Successor Agent. Agent may resign at any time by giving not less than 30 days’ prior
written notice thereof to Lenders and Borrower. Upon any such resignation, the Requisite Lenders
shall have the right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Requisite Lenders and shall have accepted such appointment within 30 days after
the resigning Agent’s giving notice of resignation, then the resigning Agent may, on behalf of
Lenders, appoint a successor Agent, which shall be a Lender, if a Lender is willing to accept such
appointment, or otherwise shall be a commercial bank or financial

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institution or a subsidiary of a
commercial bank or financial institution if such commercial bank or financial institution is
organized under the laws of the United States of America or of any State thereof and has a combined
capital and surplus of at least $300,000,000. If no successor Agent has been appointed pursuant to
the foregoing, within 30 days after the date such notice of resignation was given by the resigning
Agent, such resignation shall become effective and the Requisite Lenders shall thereafter perform
all the duties of Agent hereunder until such time, if any, as the Requisite Lenders appoint a
successor Agent as provided above. Any successor Agent appointed by Requisite Lenders hereunder
shall be subject to the approval of Borrower, such approval not to be unreasonably withheld or
delayed; provided that such approval shall not be required if a Default or an Event of
Default has occurred and is continuing. Upon the acceptance of any appointment as Agent hereunder
by a successor Agent, such successor Agent shall succeed to and become vested with all the rights,
powers, privileges and duties of the resigning Agent. Upon the earlier of the acceptance of any
appointment as Agent hereunder by a successor Agent or the effective date of the resigning Agent’s
resignation, the resigning Agent shall be discharged from its duties and obligations under this
Agreement and the other Loan Documents, except that any indemnity rights or other rights in favor
of such resigning Agent shall continue. After any resigning Agent’s resignation hereunder, the
provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was acting as Agent under this Agreement and the other Loan Documents.

          9.8 Setoff and Sharing of Payments. In addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon the occurrence and
during the continuance of any Event of Default and subject to Section 9.9(f), each Lender is hereby authorized at
any time or from time to time, without notice to any Credit Party or to any other Person, any such
notice being hereby expressly waived, to offset and to appropriate and to apply any and all
balances held by it at any of its offices for the account of Borrower or any Guarantor (regardless
of whether such balances are then due to Borrower or any Guarantor) and any other properties or
assets at any time held or owing by that Lender or that holder to or for the credit or for the
account of Borrower or any Guarantor against and on account of any of the Obligations that are not
paid when due. Any Lender exercising a right of setoff or otherwise receiving any payment on
account of the Obligations in excess of its Pro Rata Share thereof shall purchase for cash (and the
other Lenders or holders shall sell) such participations in each such other Lender’s or holder’s
Pro Rata Share of the Obligations as would be necessary to cause such Lender to share the amount so
offset or otherwise received with each other Lender or holder in accordance with their respective
Pro Rata Shares, (other than offset rights exercised by any Lender with respect to Sections
1.13, 1.15 or 1.16). Each Lender’s obligation under this Section 9.8 shall be in
addition to and not in limitation of its obligations to purchase a participation in an amount equal
to its Pro Rata Share of the Swing Line Loans under Section 1.1. Borrower and each
Guarantor agrees, to the fullest extent permitted by law, that (a) any Lender may exercise its
right to offset with respect to amounts in excess of its Pro Rata Share of the Obligations and may
sell participations in such amounts so offset to other Lenders and holders and (b) any Lender so
purchasing a participation in the Loans made or other Obligations held by other Lenders or holders
may exercise all rights of offset, bankers’ lien, counterclaim or similar rights with respect to
such participation as fully as if such Lender or holder were a direct holder of the Loans and the
other Obligations in the amount of such participation. Notwithstanding the foregoing, if all or
any portion of the offset amount or payment otherwise received is thereafter recovered from the
Lender that has exercised the right

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of offset, the purchase of participations by that Lender shall
be rescinded and the purchase price restored without interest.

          9.9 Advances; Payments; Non-Funding Lenders; Information; Actions in Concert.

          (a) Advances; Payments.

               (i) Revolving Lenders shall refund or participate in the Swing Line Loan in accordance with
clauses (iii) and (iv) of Section 1.1(b). If the Swing Line Lender declines to
make a Swing Line Loan or if Swing Line Availability is zero, Agent shall notify Revolving Lenders,
promptly after receipt of a Notice of Revolving Advance and in any event prior to 1:00 p.m.
(Chicago time) on the date such Notice of Revolving Advance is received, by telecopy, telephone or
other similar form of transmission. Each Revolving Lender shall make the amount of such Lender’s
Pro Rata Share of such Revolving Credit Advance available to Agent in same day funds by wire
transfer to Agent’s account as set forth in Annex H not later than 3:00 p.m. (Chicago time)
on the requested funding date, in the case of an Index Rate Loan and not later than 11:00 a.m.
(Chicago time) on the requested funding date in the case of a LIBOR Loan. After receipt of such
wire transfers (or, in the Agent’s sole discretion, before receipt of such wire transfers), subject
to the terms hereof, Agent shall make the requested Revolving Credit Advance to Borrower. All
payments by each Revolving Lender shall be made without setoff, counterclaim or deduction of any
kind.

               (ii) On the 2nd Business Day of each calendar week or more frequently at Agent’s election
(each, a “Settlement Date”), Agent shall advise each Lender by telephone, or telecopy of
the amount of such Lender’s Pro Rata Share of principal, interest and Fees paid for the benefit of
Lenders with respect to each applicable Loan. Provided that each Lender has funded all payments
and Advances required to be made by it and purchased all participations required to be purchased by
it under this Agreement and the other Loan Documents as of such Settlement Date, Agent shall pay to
each Lender such Lender’s Pro Rata Share of principal, interest and Fees paid by Borrower since the
previous Settlement Date for the benefit of such Lender on the Loans held by it. To the extent
that any Lender (a “Non-Funding Lender”) has failed to fund all such payments and Advances
or failed to fund the purchase of all such participations, Agent shall be entitled to set off the
funding short-fall against that Non-Funding Lender’s Pro Rata Share of all payments received from
Borrower. Such payments shall be made by wire transfer to such Lender’s account (as specified by
such Lender in Annex H or the applicable Assignment Agreement) not later than 1:00 p.m.
(Chicago time) on the next Business Day following each Settlement Date.

          (b) Availability of Lender‘s Pro Rata Share. Agent may assume that each
Revolving Lender will make its Pro Rata Share of each Revolving Credit Advance available to Agent
on each funding date. If such Pro Rata Share is not, in fact, paid to Agent by such Revolving
Lender when due, Agent will be entitled to recover such amount on demand from such Revolving Lender
without setoff, counterclaim or deduction of any kind. If any Revolving Lender fails to pay the
amount of its Pro Rata Share forthwith upon Agent’s demand, Agent shall promptly notify Borrower
and Borrower shall immediately repay such amount to Agent. Nothing in this Section 9.9(b)
or elsewhere in this Agreement or the other Loan Documents shall

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be deemed to require Agent to
advance funds on behalf of any Revolving Lender to relieve any Revolving Lender from its obligation
to fulfill its Commitments hereunder or to prejudice any rights that Borrower may have against any
Revolving Lender as a result of any default by such Revolving Lender hereunder. To the extent that
Agent advances funds to Borrower on behalf of any Revolving Lender and is not reimbursed therefor
on the same Business Day as such Advance is made, Agent shall be entitled to retain for its account
all interest accrued on such Advance until reimbursed by the applicable Revolving Lender.

          (c) Return of Payments.

               (i) If Agent pays an amount to a Lender under this Agreement in the belief or expectation that
a related payment has been or will be received by Agent from Borrower and such related payment is
not received by Agent, then Agent will be entitled to recover such amount from such Lender on
demand without setoff, counterclaim or deduction of any kind.

               (ii) If Agent determines at any time that any amount received by Agent under this Agreement
must be returned to Borrower or paid to any other Person pursuant to any insolvency law or
otherwise, then, notwithstanding any other term or condition of this Agreement or any other Loan
Document, Agent will not be required to distribute any portion thereof to any Lender. In addition,
each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to
such Lender, together with interest at such rate, if any, as Agent is required to pay to Borrower
or such other Person, without setoff, counterclaim or deduction of any kind.

          (d) Non-Funding Lenders. The failure of any Non-Funding Lender to make any Revolving
Credit Advance or any payment required by it hereunder, or to purchase any participation in any
Swing Line Loan to be made or purchased by it on the date specified therefor shall not relieve any
other Lender (each such other Revolving Lender, an “Other Lender”) of its obligations to
make such Advance or purchase such participation on such date, but neither any Other Lender nor
Agent shall be responsible for the failure of any Non-Funding Lender to make an Advance, purchase a
participation or make any other payment required hereunder. Notwithstanding anything set forth
herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or
with respect to any Loan Document or constitute a “Lender”, or a “Revolving Lender” (or be included
in the calculation of “Requisite Lenders” or “Supermajority Revolving Lenders” hereunder) for any
voting or consent rights under or with respect to any Loan Document. At Borrower’s request, Agent
or a Person acceptable to Agent shall have the right with Agent’s consent and in Agent’s sole
discretion (but shall have no obligation) to purchase from any Non-Funding Lender, and each
Non-Funding Lender agrees that it shall, at Agent’s request, sell and assign to Agent or such
Person, all of the Commitments of that Non-Funding Lender for an amount equal to the principal
balance of all Loans held by such Non-Funding Lender and all accrued interest and fees with respect
thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed
Assignment Agreement.

          (e) Dissemination of Information. Agent shall use reasonable efforts to provide
Lenders with any notice of Default or Event of Default received by Agent from, or delivered by
Agent to, any Credit Party, with notice of any Event of Default of which Agent has

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actually become
aware and with notice of any action taken by Agent following any Event of Default; provided, that
Agent shall not be liable to any Lender for any failure to do so, except to the extent that such
failure is attributable to Agent’s gross negligence or willful misconduct. Lenders acknowledge
that Borrower is required to provide Financial Statements and Collateral Reports to Lenders in
accordance with Annexes E and F hereto and agree that Agent shall have no duty to
provide the same to Lenders.

          (f) Actions in Concert. Anything in this Agreement to the contrary notwithstanding,
each Lender hereby agrees with each other Lender that no Lender shall take any action to protect or
enforce its rights arising out of this Agreement or the Notes (including exercising any rights of
setoff) without first obtaining the prior written consent of Agent and Requisite Lenders, it being
the intent of Lenders that any such action to protect or enforce rights under this Agreement and
the Notes shall be taken in concert and at the direction or with the consent of Agent or Requisite
Lenders.

          9.10 Intercreditor Agreement. Agent is authorized to execute and deliver the Second Lien
Intercreditor Agreement with the initial lenders and/or agent under the Second Lien Credit
Agreement, and each Lender by making or purchasing an interest in any Commitment or Loan at any
time shall be deemed to have agreed to be bound by such agreement.

10. SUCCESSORS AND ASSIGNS

          10.1 Successors and Assigns. This Agreement and the other Loan Documents shall be binding
on and shall inure to the benefit of each Credit Party, Agent, Lenders and their respective
successors and assigns (including, in the case of any Credit Party, a debtor-in-possession on
behalf of such Credit Party), except as otherwise provided herein or therein. No Credit Party may
assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties
hereunder or under any of the other Loan Documents without the prior express written consent of
Agent and Lenders. Any such purported assignment, transfer, hypothecation or other conveyance by
any Credit Party without the prior express written consent of Agent and Lenders shall be void. The
terms and provisions of this Agreement are for the purpose of defining the relative rights and
obligations of each Credit Party, Agent and Lenders with respect to the transactions contemplated
hereby and no Person shall be a third party beneficiary of any of the terms and provisions of this
Agreement or any of the other Loan Documents.

11. MISCELLANEOUS

          11.1 Complete Agreement; Modification of Agreement. The Loan Documents constitute the
complete agreement between the parties with respect to the subject matter thereof and may not be
modified, altered or amended except as set forth in Section 11.2. Any letter of interest,
commitment letter or fee letter (other than the GE Capital Fee Letter) or confidentiality
agreement, if any, between any Credit Party and Agent or any Lender or any of their respective
Affiliates, predating this Agreement and relating to a financing of substantially similar form,
purpose or effect shall be superseded by this Agreement.

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          11.2 Amendments and Waivers.

          (a) Except for actions expressly permitted to be taken by Agent, no amendment, modification,
termination or waiver of any provision of this Agreement or any other Loan Document, or any consent
to any departure by any Credit Party therefrom, shall in any event be effective unless the same
shall be in writing and signed by Agent and Borrower, and by Requisite Lenders, Supermajority
Revolving Lenders or all affected Lenders, as applicable. Except as set forth in clauses (b)
and (c) below, all such amendments, modifications, terminations or waivers requiring the
consent of any Lenders shall require the written consent of Requisite Lenders.

          (b) No amendment, modification, termination or waiver of or consent with respect to any
provision of this Agreement that increases the percentage advance rates set forth in the definition
of the Borrowing Base, or that makes less restrictive the nondiscretionary criteria for exclusion
from Eligible Accounts and Eligible Inventory set forth in Sections 1.6 and 1.7, shall be
effective unless the same shall be in writing and signed by Agent, Supermajority Revolving Lenders
and Borrower. No amendment, modification, termination or waiver of or consent with respect to any
provision of this Agreement that waives compliance with the conditions precedent set forth in
Section 2.2 to the making of any Loan or the incurrence of any Letter of Credit Obligations
shall be effective unless the same shall be in writing and signed by Agent, Requisite Lenders and Borrower. Notwithstanding anything contained in this Agreement
to the contrary, no waiver or consent with respect to any Default or any Event of Default shall be
effective for purposes of the conditions precedent to the making of Loans or the incurrence of
Letter of Credit Obligations set forth in Section 2.2 unless the same shall be in writing
and signed by Agent, Requisite Lenders and Borrower.

          (c) No amendment, modification, termination or waiver shall, unless in writing and signed by
Agent and each Lender directly affected thereby: (i) increase the principal amount of any Lender’s
Commitment (which action shall be deemed to directly affect all Lenders); (ii) reduce the principal
of, rate of interest on or Fees payable with respect to any Loan or Letter of Credit Obligations of
any affected Lender; (iii) extend any scheduled payment date (other than payment dates of mandatory
prepayments under Section 1.3(b)(ii)-(iv) or final maturity date of the principal amount of
any Loan of any affected Lender; (iv) waive, forgive, defer, extend or postpone any payment of
interest or Fees as to any affected Lender; (v) release any Guaranty or, except as otherwise
permitted herein or in the other Loan Documents, release, or permit any Credit Party to sell or
otherwise dispose of, any Collateral with a value exceeding $5,000,000 in the aggregate (which
action shall be deemed to directly affect all Lenders); (vi) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Loans that shall be required for
Lenders or any of them to take any action hereunder; and (vii) amend or waive this Section
11.2 or the definitions of the term “Requisite Lenders” or “Supermajority Revolving Lenders”
insofar as such definitions affect the substance of this Section 11.2. Furthermore, no
amendment, modification, termination or waiver affecting the rights or duties of Agent or L/C
Issuer, or of GE Capital in respect of any Swap Related Reimbursement Obligations, under this
Agreement or any other Loan Document, including any release of any Guaranty or Collateral requiring
a writing signed by all Lenders, shall be effective unless in writing and signed by Agent or L/C
Issuer or GE Capital, as the case may be, in addition to Lenders required hereinabove to take such
action. Each amendment, modification,

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termination or waiver shall be effective only in the
specific instance and for the specific purpose for which it was given. No amendment, modification,
termination or waiver shall be required for Agent to take additional Collateral pursuant to any
Loan Document. No amendment, modification, termination or waiver of any provision of any Note shall
be effective without the written concurrence of the holder of that Note. No notice to or demand on
any Credit Party in any case shall entitle such Credit Party or any other Credit Party to any other
or further notice or demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this Section 11.2 shall be
binding upon each holder of the Notes at the time outstanding and each future holder of the Notes.

          (d) If, in connection with any proposed amendment, modification, waiver or termination (a
“Proposed Change”):

               (i) requiring the consent of all affected Lenders, the consent of Requisite Lenders is
obtained, but the consent of other Lenders whose consent is required is not obtained (any such
Lender whose consent is not obtained as described in this clause (i) and in clauses
(ii) and (iii) below being referred to as a “Non-Consenting Lender”),

               (ii) requiring the consent of Supermajority Revolving Lenders, the consent of Requisite
Lenders is obtained, but the consent of Supermajority Revolving Lenders is not obtained,

               (iii) requiring the consent of Requisite Lenders, the consent of Revolving Lenders holding 51%
or more of the aggregate Revolving Loan Commitments is obtained, but the consent of Requisite
Lenders is not obtained;

then, so long as Agent is not a Non-Consenting Lender, at Borrower’s request Agent, or a Person
reasonably acceptable to Agent, shall have the right with Agent’s consent and in Agent’s sole
discretion (but shall have no obligation) to purchase from such Non-Consenting Lenders, and such
Non-Consenting Lenders agree that they shall, upon Agent’s request, sell and assign to Agent or
such Person, all of the Commitments of such Non-Consenting Lenders for an amount equal to the
principal balance of all Loans held by the Non-Consenting Lenders and all accrued interest and Fees
with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to
an executed Assignment Agreement. It being acknowledged and agreed by the parties hereto that the
requirements for the payment of any prepayment fee shall not be applicable with respect to any
purchase by Agent of all of the Commitments of a Non-Consenting Lender as set forth in this
clause (d).

          (e) Upon payment in full in cash and performance of all of the Obligations (other than
indemnification Obligations), termination of the Commitments and a release of all claims against
Agent and Lenders, and so long as no suits, actions proceedings, or claims are pending or
threatened against any Indemnified Person asserting any damages, losses or liabilities that are
Indemnified Liabilities, Agent shall deliver to Borrower termination statements, mortgage releases
and other documents necessary or appropriate to evidence the termination of the Liens securing
payment of the Obligations.

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          11.3 Fees and Expenses. Borrower shall reimburse (i) Agent for all fees, costs and
expenses (including the reasonable fees and expenses of all of its counsel, advisors, consultants
and auditors) and (ii) Agent (and, with respect to clauses (c) and (d) below, all Lenders)
for all fees, costs and expenses, including the reasonable fees, costs and expenses of counsel or
other advisors (including environmental and management consultants and appraisers) incurred in
connection with the negotiation, preparation and filing and/or recordation of the Loan Documents
and incurred in connection with:

          (a) the forwarding to Borrower or any other Person on behalf of Borrower by Agent of the
proceeds of any Loan (including a wire transfer fee of $25 per wire transfer);

          (b) any amendment, modification or waiver of, or consent with respect to, or termination of,
any of the Loan Documents or Related Transactions Documents or advice in connection with the
syndication and administration of the Loans made pursuant hereto or its rights hereunder or
thereunder;

          (c) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Agent,
any Lender, any Credit Party or any other Person and whether as a party, witness or otherwise) in any way relating to the Collateral, any of the Loan Documents or any
other agreement to be executed or delivered in connection herewith or therewith, including any
litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof,
in connection with a case commenced by or against any or all of the Credit Parties or any other
Person that may be obligated to Agent by virtue of the Loan Documents, including any such
litigation, contest, dispute, suit, proceeding or action arising in connection with any work-out or
restructuring of the Loans during the pendency of one or more Events of Default; provided
that in the case of reimbursement of counsel for Lenders other than Agent, such reimbursement shall
be limited to one counsel for all such Lenders; provided, further, that no Person shall be
entitled to reimbursement under this clause (c) in respect of any litigation, contest, dispute,
suit, proceeding or action to the extent any of the foregoing results from such Person’s gross
negligence or willful misconduct;

          (d) any attempt to enforce any remedies of Agent or any Lender against any or all of the
Credit Parties or any other Person that may be obligated to Agent or any Lender by virtue of any of
the Loan Documents, including any such attempt to enforce any such remedies in the course of any
work-out or restructuring of the Loans during the pendency of one or more Events of Default;
provided, that in the case of reimbursement of counsel for Lenders other than Agent, such
reimbursement shall be limited to one counsel for all such Lenders;

          (e) any workout or restructuring of the Loans during the pendency of one or more Events of
Default; and

          (f) efforts to (i) monitor the Loans or any of the other Obligations, (ii) evaluate, observe
or assess any of the Credit Parties or their respective affairs, and (iii) verify, protect,
evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of any of the Collateral;

57

 

including, as to each of clauses (a) through (f) above, all reasonable attorneys’ and other
professional and service providers’ fees arising from such services and other advice, assistance or
other representation, including those in connection with any appellate proceedings, and all
expenses, costs, charges and other fees incurred by such counsel and others in connection with or
relating to any of the events or actions described in this Section 11.3, all of which shall
be payable, on demand, by Borrower to Agent. Without limiting the generality of the foregoing,
such expenses, costs, charges and fees may include: fees, costs and expenses of accountants,
environmental advisors, appraisers, investment bankers, management and other consultants and
paralegals; court costs and expenses; photocopying and duplication expenses; court reporter fees,
costs and expenses; long distance telephone charges; air express charges; telegram or telecopy
charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred
in connection with the performance of such legal or other advisory services.

          11.4 No Waiver. Agent’s or any Lender’s failure, at any time or times, to require strict
performance by the Credit Parties of any provision of this Agreement or any other Loan Document
shall not waive, affect or diminish any right of Agent or such Lender thereafter to demand strict
compliance and performance herewith or therewith. Any suspension or waiver of
an Event of Default shall not suspend, waive or affect any other Event of Default whether the
same is prior or subsequent thereto and whether the same or of a different type. Subject to the
provisions of Section 11.2, none of the undertakings, agreements, warranties, covenants and
representations of any Credit Party contained in this Agreement or any of the other Loan Documents
and no Default or Event of Default by any Credit Party shall be deemed to have been suspended or
waived by Agent or any Lender, unless such waiver or suspension is by an instrument in writing
signed by an officer of or other authorized employee of Agent and the applicable required Lenders
and directed to Borrower specifying such suspension or waiver.

          11.5 Remedies. Agent’s and Lenders’ rights and remedies under this Agreement shall be
cumulative and nonexclusive of any other rights and remedies that Agent or any Lender may have
under any other agreement, including the other Loan Documents, by operation of law or otherwise.
Recourse to the Collateral shall not be required.

          11.6 Severability . Wherever possible, each provision of this Agreement and the
other Loan Documents shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement or any other Loan Document
shall be prohibited by or invalid under applicable law, such provision shall be ineffective
only to the extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement or such other Loan Document.

          11.7 Conflict of Terms . Except as otherwise provided in this Agreement or any of
the other Loan Documents by specific reference to the applicable provisions of this
Agreement, if any provision contained in this Agreement conflicts with any provision in any
of the other Loan Documents, the provision contained in this Agreement shall govern and
control.

          11.8 Confidentiality . Agent and each Lender agree to use commercially reasonable
efforts (equivalent to the efforts Agent or such Lender applies to maintain the
confidentiality of its own confidential information) to maintain as confidential all
confidential

58

 

information provided to them by the Credit Parties and designated as confidential following
receipt thereof, except that Agent and each Lender may disclose such information (a) to Persons
employed or engaged by Agent or such Lender; (b) to any bona fide assignee or participant or
potential assignee or participant that has agreed to comply with the covenant contained in this
Section 11.8 (and any such bona fide assignee or participant or potential assignee or
participant may disclose such information to Persons employed or engaged by them as described in
clause (a) above); (c) as required or requested by any Governmental Authority or reasonably
believed by Agent or such Lender to be compelled by any court decree, subpoena or legal or
administrative order or process; (d) as, on the advise of Agent’s or such Lender’s counsel, is
required by law; (e) in connection with the exercise of any right or remedy under the Loan
Documents or in connection with any Litigation to which Agent or such Lender is a party; (f) that
ceases to be confidential through no fault of Agent or any Lender; (g) to a Person that is an
investor or prospective investor in a Securitization that agrees that its access to information
regarding the Borrower and the Loans is solely for purposes of evaluating an investment in such
Securitization; or (h) to a Person that is a trustee, collateral manager, servicer, noteholder or
secured party in a Securitization in connection with the administration, servicing and reporting on
the assets serving as collateral for such Securitization. For purposes of this Section,
“Securitization” means a public or private offering by a Lender or any of its Affiliates or
their respective successors and assigns, of securities which represent an interest in, or which are
collateralized, in whole or in part, by the Loans.

          11.9 GOVERNING LAW . EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE
LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. EACH CREDIT PARTY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED IN COOK COUNTY, CITY OF CHICAGO, ILLINOIS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR
AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND LENDERS
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED,
THAT AGENT, LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS
MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY AND; PROVIDED,
FURTHER THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT
FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER IN FAVOR OF AGENT. EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND EACH CREDIT PARTY HEREBY WAIVES ANY OBJECTION THAT

59

 

SUCH CREDIT PARTY MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS
IS DEEMED APPROPRIATE BY SUCH COURT. EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN ANNEX I
OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
SUCH CREDIT PARTY’S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE UNITED STATES
MAILS, PROPER POSTAGE PREPAID.

          11.10 Notices

          (a) Addresses. All notices, demands, requests, directions and other communications
required or expressly authorized to be made by this Agreement shall, whether or not specified to be
in writing but unless otherwise expressly specified to be given by any other means, be given in
writing and (i) addressed to (A) the party to be notified and sent to the address or facsimile
number indicated in Annex I, or (B) otherwise to the party to be notified at its address
specified on the signature page of any applicable Assignment Agreement, (ii) solely with respect to
notices to Lenders, posted to Intralinks® (to the extent such system is available and
set up by or at the direction of the Agent prior to posting) in an appropriate location by
uploading such notice, demand, request, direction or other communication to www.intralinks.com,
faxing it to 866-545-6600 with an appropriate bar-coded fax coversheet or using such other means of
posting to Intralinks® as may be available and reasonably acceptable to the Agent prior
to such posting, (iii) solely with respect to notices to Lenders, posted to any other E-System set
up by or at the direction of Agent in an appropriate location or (iv) addressed to such other
address as shall be notified in writing (A) in the case of Borrower, Agent and Swing Line Lender,
to the other parties hereto and (B) in the case of all other parties, to Borrower and Agent.
Transmission by electronic mail (including E-Fax, even if transmitted to the fax numbers set forth
in clause (i) above) shall not be sufficient or effective to transmit any such notice under
this clause (a) unless such transmission is an available means to post to any E-System.

          (b) Effectiveness. All communications described in clause (a) above and all other
notices, demands, requests and other communications made in connection with this Agreement shall be
effective and be deemed to have been received (i) if delivered by hand, upon personal delivery,
(ii) if delivered by overnight courier service, one Business Day after delivery to such courier
service, (iii) if delivered by mail, when deposited in the mails, (iv) if delivered by facsimile
(other than to post to an E-System pursuant to clause (a)(ii) or (a)(iii) above), upon sender’s
receipt of confirmation of proper transmission, and (v) if delivered by posting to any E-System, on
the later of the date of such posting in an appropriate location and the date access to such
posting is given to the recipient thereof in accordance with the standard procedures applicable to
such E-System. Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration or other communication to any Person (other than
Borrower or Agent) designated in Annex I to receive copies shall in no way adversely affect
the

60

 

effectiveness of such notice, demand, request, consent, approval, declaration or other
communication. The giving of any notice required hereunder may be waived in writing by the party
entitled to receive such notice.

          (c) Electronic Transmissions, Authorization. Subject to the provisions of Section
11.10(a), each of the Agent, the Credit Parties, the Lenders, the L/C Issuers and each of their
Related Persons is authorized (but not required) to transmit, post or otherwise make or
communicate, in its sole discretion, Electronic Transmissions in connection with any Loan Document
and the transactions contemplated therein. Each of the Credit Parties, Agent and the Lenders
hereby acknowledges and agrees that the use of Electronic Transmissions is not necessarily secure
and that there are risks associated with such use, including risks of interception, disclosure and
abuse and each indicates it assumes and accepts such risks by hereby authorizing the transmission
of Electronic Transmissions.

          (d) Signatures. Subject to the provisions of Section 11.10(a), (i)(A) no
posting to any E-System shall be denied legal effect merely because it is made electronically, (B)
each E-Signature on any such posting shall be deemed sufficient to satisfy any requirement for a
“signature” and (C) each such posting shall be deemed sufficient to satisfy any requirement for a
“writing”, in each case including pursuant to any Loan Document, any applicable provision of any
UCC, the federal Uniform Electronic Transactions Act, the Electronic Signatures in Global and
National Commerce Act and any substantive or procedural requirement of law governing such subject
matter, (ii) each such posting that is not readily capable of bearing either a signature or a
reproduction of a signature may be signed, and shall be deemed signed, by attaching to, or
logically associating with such posting, an E-Signature, upon which each of Agent, the Lenders and
the Credit Parties may rely and assume the authenticity thereof, (iii) each such posting containing
a signature, a reproduction of a signature or an E-Signature shall, for all intents and purposes,
have the same effect and weight as a signed paper original and (iv) each party hereto or
beneficiary hereto agrees not to contest the validity or enforceability of any posting on any
E-System or E-Signature on any such posting under the provisions of any applicable requirement of
law requiring certain documents to be in writing or signed; provided, however, that
nothing herein shall limit such party’s or beneficiary’s right to contest whether any posting to
any E-System or E-Signature has been altered after transmission.

          (e) Separate Agreements. All uses of an E-System shall be governed by and subject to,
in addition to this Section 11.11, separate terms and conditions posted or referenced in
such E-System and related contractual obligations executed by Agent, the Lenders and Credit Parties
in connection with the use of such E-System.

          11.11 Section Titles. The Section titles and Table of Contents contained in
this Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.

          11.12 Counterparts. This Agreement may be executed in any number of separate
counterparts, each of which shall collectively and separately constitute one agreement.

          11.13 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST 

61

 

QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER
THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND ANY CREDIT PARTY ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN
CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS
RELATED THERETO.

          11.14 Press Releases and Related Matters. Each Credit Party executing this
Agreement agrees that neither it nor its Affiliates will in the future issue any press
releases or other public disclosure using the name of GE Capital or its affiliates or
referring to this Agreement, the other Loan Documents or the Related Transactions Documents
without at least 2 Business Days’ prior notice to GE Capital and without the prior written
consent of GE Capital unless (and only to the extent that) such Credit Party or Affiliate
is required to do so under law and then, in any event, such Credit Party or Affiliate will
consult with GE Capital before issuing such press release or other public disclosure. Each
Credit Party consents to the publication by Agent or any Lender of a tombstone or similar
advertising material relating to the financing transactions contemplated by this Agreement.
Agent or such Lender shall provide a draft of any such tombstone or similar advertising
material to each Credit Party for review and comment prior to the publication thereof.
Agent reserves the right to provide to industry trade organizations information necessary
and customary for inclusion in league table measurements.

          11.15 Reinstatement. This Agreement shall remain in full force and effect and
continue to be effective should any petition be filed by or against any Credit Party for
liquidation or reorganization, should any Credit Party 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 any Credit Party’s assets, and shall continue
to be effective or to be reinstated, as the case may be, if at any time payment and
performance of the 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 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 Obligations
shall be reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.

          11.16 Advice of Counsel. Each of the parties represents to each other party
hereto that it has discussed this Agreement and, specifically, the provisions of
Sections 11.9 and 11.13, with its counsel.

          11.17 No Strict Construction. The parties hereto have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent

62

 

or interpretation arises, this Agreement shall be construed as if drafted jointly by
the parties hereto and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this Agreement.

          11.18 Compliance with Federal Law. Each Credit Party shall (a) ensure, and
cause each Subsidiary to ensure, that no Person who owns a controlling interest in or
otherwise controls such Credit Party or such Subsidiary is or shall be listed on the
Specially Designated Nationals and Blocked Person List or other similar lists maintained by
the Office of Foreign Assets Control (“OFAC”), the Department of the Treasury or
included in any Executive Orders, (b) not use or permit the use of the proceeds of the
Loans to violate any of the foreign asset control regulations of OFAC or any enabling
statute or Executive Order relating thereto, and (c) comply, and cause each Subsidiary to
comply, with all applicable Bank Secrecy Act laws and regulations, as amended.

          11.19 Customer Identification — USA Patriot Act Notice. Each Lender and the
Agent (for itself and not on behalf of any other party) hereby notifies the Credit Parties
that, pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56,
signed into law October 26, 2001 (the “Patriot Act”), it is required to obtain,
verify and record information that identifies the Credit Parties, which information
includes the name and address of the Credit Parties and other information that will allow
such Lender or the Agent, as applicable, to identify the Credit Parties in accordance with
the Patriot Act.

12. AMENDMENT AND RESTATEMENT

          12.1 Interrelationship with the Existing Credit Agreement. As stated in the
preamble hereof, this Agreement is intended to amend and restate the provisions of the
Existing Credit Agreement and, except as expressly modified herein, (x) all of the terms
and provisions of the Existing Credit Agreement shall continue to apply for the period
prior to the Closing Date, including any determinations of payment dates, interest rates,
Events of Default or any amount that may be payable to Agent or the Lenders, (y) the
Obligations under the Existing Credit Agreement shall continue to be paid or prepaid on or
prior to the Closing Date, and shall from and after the Closing Date continue to be owing
and be subject to the terms of this Agreement and (z) this Agreement shall not be deemed to
evidence or result in a novation or repayment of the Revolving Loans under the Existing
Credit Agreement and reborrowing hereunder, but Obligations under the Existing Credit
Agreement and Liens securing payment and performance thereof shall in all respects be
continuing as Obligations under this Agreement and Liens securing payment and performance
thereof. All references in the other Loan Documents and the Loan Documents executed in
connection with the Existing Credit Agreement to (i) the Existing Credit Agreement or the
“Credit Agreement” shall be deemed to include references to this Agreement and (ii) the “Lenders” or a “Lender” or to the “Agent”
shall mean such terms as defined in this Agreement. All Obligations of the Borrower under
the Existing Credit Agreement shall be governed by this Agreement from and after the
Closing Date. The Loan Documents delivered in connection with this Agreement shall
supersede the corresponding Loan Documents delivered in connection with the Existing Credit
Agreement. The Loan Documents executed in connection with the Existing Credit Agreement
that are not superseded by corresponding Loan Documents executed and delivered in
connection with this Agreement shall remain in full force and effect. All references to
the Existing Credit Agreement in the Loan

63

 

Documents executed in connection with the
Existing Credit Agreement that are not expressly superseded by deliveries of such new Loan
Documents shall be deemed to refer to this Agreement.

[Signature Pages Follow]

64

 

          IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above.

	 	 	 	 	 
	 	NAVARRE CORPORATION, as Borrower

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	GENERAL ELECTRIC CAPITAL

CORPORATION, as Agent and Lender

 	 
	 	By:  	 	 
	 	 	Duly Authorized Signatory 	 

[Signature Page to Fourth Amended and Restated Credit Agreement]

S-1

 

     IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above
by below Persons in their capacity as Credit Parties not as Borrower.

	 	 	 	 	 
	 	ENCORE SOFTWARE, INC., as Credit Party

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	BCI ECLIPSE COMPANY, LLC, as Credit Party

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	FUNIMATION PRODUCTIONS LTD., as Credit Party

By: Navarre CP, LLC, its General Partner

	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	ANIMEONLINE, LTD (F/K/A THE FUNIMATION STORE LTD.), as Credit
Party
 
By: Navarre CS, LLC, its General Partner
 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	NAVARRE CP, LLC, as Credit Party

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	NAVARRE CLP, LLC, as Credit Party

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

[Signature Page to Fourth Amended and Restated Credit Agreement]

S-2

 

	 	 	 	 	 
	 	NAVARRE CS, LLC, as Credit Party

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	NAVARRE LOGISTICAL SERVICES, INC., as Credit Party

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	NAVARRE DIGITAL SERVICES, INC., as Credit Party

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	NAVARRE ONLINE FULFILLMENT SERVICES, INC., as Credit Party

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	NAVARRE DISTRIBUTION SERVICES, INC., as Credit Party

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	NAVARRE ENTERTAINMENT MEDIA, INC., as Credit Party

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

[Signature Page to Fourth Amended and Restated Credit Agreement]

S-3

 

	 	 	 	 	 
	 	FUNIMATION CHANNEL, INC., as Credit Party

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

[Signature Page to Fourth Amended and Restated Credit Agreement]

S-4

 

ANNEX A (Recitals)

to

CREDIT AGREEMENT

DEFINITIONS

          Capitalized terms used in the Loan Documents shall have (unless otherwise provided elsewhere
in the Loan Documents) the following respective meanings and all references to Sections, Exhibits,
Schedules or Annexes in the following definitions shall refer to Sections, Exhibits, Schedules or
Annexes of or to the Agreement:

          “Account Debtor” means any Person who may become obligated to any Credit Party under,
with respect to, or on account of, an Account, Chattel Paper or General Intangibles (including a
payment intangible).

          “Accounting Changes” has the meaning ascribed thereto in Annex G.

          “Accounts” means all “accounts,” as such term is defined in the Code, now owned or
hereafter acquired by any Credit Party, including (a) all accounts receivable, other receivables,
book debts and other forms of obligations (other than forms of obligations evidenced by Chattel
Paper or Instruments), (including any such obligations that may be characterized as an account or
contract right under the Code), (b) all of each Credit Party’s rights in, to and under all purchase
orders or receipts for goods or services, (c) all of each Credit Party’s rights to any goods
represented by any of the foregoing (including unpaid sellers’ rights of rescission, replevin,
reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (d)
all rights to payment due to any Credit Party for property sold, leased, licensed, assigned or
otherwise disposed of, for a policy of insurance issued or to be issued, for a secondary obligation
incurred or to be incurred, for energy provided or to be provided, for the use or hire of a vessel
under a charter or other contract, arising out of the use of a credit card or charge card, or for
services rendered or to be rendered by such Credit Party or in connection with any other
transaction (whether or not yet earned by performance on the part of such Credit Party), (e) all
healthcare insurance receivables, and (f) all collateral security of any kind, now or hereafter in
existence, given by any Account Debtor or other Person with respect to any of the foregoing.

          “Advance” means any Revolving Credit Advance or Swing Line Advance, as the context may
require.

          “Affiliate” means, with respect to any Person, (a) each Person that, directly or
indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary,
5% or more of the Stock having ordinary voting power in the election of directors of such Person,
(b) each Person that controls, is controlled by or is under common control with such Person, (c)
each of such Person’s officers, directors, joint venturers and partners and (d) in the case of
Borrower, the immediate family members, spouses and lineal descendants of individuals who are
Affiliates of Borrower. For the purposes of this definition, “control” of a Person shall
mean the possession, directly or indirectly, of the power to direct or cause the direction of its
management

Annex A-1

 

or policies, whether through the ownership of voting securities, by contract or otherwise;
provided, however, that the term “Affiliate” shall specifically exclude
Agent and each Lender.

          “Agent” means GE Capital in its capacity as Agent for Lenders or its successor
appointed pursuant to Section 9.7.

          “Agreement” means the Fourth Amended and Restated Credit Agreement dated as of the
Closing Date by and among Borrower, the other Credit Parties party thereto, GE Capital, as Agent
and Lender and the other Lenders from time to time party thereto, as the same may be amended,
supplemented, restated or otherwise modified from time to time (including, without limitation, by
any joinder agreement thereto by any New Credit Party).

          “animeOnline” means animeOnline, Ltd. (f/k/a The FUNimation Store Ltd.), a Texas limited
partnership.

          “Appendices” has the meaning ascribed to it in the recitals to the Agreement.

          “Applicable L/C Margin” means the per annum fee, from time to time in effect, payable
with respect to outstanding Letter of Credit Obligations as determined by reference to Section
1.5(a).

          “Applicable Margins” means collectively the Applicable L/C Margin, the Applicable
Unused Line Fee Margin, the Applicable Revolver Index Margin and the Applicable Revolver LIBOR
Margin.

          “Applicable Percentage” has the meaning ascribed to it in Section 1.9(c).

          “Applicable Revolver Index Margin” means the per annum interest rate margin from time
to time in effect and payable in addition to the Index Rate applicable to the Revolving Loan, as
determined by reference to Section 1.5(a).

          “Applicable Revolver LIBOR Margin” means the per annum interest rate from time to time
in effect and payable in addition to the LIBOR Rate applicable to the Revolving Loan, as determined
by reference to Section 1.5(a).

          “Applicable Unused Line Fee Margin” means the per annum fee, from time to time in
effect, payable in respect of Borrower’s non-use of committed funds pursuant to Section
1.9(b), which fee is determined by reference to Section 1.5(a).

          “Approved Fund” means, with respect to any Lender, any Person (other than a natural
Person) that (a) is or will be engaged in making, purchasing, holding or otherwise investing in
commercial loans and similar extensions of credit in the ordinary course of its business and (b) is
advised or managed by (i) such Lender, (ii) any Affiliate of such Lender or (iii) any Person (other
than an individual) or any Affiliate of any Person (other than an individual) that administers or
manages such Lender.

          “Approved Obligor” shall mean each Person which the Agent has notified the Borrower in
writing from time to time constitutes an “Approved Obligor” for the purposes of this

Annex A-2

 

Agreement. As of the Closing Date, each of Costco Wholesale Corporation, Sam’s Club, Best Buy
Co., Inc., Target Stores, Inc., Circuit City Stores, Inc. and Wal-Mart Stores, Inc. constitutes an
Approved Obligor.

          “Assignment Agreement” has the meaning ascribed to it in Section 9.1(a).

          “Bankruptcy Code” means the provisions of Title 11 of the United States Code, 11
U.S.C. §§ 101 et seq.

          “BCI Eclipse” means BCI Eclipse Company, LLC, a Minnesota limited liability company, a
wholly-owned Subsidiary of Borrower.

          “BCI Eclipse Purchase Agreement” means that certain Asset Purchase Agreement, dated as
of November 3, 2003, by and among Borrower, BCI Eclipse as buyer, BCI Eclipse, LLC, a New York
limited liability company as seller and the Members (as defined therein) named therein (together
with any exhibits, schedules and any other annexes or supplements thereto and as in effect as of
November 3, 2003 and as amended or otherwise modified in a manner not prohibited by the Credit
Agreement.

          “Blocked Accounts” has the meaning ascribed to it in Annex C.

          “Borrower” has the meaning ascribed thereto in the preamble to the Agreement.

          “Borrowing Availability” means as of any date of determination the lesser of (i) the
Maximum Amount and (ii) the Borrowing Base, in each case, less the sum of the Revolving
Loan and Swing Line Loan then outstanding.

          “Borrowing Base” means, as of any date of determination by Agent, from time to time,
an amount equal to the sum at such time of:

          (a) the product of (x) the lesser of 85% and the Eligible Accounts Dilution Percentage at such
time multiplied by (y) the book value of Eligible Accounts;

          (b) the lesser of (i) 50% of the Eligible Inventory of the Eligible Credit Parties valued at
the lower of cost (FIFO) or market or (ii) 85% of the Orderly Liquidation Value of the Eligible
Inventory of the Eligible Credit Parties;

          (c) the lesser of (i) the Eligible Investment Funds Amount or (ii) 95% of the Eligible
Investment Funds.

in each case less the Minimum Excess Availability Reserve less any additional
Reserves established by Agent from time to time; provided however that at no time shall the
amount of the Borrowing Base attributable to the Eligible Accounts arising from the Publishing
Business shall exceed 25% of the aggregate Borrowing Base attributable to Eligible Accounts;
provided further that at no time shall the amount of the Borrowing Base attributable to the
Eligible Inventory of Eligible Credit Parties exceed $15,000,000 (provided that at all
times following the occurrence of a Triggering Event, such amount shall be reduced, on the first
day of each Fiscal Quarter, to an amount not less than $5,000,000 and equal to $15,000,000
minus the product of (i)

Annex A-3

 

$1,250,000 multiplied by (ii) the number of Fiscal Quarters which have commenced since the
occurrence of the Triggering Event). As used herein, “Triggering Event” occurs if the
Fixed Charge Coverage Ratio (as defined in Annex G hereto) for the 12 month period then
ended (i) as of the last day of the Fiscal Quarters ending June 30, 2007, September 30, 2007 and
December 31, 2007 is less than 1.00:1 or (ii) as of the last day of the Fiscal Quarter ending March
31, 2008 and any Fiscal Quarter ending thereafter is less than 1.25:1. The value of any Eligible
Accounts denominated in Canadian Dollars shall be included in the Borrowing Base using such
Accounts’ Dollar Amount.

          “Borrowing Base Certificate” means a certificate to be executed and delivered from
time to time by Borrower in the form attached to the Agreement as Exhibit 4.1(b).

          “Business Day” means any day that is not a Saturday, a Sunday or a day on which banks
are required or permitted to be closed in the States of Illinois and/or New York and in reference
to LIBOR Loans shall mean any such day that is also a LIBOR Business Day.

          “Canadian Dollars” means the lawful currency of Canada.

          “Capital Expenditures” means, with respect to any Person, all expenditures (by the
expenditure of cash or the incurrence of Indebtedness) by such Person during any measuring period
for any fixed assets or improvements or for replacements, substitutions or additions thereto, that
have a useful life of more than one year and that are required to be capitalized under GAAP.

          “Capital Lease” means, with respect to any Person, any lease of any property (whether
real, personal or mixed) by such Person as lessee that, in accordance with GAAP, would be required
to be classified and accounted for as a capital lease on a balance sheet of such Person.

          “Capital Lease Obligation” means, with respect to any Capital Lease of any Person, the
amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a
balance sheet of such lessee in respect of such Capital Lease.

          “Cash Collateral Account” has the meaning ascribed to it Annex B.

          “Cash Equivalents” has the meaning ascribed to it in Annex B.

          “Cash Management Systems” has the meaning ascribed to it in Section 1.8.

          “Change of Control” means any of the following: (a) other than the holders of the
Borrower’s capital Stock as of the Closing Date, any person or group of persons (within the meaning
of the Securities Exchange Act of 1934) shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 20% or more of the issued and outstanding shares of capital Stock of the
Borrower having the right to vote for the election of directors of the Borrower under ordinary
circumstances; (b) during any period of twelve consecutive calendar months, individuals who at the
beginning of such period constituted the board of directors of the Borrower (together with any new
directors whose election by the board of directors of the

Annex A-4

 

Borrower or whose nomination for election by the Stockholders of the Borrower was approved by
a vote of at least two-thirds of the directors then still in office who either were directors at
the beginning of such period or whose election or nomination for election was previously so
approved) cease for any reason other than death or disability to constitute a majority of the
directors then in office; or (c) Borrower ceases to own and control all of the economic and voting
rights associated with all of the outstanding capital Stock of any of its Subsidiaries.

          “Charges” means all federal, state, county, city, municipal, local, foreign or other
governmental taxes (including taxes owed to the PBGC at the time due and payable), levies,
assessments, charges, liens, claims or encumbrances upon or relating to (a) the Collateral, (b) the
Obligations, (c) the employees, payroll, income or gross receipts of any Credit Party, (d) any
Credit Party’s ownership or use of any properties or other assets, or (e) any other aspect of any
Credit Party’s business.

          “Chattel Paper” means any “chattel paper,” as such term is defined in the Code,
including electronic chattel paper, now owned or hereafter acquired by any Credit Party, wherever
located.

          “Closing Checklist” means the schedule, including all appendices, exhibits or
schedules thereto, listing certain documents and information to be delivered in connection with the
Agreement, the other Loan Documents and the transactions contemplated thereunder, substantially in
the form attached hereto as Annex D.

          “Closing Date” means March 22, 2007.

          “Code” means the Uniform Commercial Code as the same may, from time to time, be
enacted and in effect in the State of Illinois; provided, that to the extent that the Code
is used to define any term herein or in any Loan Document and such term is defined differently in
different Articles or Divisions of the Code, the definition of such term contained in Article or
Division 9 shall govern; provided further, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection or priority of, or remedies with
respect to, Agent’s or any Lender’s Lien on any Collateral is governed by the Uniform Commercial
Code as enacted and in effect in a jurisdiction other than the State of Illinois, the term
“Code” shall mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection,
priority or remedies and for purposes of definitions related to such provisions.

          “Collateral” means the property covered by the Security Agreement, the Mortgages and
the other Collateral Documents and any other property, real or personal, tangible or intangible,
now existing or hereafter acquired, that may at any time be or become subject to a security
interest or Lien in favor of Agent, on behalf of itself and Lenders, to secure the Obligations.

          “Collateral Documents” means the Security Agreements, the Guaranties, the Pledge
Agreements, the Mortgages, the Patent Security Agreements, the Trademark Security Agreements, the
Copyright Security Agreements and all similar agreements entered into

Annex A-5

 

guaranteeing payment of, or granting a Lien upon property as security for payment of, the
Obligations.

          “Collateral Reports” means the reports with respect to the Collateral referred to in
Annex F.

          “Collection Account” means that certain account of Agent, account number 502-328-54
in the name of Agent at Deutsche Bank Trust Company Americas in New York, New York ABA No. 021 001
033, or such other account as may be specified in writing by Agent as the “Collection Account.”

          “Commitment Termination Date” means the earliest of (a) March 22, 2010, (b) the date
of termination of Lenders’ obligations to make Advances and to incur Letter of Credit Obligations
or permit existing Loans to remain outstanding pursuant to Section 8.2(b), and (c) the date
of indefeasible prepayment in full by Borrower of the Loans and the cancellation and return (or
stand-by guarantee) of all Letters of Credit or the cash collateralization of all Letter of Credit
Obligations pursuant to Annex B, and the permanent reduction of the Commitments to zero
dollars ($0).

          “Commitments” shall mean the Revolving Loan Commitment.

          “Compliance Certificate” has the meaning ascribed to it in Annex E.

          “Concentration Account” has the meaning ascribed to it in Annex C.

          “Contingent Obligation” means, as applied to any Person, any direct or indirect
liability of that Person: (i) with respect to Guaranteed Indebtedness and with respect to any
Indebtedness, lease, dividend or other obligation of another Person if the purpose or intent of the
Person incurring such liability, or the effect thereof, is to provide assurance to the obligee of
such liability that such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be protected (in whole or
in part) against loss with respect thereto; (ii) with respect to any letter of credit issued for
the account of that Person or as to which that Person is otherwise liable for reimbursement of
drawings; (iii) under any foreign exchange contract, currency swap agreement, interest rate swap
agreement (including, without limitation, Interest Rate Agreements) or other similar agreement or
arrangement designed to alter the risks of that Person arising from fluctuations in currency values
or interest rates, (iv) any agreement, contract or transaction involving commodity options or
future contracts, (v) to make take-or-pay or similar payments if required regardless of
nonperformance by any other party or parties to an agreement, or (vi) pursuant to any agreement to
purchase, repurchase or otherwise acquire any obligation or any property constituting security
therefor, to provide funds for the payment or discharge of such obligation or to maintain the
solvency, financial condition or any balance sheet item or level of income of another. The amount
of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or
otherwise supported or, if not a fixed and determined amount, the maximum amount so guaranteed.

          “Contracts” means all “contracts,” as such term is defined in the Code, now owned or
hereafter acquired by any Credit Party, in any event, including all contracts,

Annex A-6

 

undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which any Credit Party may now or hereafter have any right, title or
interest, including any agreement relating to the terms of payment or the terms of performance of
any Account.

          “Control Letter” means a letter agreement between Agent and (i) the issuer of
uncertificated securities with respect to uncertificated securities in the name of any Credit
Party, (ii) a securities intermediary with respect to securities, whether certificated or
uncertificated, securities entitlements and other financial assets held in a securities account in
the name of any Credit Party, (iii) a futures commission merchant or clearing house, as applicable,
with respect to commodity accounts and commodity contracts held by any Credit Party, whereby, among
other things, the issuer, securities intermediary or futures commission merchant disclaims any
security interest in the applicable financial assets, acknowledges the Lien of Agent, on behalf of
itself and Lenders, on such financial assets, and agrees to follow the instructions or entitlement
orders of Agent without further consent by the affected Credit Party.

          “Copyright License” means any and all rights now owned or hereafter acquired by any
Credit Party under any written agreement granting any right to use any Copyright or Copyright
registration.

          “Copyright Security Agreements” means the Copyright Security Agreements made in favor
of Agent, on behalf of itself and Lenders, by each applicable Credit Party.

          “Copyrights” means all of the following now owned or hereafter adopted or acquired by
any Credit Party: (a) all copyrights and General Intangibles of like nature (whether registered or
unregistered), all registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the United States Copyright
Office or in any similar office or agency of the United States, any state or territory thereof, or
any other country or any political subdivision thereof, and (b) all reissues, extensions or
renewals thereof.

          “Credit Parties” means Borrower and its Subsidiaries.

          “Currency Exchange Convention” shall mean a procedure as specified from time to time
by Agent to value in Dollars the obligations or assets of the Borrower or its Affiliates that are
originally measured in Canadian Dollars by using the spot price for Canadian Dollars as determined
by Agent in its sole discretion for the preceding business day.

          “Default” means any event that, with the passage of time or notice or both, would,
unless cured or waived, become an Event of Default.

          “Default Rate” has the meaning ascribed to it in Section 1.5(d).

          “Deposit Accounts” means all “deposit accounts” as such term in defined in the Code,
now or hereafter held in the name of any Credit Party.

          “Disbursement Accounts” has the meaning ascribed to it in Annex C.

Annex A-7

 

          “Disclosure Schedules” means the Schedules prepared by Borrower and denominated as
Disclosure Schedules (3.1) through (6.7) in the Index to the Agreement.

          “Documents” means any “documents,” as such term is defined in the Code, now owned or
hereafter acquired by any Credit Party, wherever located.

          “Dollar Amount” means, in respect of any amount, the sum of (a) such portion, if any,
of such amount denominated in Dollars; and (b) to the extent that a portion of such amount is
denominated in Canadian Dollars, the amount in Dollars calculated by Lender using the Currency
Exchange Convention in effect on the Business Day of determination (and calculated based upon 97%
of the applicable amount of Canadian Dollars).

          “Dollars” or “$” means lawful currency of the United States of America.

          “EBITDA” means, with respect to any Person for any fiscal period, without duplication,
an amount equal to (a) consolidated net income of such Person for such period, determined in
accordance with GAAP, minus (b) the sum of (i) income tax credits, (ii) interest income,
(iii) gain from extraordinary items for such period, (iv) any aggregate net gain (but not any
aggregate net loss) during such period arising from the sale, exchange or other disposition of
capital assets by such Person (including any fixed assets, whether tangible or intangible, all
inventory sold in conjunction with the disposition of fixed assets and all securities), (v) any
other non-cash gains that have been added in determining consolidated net income, in each case to
the extent included in the calculation of net income of such Person for such period in accordance
with GAAP, but without duplication and (vi) amounts paid on behalf of or for the benefit of Goldhil
Media, Tower Records or any trust, trustee or fund relating thereto or successor to any of the
foregoing, plus (c) the sum of (i) any provision for income taxes, (ii) Interest Expense,
(iii) loss from extraordinary items for such period, (iv) depreciation and amortization for such
period (other than amortization with respect to Vendor Advances), (v) amortized debt discount for
such period, (vi) the amount of any deduction to consolidated net income as the result of any grant
to any members of the management of such Person of any Stock and (vii) write-offs of Accounts owing
to Borrower from (x) Goldhil Media in the aggregate amount no to exceed $2,100,000 and (y) Tower
Records in the aggregate amount no to exceed $1,900,000, in each case to the extent included in the
calculation of consolidated net income of such Person for such period in accordance with GAAP, but
without duplication. For purposes of this definition, the following items shall be excluded in
determining consolidated net income of a Person: (1) the income (or deficit) of any other Person
accrued prior to the date it became a Subsidiary of, or was merged or consolidated into, such
Person or any of such Person’s Subsidiaries; (2) the income (or deficit) of any other Person (other
than a Subsidiary) in which such Person has an ownership interest, except to the extent any such
income has actually been received by such Person in the form of cash dividends or distributions;
(3) the undistributed earnings of any Subsidiary of such Person to the extent that the declaration
or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by
the terms of any contractual obligation or requirement of law applicable to such Subsidiary; (4)
any restoration to income of any contingency reserve, except to the extent that provision for such
reserve was made out of income accrued during such period; (5) any write-up of any asset; (6) any
net gain from the collection of the proceeds of life insurance policies; (7) any net gain arising
from the acquisition of any securities, or the extinguishment, under GAAP, of any Indebtedness, of
such Person, (8) in the case of a successor

Annex A-8

 

to such Person by consolidation or merger or as a transferee of its assets, any earnings of
such successor prior to such consolidation, merger or transfer of assets, and (9) any deferred
credit representing the excess of equity in any Subsidiary of such Person at the date of
acquisition of such Subsidiary over the cost to such Person of the investment in such Subsidiary.

          “E-Fax” means any system used to receive or transmit faxes electronically.

          “Electronic Transmission” means each document, instruction, authorization, file,
information and any other communication transmitted, posted or otherwise made or communicated by
e-mail or E-Fax, or otherwise to or from an E-System or other equivalent service.

          “Eligible Accounts” has the meaning ascribed to it in Section 1.6 of the
Agreement.

          “Eligible Accounts Dilution Percentage” means at any time an amount, expressed as a
percentage, equal to (i) ninety percent (90%) minus (ii) the Eligible Accounts Dilution
Ratio.

          “Eligible Accounts Dilution Ratio” means, at any time, the ratio (expressed as a
percentage) computed as of the last day of the then most recently completed Fiscal Month of (a) the
Eligible Accounts Historical Dilution as of the last day of the 12-month period on such day,
divided by (b) the Historical Sales for the 12-month period ended on such day.

          “Eligible Accounts Historical Dilution” means, with respect to all Eligible Accounts
during any given period, the portion of such Eligible Accounts which (a) were reduced or canceled
as a result of (and without limitation of) (i) any defective, rejected or returned merchandise or
services or any failure by any Eligible Credit Party to deliver any merchandise or perform any
services or otherwise perform under the underlying contract, purchase order, invoice or other
similar document, (ii) any change in or cancellation of any of the terms of such contract, purchase
order, invoice or document or any cash discounts, credits, rebates, volume discounts, cooperative
advertising expenses, royalty payments, warranties, price protection arrangements, write-offs,
billing errors, retroactive price adjustment or any other adjustment which reduces the amount
payable by Account Debtors on the related Eligible Accounts, or (iii) any setoff in respect of any
claim by Account Debtors on the related Eligible Accounts (whether such claim arises out of the
same or a related transaction or an unrelated transaction) or (b) are subject to any disputes,
offset, counterclaim or defense, setoffs, chargebacks, inventory transfers, allowances for early
payments and other similar allowances that are reflected on the books of any Eligible Credit Party
and made or coordinated with the usual practices of any Eligible Credit Party thereof, but in each
case only to the extent of such defense, setoff, chargeback, transfer or allowance.

          “Eligible Certificate of Deposit” means a certificate of deposit (i) in which the
Agent has a first priority perfected security interest subject to no other Liens, (ii) issued by a
Person acceptable to the Agent and (iii) held in an account for which an account control agreement
in form and substance satisfactory to the Agent has been executed and delivered by all parties
thereto.

Annex A-9

 

          “Eligible Credit Parties” means each of the Borrower, Encore Software, BCI Eclipse,
FUNimation Productions, AnimeOnline, Navarre Logistical, Navarre Digital, Navarre Online, Navarre
Distribution, Navarre Entertainment and FUNimation Channel and any New Credit Party (subject to the
terms and conditions of Section 6.1 hereof as to a New Credit Party).

          “Eligible Inventory” has the meaning ascribed to it in Section 1.7 of the
Agreement.

          “Eligible Investment Funds” means the aggregate amount of cash and Permitted Cash
Equivalents (valued at the fair market value thereof) (i) which are on deposit or credited to a
segregated investment account or bank account subject to the control of the Agent and which the
Agent has agreed in writing constitutes the “Eligible Investment Account” for the purposes
hereof and (ii) which the Agent has, to secure the Obligations, pursuant to a control agreement in
form and substance satisfactory to Agent, a first priority perfected security interest (subject to
no other Liens) (provided, that the Agent will agree, pursuant to documentation acceptable
to the Agent, to permit the withdrawal of cash from such Eligible Investment Account in the
amounts, at the time and upon the request of the Persons, set forth on Schedule A-1).

          “Eligible Investment Funds Amount” means (i) at all times prior to March 31, 2008,
$4,000,000; (ii) at all times on and after March 31, 2008 but prior to March 31, 2009, $2,346,667;
and (iii) at all times on and after March 31, 2009, $800,001.

          “Encore Software” means Encore Software, Inc. (f/k/a Encore Software Corporation), a
Minnesota corporation.

          “Environmental Laws” means all applicable federal, state, local and foreign laws,
statutes, ordinances, codes, rules, standards and regulations, now or hereafter in effect, and any
applicable judicial or administrative interpretation thereof, including any applicable judicial or
administrative order, consent decree, order or judgment, imposing liability or standards of conduct
for or relating to the regulation and protection of human health, safety, the environment and
natural resources (including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. §§ 9601
et seq.) (“CERCLA”); the Hazardous Materials Transportation Authorization Act of
1994 (49 U.S.C. §§ 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act
(7 U.S.C. §§ 136 et seq.); the Solid Waste Disposal Act (42 U.S.C. §§ 6901 et
seq.); the Toxic Substance Control Act (15 U.S.C. §§ 2601 et seq.); the Clean Air Act
(42 U.S.C. §§ 7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C. §§ 1251
et seq.); the Occupational Safety and Health Act (29 U.S.C. §§ 651 et seq.); and
the Safe Drinking Water Act (42 U.S.C. §§ 300(f) et seq.), and any and all regulations
promulgated thereunder, and all analogous state, local and foreign counterparts or equivalents and
any transfer of ownership notification or approval statutes.

          “Environmental Liabilities” means, with respect to any Person, all liabilities,
obligations, responsibilities, response, remedial and removal costs, investigation and feasibility
study costs, capital costs, operation and maintenance costs, losses, damages, punitive damages,
property damages, natural resource damages, consequential damages, treble damages, costs and

Annex A-10

 

expenses (including all reasonable fees, disbursements and expenses of counsel, experts and
consultants), fines, penalties, sanctions and interest incurred as a result of or related to any
claim, suit, action, investigation, proceeding or demand by any Person, whether based in contract,
tort, implied or express warranty, strict liability, criminal or civil statute or common law,
including any arising under or related to any Environmental Laws, Environmental Permits, or in
connection with any Release or threatened Release or presence of a Hazardous Material whether on,
at, in, under, from or about or in the vicinity of any real or personal property.

          “Environmental Permits” means all permits, licenses, authorizations, certificates,
approvals or registrations required by any Governmental Authority under any Environmental Laws.

          “Equipment” means all “equipment,” as such term is defined in the Code, now owned or
hereafter acquired by any Credit Party, wherever located and, in any event, including all such
Credit Party’s machinery and equipment, including processing equipment, conveyors, machine tools,
data processing and computer equipment, including embedded software and peripheral equipment and
all engineering, processing and manufacturing equipment, office machinery, furniture, materials
handling equipment, tools, attachments, accessories, automotive equipment, trailers, trucks,
forklifts, molds, dies, stamps, motor vehicles, rolling stock and other equipment of every kind and
nature, trade fixtures and fixtures not forming a part of real property, together with all
additions and accessions thereto, replacements therefor, all parts therefor, all substitutes for
any of the foregoing, fuel therefor, and all manuals, drawings, instructions, warranties and rights
with respect thereto, and all products and proceeds thereof and condemnation awards and insurance
proceeds with respect thereto.

          “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from
time to time, and any regulations promulgated thereunder.

          “ERISA Affiliate” means, with respect to any Credit Party, any trade or business
(whether or not incorporated) that, together with such Credit Party, are treated as a single
employer within the meaning of Sections 414(b), (c), (m) or (o) of the IRC.

          “ERISA Event” means, with respect to any Credit Party or any ERISA Affiliate, (a) any
event described in Section 4043(c) of ERISA with respect to a Title IV Plan; (b) the withdrawal of
any Credit Party or ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a
plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c)
the complete or partial withdrawal of any Credit Party or any ERISA Affiliate from any
Multiemployer Plan; (d) the filing of a notice of intent to terminate a Title IV Plan or the
treatment of a plan amendment as a termination under Section 4041 of ERISA; (e) the institution of
proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any
Credit Party or ERISA Affiliate to make when due required contributions to a Multiemployer Plan or
Title IV Plan unless such failure is cured within 30 days; (g) any other event or condition that
might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for
the imposition of liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a
Multiemployer Plan under Section 4041A of ERISA or the reorganization or insolvency of a
Multiemployer Plan under Section 4241 or 4245 of ERISA; or

Annex A-11

 

(i) the loss of a Qualified Plan’s qualification or tax exempt status; or (j) the termination
of a Plan described in Section 4064 of ERISA.

          “ESOP” means a Plan that is intended to satisfy the requirements of Section 4975(e)(7)
of the IRC.

          “E-Signature” means the process of attaching to or logically associating with an
Electronic Transmission an electronic symbol, encryption, digital signature or process (including
the name or an abbreviation of the name of the party transmitting the Electronic Transmission) with
the intent to sign, authenticate or accept such Electronic Transmission.

          “E-System” means any electronic system, including Intralinks® and any other
Internet or extranet-based site, whether such electronic system is owned, operated or hosted by
Agent, any of its Affiliates, or any of such Person’s respective officers, directors, employees,
attorneys, agents and representatives or any other Person, providing for access to data protected
by passcodes or other security system.

          “Event of Default” has the meaning ascribed to it in Section 8.1.

          “Existing Credit Agreement” has the meaning ascribed to it in the recitals to the
Agreement.

          “Fair Labor Standards Act” means the Fair Labor Standards Act, 29 U.S.C. §201 et seq.

          “Federal Funds Rate” means, for any day, a floating rate equal to the weighted average
of the rates on overnight federal funds transactions among members of the Federal Reserve System,
as determined by Agent in its sole discretion, which determination shall be final, binding and
conclusive (absent manifest error).

          “Federal Reserve Board” means the Board of Governors of the Federal Reserve System.

          “Fees” means any and all fees payable to Agent or any Lender pursuant to the Agreement
or any of the other Loan Documents.

          “Financial Covenants” means the financial covenants set forth in Annex G.

          “Financial Statements” means the consolidated and consolidating income statements,
statements of cash flows and balance sheets of Borrower delivered in accordance with Section
3.4 and Annex E.

          “Fiscal Month” means any of the monthly accounting periods of Borrower.

          “Fiscal Quarter” means any of the quarterly accounting periods of Borrower, ending on
March 31, June 30, September 30, and December 31 of each year.

          “Fiscal Year” means any of the annual accounting periods of Borrower ending on March
31 of each year.

Annex A-12

 

          “Fixed Charge Coverage Ratio” has the meaning ascribed to it in clause (b) of
Annex G.

          “Fixtures” means all “fixtures” as such term is defined in the Code, now owned or
hereafter acquired by any Credit Party.

          “Funded Debt” means, with respect to any Person, without duplication, all Indebtedness
for borrowed money evidenced by notes, bonds, debentures, or similar evidences of Indebtedness and
that by its terms matures more than one year from, or is directly or indirectly renewable or
extendible at such Person’s option under a revolving credit or similar agreement obligating the
lender or lenders to extend credit over a period of more than one year from the date of creation
thereof, and specifically including Capital Lease Obligations, current maturities of long-term
debt, revolving credit and short-term debt extendible beyond one year at the option of the debtor,
and also including, in the case of Borrower, the Obligations and, without duplication, Guaranteed
Indebtedness consisting of guaranties of Funded Debt of other Persons.

          “FUNimation Acquisition” means the acquisition by Navarre CP, Navarre CLP and Navarre
CS of all of the partnership interests in the FUNimation Companies pursuant to and in accordance
with the FUNimation Acquisition Documents.

          “FUNimation Acquisition Documents” means the FUNimation Purchase Agreement and all
other agreements, documents, opinions, certificates and other instruments executed or delivered
pursuant thereto or in connection therewith, each as in effect on the date hereof.

          “FUNimation Channel” means FUNimation Channel, Inc., a Minnesota corporation.

          “FUNimation Companies” means, collectively, FUNimation Productions and AnimeOnline.

          “FUNimation Purchase Agreement” means that certain Partnership Interest Purchase
Agreement, dated as of January 10, 2005, by and among the Sellers (as defined therein), the Seller
Representative (as defined therein), the FUNimation Companies, Navarre CP, Navarre CLP, Navarre CS
and the Borrower (including all schedules, exhibits, amendments, supplements, modifications and/or
assignments delivered pursuant thereto or in connection therewith), as in effect on the date
hereof.

          “FUNimation Productions” means FUNimation Productions Ltd., a Texas limited
partnership.

          “GAAP” means generally accepted accounting principles in the United States of America,
consistently applied, as such term is further defined in Annex G to the Agreement.

          “GE Capital” means General Electric Capital Corporation, a Delaware corporation.

Annex A-13

 

          “GE Capital Fee Letter” means that certain third amended and restated letter, dated as
of the Closing Date, between GE Capital and Borrower with respect to certain Fees to be paid from
time to time by Borrower to GE Capital.

          “General Intangibles” means “general intangibles,” as such term is defined in the
Code, now owned or hereafter acquired by any Credit Party, including all right, title and interest
that such Credit Party may now or hereafter have in or under any Contract, all payment intangibles,
customer lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefor and
reissues, extensions or renewals thereof, rights in Intellectual Property, interests in
partnerships, joint ventures and other business associations, licenses, permits, copyrights, trade
secrets, proprietary or confidential information, inventions (whether or not patented or
patentable), technical information, procedures, designs, knowledge, know-how, software, data bases,
data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill
(including the goodwill associated with any Trademark or Trademark License), all rights and claims
in or under insurance policies (including insurance for fire, damage, loss and casualty, whether
covering personal property, real property, tangible rights or intangible rights, all liability,
life, key man and business interruption insurance, and all unearned premiums), uncertificated
securities, chooses in action, deposit, checking and other bank accounts, rights to receive tax
refunds and other payments, rights to receive dividends, distributions, cash, Instruments and other
property in respect of or in exchange for pledged Stock and Investment Property, rights of
indemnification, all books and records, correspondence, credit files, invoices and other papers,
including without limitation all tapes, cards, computer runs and other papers and documents in the
possession or under the control of such Credit Party or any computer bureau or service company from
time to time acting for such Credit Party.

          “Goods” means any “goods” as defined in the Code, now owned or hereafter acquired by
any Credit Party, wherever located, including embedded software to the extent included in “goods”
as defined in the Code, manufactured homes, standing timber that is cut and removed for sale and
unborn young of animals.

          “Governmental Authority” means any nation or government, any state or other political
subdivision thereof, and any agency, department or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.

          “Guaranteed Indebtedness” means, as to any Person, any obligation of such Person
guaranteeing, providing comfort or otherwise supporting any Indebtedness, lease, dividend, or other
obligation (“primary obligation”) of any other Person (the “primary obligor”) in
any manner, including any obligation or arrangement of such Person to (a) purchase or repurchase
any such primary obligation, (b) advance or supply funds (i) for the purchase or payment of any
such primary obligation or (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the
primary obligor, (c) purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, (d) protect the beneficiary of such arrangement from loss
(other than product warranties given in the ordinary course of business) or (e) indemnify the owner
of such primary obligation against loss in respect thereof. The amount of any Guaranteed
Indebtedness at any time shall be deemed to be an amount equal to the lesser

Annex A-14

 

at such time of (x) the stated or determinable amount of the primary obligation in respect of
which such Guaranteed Indebtedness is incurred and (y) the maximum amount for which such Person may
be liable pursuant to the terms of the instrument embodying such Guaranteed Indebtedness, or, if
not stated or determinable, the maximum reasonably anticipated liability (assuming full
performance) in respect thereof.

          “Guaranties” means, that certain Second Amended and Restated Guaranty dated as of the
Closing Date by and among the Credit Parties signatory thereto and Agent, on behalf of itself and
Lenders, together with each joinder agreement thereto by any New Credit Party, and each other
guaranty executed by any Guarantor in favor of Agent and Lenders in respect of the Obligations.

          “Guarantors” means each Subsidiary of Borrower and each other Person, if any, that
executes a guaranty or other similar agreement in favor of Agent, for itself and the ratable
benefit of Lenders, in connection with the transactions contemplated by the Agreement and the other
Loan Documents.

          “Hazardous Material” means any substance, material or waste that is regulated by, or
forms the basis of liability now or hereafter under, any Environmental Laws, including any material
or substance that is (a) defined as a “solid waste,” “hazardous waste,” “hazardous material,”
“hazardous substance,” “extremely hazardous waste,” “restricted hazardous waste,” “pollutant,”
“contaminant,” “hazardous constituent,” “special waste,” “toxic substance” or other similar term or
phrase under any Environmental Laws, or (b) petroleum or any fraction or by-product thereof,
asbestos, polychlorinated biphenyls (PCB’s), or any radioactive substance.

          “Hedging Reserve” shall mean a Reserve determined by the Agent in its reasonable
credit judgment and giving effect to (i) the aggregate amount owing to Borrower by a counterparty
to an Interest Rate Agreement, less the amount Borrower owes such counterparty thereunder,
and the (ii) the aggregate outstanding Swap Related Reimbursement Obligations, in each case based
on a mark-to-market analysis and with due regard to recent market volatility as of the last
Business Day of the month (or if not available, the nearest prior Business Day for which such
evaluation is available).

          “Historical Sales” means, for any period, the aggregate amount of gross sales of the
Eligible Credit Parties which generated one or more Eligible Accounts during such period.

          “Indebtedness” means, with respect to any Person, without duplication (a) all
indebtedness of such Person for borrowed money or for the deferred purchase price of property
payment for which is deferred 6 months or more, but excluding obligations to trade creditors
incurred in the ordinary course of business that are unsecured and not overdue by more than 6
months unless being contested in good faith, (b) all reimbursement and other obligations with
respect to letters of credit, bankers’ acceptances and surety bonds, whether or not matured, (c)
all obligations evidenced by notes, bonds, debentures or similar instruments, (d) all indebtedness
created or arising under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of such property), (e)
all Capital Lease Obligations and the present value (discounted at the Index Rate as in effect

Annex A-15

 

on the Closing Date) of future rental payments under all synthetic leases, (f) all obligations
of such Person under commodity purchase or option agreements or other commodity price hedging
arrangements, in each case whether contingent or matured, (g) all obligations of such Person under
any foreign exchange contract, currency swap agreement, interest rate swap, cap or collar agreement
or other similar agreement or arrangement designed to alter the risks of that Person arising from
fluctuations in currency values or interest rates, in each case whether contingent or matured, (h)
all Indebtedness referred to above secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon or in property or other
assets (including accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (i) “earnouts” and similar
payment obligations excluding bonus, phantom stock or other similar compensation payments owed to
employees, or officers and incurred in the ordinary course of business, and (j) the Obligations.

          “Indemnified Liabilities” has the meaning ascribed to it in Section 1.13.

          “Indemnified Person” has the meaning ascribed to it in Section 1.13.

          “Index Rate” means, for any day, a floating rate equal to the higher of (i) the rate
publicly quoted from time to time by The Wall Street Journal as the “base rate on corporate
loans posted by at least 75% of the nation’s 30 largest banks” (or, if The Wall Street
Journal ceases quoting a base rate of the type described, the highest per annum rate of
interest published by the Federal Reserve Board in Federal Reserve statistical release H.15 (519)
entitled “Selected Interest Rates” as the Bank prime loan rate or its equivalent), and (ii) the
Federal Funds Rate plus 50 basis points per annum. Each change in any interest rate provided for
in the Agreement based upon the Index Rate shall take effect at the time of such change in the
Index Rate.

          “Index Rate Loan” means a Loan or portion thereof bearing interest by reference to the
Index Rate.

          “Instruments” means all “instruments,” as such term is defined in the Code, now owned
or hereafter acquired by any Credit Party, wherever located, and, in any event, including all
certificated securities, all certificates of deposit, and all promissory notes and other evidences
of indebtedness, other than instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.

          “Intellectual Property” means any and all Licenses, Patents, Copyrights, Trademarks,
and the goodwill associated with such Trademarks.

          “Intercompany Note” has the meaning ascribed to it in Section 6.3(a).

          “Interest Expense” means, with respect to any Person for any fiscal period, interest
expense (whether cash or non-cash) of such Person determined in accordance with GAAP for the
relevant period ended on such date, including interest expense with respect to any Funded Debt of
such Person and interest expense for the relevant period that has been capitalized on the balance
sheet of such Person.

Annex A-16

 

          “Interest Payment Date” means (a) as to any Index Rate Loan, the first Business Day of
each month to occur while such Loan is outstanding, and (b) as to any LIBOR Loan, the last day of
the applicable LIBOR Period; provided, that in the case of any LIBOR Period greater than
three months in duration, interest shall be payable at three month intervals and on the last day of
such LIBOR Period; and provided further that, in addition to the foregoing, each of
(x) the date upon which all of the Commitments have been terminated and the Loans have been paid in
full and (y) the Commitment Termination Date shall be deemed to be an “Interest Payment
Date” with respect to any interest that has then accrued under the Agreement.

          “Interest Rate Agreement” means any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement or similar agreement or arrangement (i) designed to
protect Borrower against fluctuations in interest rates hereunder or under the Second Lien Credit
Agreement, (ii) entered into between Borrower and one or more Lenders (or any Affiliates thereof)
and (iii) which the Agent has acknowledged in writing constitutes an “Interest Rate Agreement” for
the purposes of this Agreement.

          “Inventory” means any “inventory,” as such term is defined in the Code, now owned or
hereafter acquired by any Credit Party, wherever located, and in any event including inventory,
merchandise, goods and other personal property that are held by or on behalf of any Credit Party
for sale or lease or are furnished or are to be furnished under a contract of service, or that
constitute raw materials, work in process, finished goods, returned goods, supplies or materials of
any kind, nature or description used or consumed or to be used or consumed in such Credit Party’s
business or in the processing, production, packaging, promotion, delivery or shipping of the same,
including all supplies and embedded software.

          “Investment Property” means all “investment property” as such term is defined in the
Code now owned or hereafter acquired by any Credit Party, wherever located, including (i) all
securities, whether certificated or uncertificated, including stocks, bonds, interests in limited
liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund
shares; (ii) all securities entitlements of any Credit Party, including the rights of such Credit
Party to any securities account and the financial assets held by a securities intermediary in such
securities account and any free credit balance or other money owing by any securities intermediary
with respect to that account; (iii) all securities accounts of any Credit Party; (iv) all commodity
contracts of any Credit Party; and (v) all commodity accounts held by any Credit Party.

          “IRC” means the Internal Revenue Code of 1986, as amended, and all regulations
promulgated thereunder.

          “IRS” means the Internal Revenue Service.

          “L/C Issuer” has the meaning ascribed to it in Annex B.

          “L/C Sublimit” has the meaning ascribed to in it Annex B.

          “Lenders” means GE Capital, the other Lenders named on the signature pages of the
Agreement, (and, if any such Person shall decide to assign all or any portion of the Obligations,
such term shall include any assignee of such Person); provided, that for the purposes

Annex A-17

 

of (i) the definitions of “Interest Rate Agreement”, and “Obligations”, (ii) Sections 9.2,
9.3, 9.4, 9.5 and 9.7 of this Agreement and (iii) the granting and perfection of security
interests, liens, mortgages and other encumbrances under or pursuant to one or more Loan Documents,
each Qualified Counterparty shall be deemed to be a Lender (it being agreed that no such Qualified
Counterparty shall have the right to vote on or consent to any matter requiring a vote or consent
of one or more Lenders).

          “Letter of Credit Fee” has the meaning ascribed to it in Annex B.

          “Letter of Credit Obligations” means all outstanding obligations incurred by Agent and
Lenders at the request of Borrower, whether direct or indirect, contingent or otherwise, due or not
due, in connection with the issuance of Letters of Credit by Agent or another L/C Issuer or the
purchase of a participation as set forth in Annex B with respect to any Letter of Credit.
The amount of such Letter of Credit Obligations shall equal the maximum amount that may be payable
by Agent or Lenders thereupon or pursuant thereto.

          “Letter of Credit Rights” means “letter-of-credit rights” as such term is defined in
the Code, now owned or hereafter acquired by any Credit Party, including rights to payment or
performance under a letter of credit, whether or not such Credit Party, as beneficiary, has
demanded or is entitled to demand payment or performance.

          “Letters of Credit” means documentary or standby letters of credit issued for the
account of Borrower by any L/C Issuer, and bankers’ acceptances issued by Borrower, for which Agent
and Lenders have incurred Letter of Credit Obligations. The term does not include a Swap Related
L/C.

          “Leverage Ratio” means, as of any date, the ratio of (i) the sum of (x) the average
amount of Revolving Loans for the then immediately preceding 30 day period ending on such date plus
(y) the aggregate amount of all other Indebtedness of the Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP as of such date to (ii) EBITDA for the four Fiscal
Quarter period ending on such date.

          “LIBOR Business Day” means a Business Day on which banks in the City of London are
generally open for interbank or foreign exchange transactions.

          “LIBOR Loan” means a Loan or any portion thereof bearing interest by reference to the
LIBOR Rate.

          “LIBOR Period” means, with respect to any LIBOR Loan, each period commencing on a
LIBOR Business Day selected by Borrower pursuant to the Agreement and ending one, two or three
months thereafter, as selected by Borrower’s irrevocable notice to Agent as set forth in
Section 1.5(e); provided, that the foregoing provision relating to LIBOR Periods is
subject to the following:

     (a) if any LIBOR Period would otherwise end on a day that is not a LIBOR Business Day,
such LIBOR Period shall be extended to the next succeeding LIBOR Business Day unless the
result of such extension would be to carry such LIBOR Period

Annex A-18

 

into another calendar month in which event such LIBOR Period shall end on the
immediately preceding LIBOR Business Day;

     (b) any LIBOR Period that would otherwise extend beyond the Commitment Termination Date
shall end 2 LIBOR Business Days prior to such date;

     (c) any LIBOR Period that begins on the last LIBOR Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the calendar month at the
end of such LIBOR Period) shall end on the last LIBOR Business Day of a calendar month;

     (d) Borrower shall select LIBOR Periods so as not to require a payment or prepayment of
any LIBOR Loan during a LIBOR Period for such Loan; and

     (e) Borrower shall select LIBOR Periods so that there shall be no more than 5 separate
LIBOR Loans in existence at any one time.

          “LIBOR Rate” means for each LIBOR Period, a rate of interest determined by Agent equal
to:

     (a) the offered rate for deposits in United States Dollars for the applicable LIBOR
Period that appears on Reuters Screen LIBOR01 Page as of 11:00 a.m. (London time), on the
second full LIBOR Business Day next preceding the first day of such LIBOR Period (unless
such date is not a Business Day, in which event the next succeeding Business Day will be
used); divided by

     (b) a number equal to 1.0 minus the aggregate (but without duplication) of the
rates (expressed as a decimal fraction) of reserve requirements in effect on the day that is
2 LIBOR Business Days prior to the beginning of such LIBOR Period (including basic,
supplemental, marginal and emergency reserves under any regulations of the Federal Reserve
Board or other Governmental Authority having jurisdiction with respect thereto, as now and
from time to time in effect) for Eurocurrency funding (currently referred to as
“Eurocurrency Liabilities” in Regulation D of the Federal Reserve Board that are required to
be maintained by a member bank of the Federal Reserve System.

     If such interest rates shall cease to be available from Telerate News Service, the
LIBOR Rate shall be determined from such financial reporting service or other information as
shall be mutually acceptable to Agent and Borrower.

          “License” means any Copyright License, Patent License, Trademark License or other
license of rights or interests now held or hereafter acquired by any Credit Party.

          “Lien” means any mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference,
priority or other security agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of, or agreement to

Annex A-19

 

give, any financing statement perfecting a security interest under the Code or comparable law
of any jurisdiction).

          “Litigation” has the meaning ascribed to it in Section 3.13.

          “Loan Account” has the meaning ascribed to it in Section 1.12.

          “Loan Documents” means the Agreement, the Notes, the Collateral Documents, the Master
Standby Agreement, each Interest Rate Agreement and all other agreements, instruments, documents
and certificates identified in the Closing Checklist executed and delivered to, or in favor of,
Agent or any Lenders and including all other pledges, powers of attorney, consents, assignments,
contracts, notices, and all other written matter whether heretofore, now or hereafter executed by
or on behalf of any Credit Party, or any employee of any Credit Party, and delivered to Agent or
any Lender in connection with the Agreement or the transactions contemplated thereby. Any
reference in the Agreement or any other Loan Document to a Loan Document shall include all
appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other
modifications thereto, and shall refer to the Agreement or such Loan Document as the same may be in
effect at any and all times such reference becomes operative.

          “Loans” means the Revolving Loan and the Swing Line Loan.

          “Lock Boxes” has the meaning ascribed to it in Annex C.

          “Major Labels” means Sony Music Entertainment, Inc., EMI Music Distribution, a
division of Capitol Records, Inc., BMG Music, Universal Music and Video Distribution, Inc. and
AOL-Time Warner, Inc.

          “Margin Stock” has the meaning ascribed to it in Section 3.10.

          “Master Standby Agreement” means the Master Agreement for Standby Letters of Credit
dated as of October 3, 2001 between Borrower, as Applicant, and GE Capital, as Issuer.

          “Material Adverse Effect” means a material adverse effect on (a) the business, assets,
operations, prospects or financial or other condition of any Credit Party, (b) Borrower’s ability
to pay any of the Loans or any of the other Obligations in accordance with the terms of the
Agreement, (c) the Collateral or Agent’s Liens, on behalf of itself and Lenders, on the Collateral
or the priority of such Liens, or (d) Agent’s or any Lender’s rights and remedies under the
Agreement and the other Loan Documents. Without limiting the generality of the foregoing, any
event or occurrence adverse to one or more Credit Parties which results or could reasonably be
expected to result in costs and/or liabilities or loss of revenues, individually, or in the
aggregate, to any Credit Party in any 30-day period in excess of the lesser of $2,000,000 and 10%
of Borrowing Availability as of any date of determination or 10% of the lesser of the Maximum
Amount or the Borrowing Base at any date of determination shall constitute a Material Adverse
Effect.

          “Maximum Amount” means, as of any date of determination, an amount equal to the
Revolving Loan Commitment of all Lenders as of that date.

Annex A-20

 

          “Minimum Excess Availability Reserve” shall mean a special Reserve established
by Agent on the Closing Date and maintained by Agent in an amount at all times equal to $5,000,000.

          “Minnesota Real Estate” means the Real Estate owned by Borrower located in the County
of Hennepin and the State of Minnesota and as further described on Exhibit A hereto.

          “Minnesota Sale-Leaseback Documents” means that certain Sale, Purchase and Build to
Suit Agreement, dated effective as of August 14, 2003 between Borrower, as seller and NL Ventures
IV, L.P., as buyer, as further amended by the First Amendment to Sale, Purchase and Build to Suit
Agreement dated as of October 9, 2003 among the parties thereto, and all other agreements,
instruments, documents and certificates executed and delivered in connection therewith, as in
effect as of October 9, 2003 and as amended or otherwise modified in a manner permitted hereunder.

          “Mortgages” means each of the mortgages, deeds of trust, leasehold mortgages,
leasehold deeds of trust, collateral assignments of leases or other real estate security documents
delivered by any Credit Party to Agent on behalf of itself and Lenders with respect to the Real
Property owned by a Credit Party, all in form and substance reasonably satisfactory to Agent.

          “Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of
ERISA, and to which any Credit Party or ERISA Affiliate is making, is obligated to make or has made
or been obligated to make, contributions on behalf of participants who are or were employed by any
of them.

          “Navarre CP” means Navarre CP, LLC, a Minnesota limited liability company, which is a
wholly-owned Subsidiary of Borrower.

          “Navarre CLP” means Navarre CLP, LLC, a Minnesota limited liability company, which is
a wholly-owned Subsidiary of Borrower.

          “Navarre CS” means Navarre CS, LLC, a Minnesota limited liability company, which is a
wholly-owned Subsidiary of Borrower.

          “Navarre Digital” means Navarre Digital Services, Inc., a Minnesota corporation.

          “Navarre Distribution” means Navarre Distribution Services, Inc., a Minnesota
corporation.

          “Navarre Entertainment” means Navarre Entertainment Media, Inc. a Minnesota
corporation.

          “Navarre Logistical” means Navarre Logistical Services, Inc., a Minnesota corporation.

          “Navarre Online” means Navarre Online Fulfillment Services, Inc., a Minnesota
corporation.

Annex A-21

 

          “Net Vendor Advances” for any period means the positive difference, if any, between
(i) the aggregate amount of Vendor Advances made during such period minus (ii) the aggregate amount
of repayments made by Vendors in respect of Vendor Advances made to such Vendors.

          “New Credit Party” has the meaning ascribed to it in Section 6.1.

          “Non-Funding Lender” has the meaning ascribed to it in Section 9.9(a)(ii).

          “Notes” means the Revolving Notes.

          “Notice of Conversion/Continuation” has the meaning ascribed to it in Section
1.5(e).

          “Notice of Revolving Credit Advance” has the meaning ascribed to it in Section
1.1(a).

          “Obligations” means all loans, advances, debts, liabilities and obligations, for the
performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such
performance is then required or contingent, or such amounts are liquidated or determinable) owing
by any Credit Party to Agent or any Lender, and all covenants and duties regarding such amounts, of
any kind or nature, present or future, whether or not evidenced by any note, agreement or other
instrument, arising under the Agreement or any of the other Loan Documents. This term includes all
principal, interest (including all interest that accrues after the commencement of any case or
proceeding by or against any Credit Party in bankruptcy, whether or not allowed in such case or
proceeding), obligations under Interest Rate Agreements, Swap Related Reimbursement Obligations,
Fees, Charges, expenses, attorneys’ fees and any other sum chargeable to any Credit Party under the
Agreement or any of the other Loan Documents.

          “Orderly Liquidation Value” means, with respect to any Eligible Inventory at any time,
the net amount that will be obtained upon an orderly liquidation sale of such Eligible Inventory,
as determined in accordance with the then most recent appraisal which was acceptable to the Agent.

          “Patent License” means rights under any written agreement now owned or hereafter
acquired by any Credit Party granting any right with respect to any invention on which a Patent is
in existence.

          “Patent Security Agreements” means the Patent Security Agreements made in favor of
Agent, on behalf of itself and Lenders, by each applicable Credit Party.

          “Patents” means all of the following in which any Credit Party now holds or hereafter
acquires any interest: (a) all letters patent of the United States or any other country, all
registrations and recordings thereof, and all applications for letters patent of the United States
or of any other country, including registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United States, any State or
any other country, and (b) all reissues, continuations, continuations-in-part or extensions
thereof.

Annex A-22

 

          “PBGC” means the Pension Benefit Guaranty Corporation.

          “Pension Plan” means a Plan described in Section 3(2) of ERISA.

          “Permitted Cash Equivalents” means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency thereof maturing within
one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year
from the date of creation thereof and currently having the highest rating obtainable from either
Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc., (iii) certificates of deposit
maturing no more than one year from the date of creation thereof issued by (A) the Business Bank, a
Minnesota corporation, or (B) commercial banks incorporated under the laws of the United States of
America, each having combined capital, surplus and undivided profits of not less than $300,000,000
and having a senior unsecured rating of “A” or better by a nationally recognized rating agency (an
“A Rated Bank”), (iv) time deposits maturing no more than 30 days from the date of creation
thereof with A Rated Banks and (v) investments in mutual funds that invest solely in one or more of
the investments described in clauses (i) through (iv) above.

          “Permitted Encumbrances” means the following encumbrances: (a) Liens for taxes or
assessments or other governmental Charges not yet due and payable or which are being contested in
accordance with Section 5.2(b); (b) pledges or deposits of money securing statutory
obligations under workmen’s compensation, unemployment insurance, social security or public
liability laws or similar legislation (excluding Liens under ERISA); (c) pledges or deposits of
money securing bids, tenders, contracts (other than contracts for the payment of money) or leases
to which any Credit Party is a party as lessee made in the ordinary course of business; (d)
inchoate and unperfected workers’, mechanics’ or similar liens arising in the ordinary course of
business, so long as such Liens attach only to Equipment, Fixtures and/or Real Estate; (e)
carriers’, warehousemen’s, suppliers’ or other similar possessory liens arising in the ordinary
course of business and securing liabilities in an outstanding aggregate amount not in excess of
$100,000 at any time, so long as such Liens attach only to Inventory; (f) deposits securing, or in
lieu of, surety, appeal or customs bonds in proceedings to which any Credit Party is a party; (g)
any attachment or judgment lien not constituting an Event of Default under Section 8.1(j);
(h) zoning restrictions, easements, licenses, or other restrictions on the use of any Real Estate
or other minor irregularities in title (including leasehold title) thereto, so long as the same do
not materially impair the use, value, or marketability of such Real Estate; (i) presently existing
or hereafter created Liens in favor of Agent, on behalf of Lenders; and (j) Liens expressly
permitted under clauses (b) and (c) of Section 6.7 of the Agreement.

          “Person” means any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability company, institution,
public benefit corporation, other entity or government (whether federal, state, county, city,
municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or
department thereof).

          “Plan” means, at any time, an “employee benefit plan,” as defined in Section 3(3) of
ERISA, that any Credit Party or ERISA Affiliate maintains, contributes to or has an obligation to
contribute to on behalf of participants who are or were employed by any Credit Party.

Annex A-23

 

          “Pledge Agreements” means each pledge agreement entered into by any Credit Party in
favor of the Agent and/or the Lenders.

          “Pro Forma” means the unaudited consolidated and consolidating financial statements of
Borrower and its Subsidiaries as of November 30, 2006 after giving pro forma effect
to the Related Transactions.

          “Pro Rata Share” means with respect to all matters relating to any Lender, (a) with
respect to the Revolving Loan, the percentage obtained by dividing (i) the Revolving Loan
Commitment of that Lender by (ii) the aggregate Revolving Loan Commitments of all Lenders, and (b)
with respect to all Loans, the percentage obtained by dividing (i) the aggregate Commitments of
that Lender by (ii) the aggregate Commitments of all Lenders, and (e) with respect to all Loans on
and after the Commitment Termination Date, the percentage obtained by dividing (i) the aggregate
outstanding principal balance of the Loans held by that Lender, by (ii) the outstanding principal
balance of the Loans held by all Lenders.

          “Proceeds” means “proceeds,” as such term is defined in the Code, including (a) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to any Credit Party from
time to time with respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or due and payable to any Credit Party 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), (c) any
claim of any Credit Party against third parties (i) for past, present or future infringement of any
Patent or Patent License, or (ii) for past, present or future infringement or dilution of any
Copyright, Copyright License, Trademark or Trademark License, or for injury to the goodwill
associated with any Trademark or Trademark License, (d) any recoveries by any Credit Party against
third parties with respect to any litigation or dispute concerning any of the Collateral including
claims arising out of the loss or nonconformity of, interference with the use of, defects in, or
infringement of rights in, or damage to, Collateral, (e) all amounts collected on, or distributed
on account of, other Collateral, including dividends, interest, distributions and Instruments with
respect to Investment Property and pledged Stock, and (f) any and all other amounts, rights to
payment or other property acquired upon the sale, lease, license, exchange or other disposition of
Collateral and all rights arising out of Collateral.

          “Projections” means Borrower’s forecasted consolidated and consolidating: (a) balance
sheets; (b) profit and loss statements; (c) cash flow statements; and (d) capitalization
statements, all prepared on a Subsidiary by Subsidiary or division-by-division basis, if
applicable, and otherwise consistent with the historical Financial Statements of Borrower, together
with appropriate supporting details and a statement of underlying assumptions.

          “Publishing Business” means any businesses of Encore Software, BCI Eclipse and the
FUNimation Companies as presently conducted as of the Closing Date and any similar businesses of
any other Credit Party that may be conducted in the future.

          “Qualified Assignee” means any Lender, any Affiliate of any Lender and, with respect
to any Lender an Approved Fund.

Annex A-24

 

          “Qualified Counterparty” means a Person which (i) is an Affiliate of a Lender and (ii)
has entered into an agreement, in form and substance to the Agent, pursuant to which such Person
has, among other things, appointed the Agent as its agent and agreed to be bound by certain
provisions of the Loan Documents.

          “Qualified Plan” means a Pension Plan that is intended to be tax-qualified under
Section 401(a) of the IRC.

          “Real Estate” has the meaning ascribed to it in Section 3.6.

          “Related Person” means, with respect to any Person, each Affiliate of such Person and
each director, officer, employee, agent, trustee, representative, attorney, accountant and each
insurance, environmental, legal, financial and other advisor (including those retained in
connection with the satisfaction or attempted satisfaction of any condition set forth in
Section 2) and other consultants and agents of or to such Person or any of its Affiliates,
together with, if such Person is the Agent, each other Person or individual designated, nominated
or otherwise mandated by or helping the Agent pursuant to the provisions of any Loan Document.

          “Refunded Swing Line Loan” has the meaning ascribed to it in Section
1.1(b)(iii).

          “Related Transactions” means the borrowing on the Closing Date under the Revolving
Loan and the Second Lien Loan, and the payment of all fees, costs and expenses associated with all
of the foregoing and the execution and delivery of all of the Related Transactions Documents.

          “Related Transactions Documents” means the Loan Documents, the Second Lien Credit
Agreement, and all other agreements, documents, opinions, certificates and other instruments
executed or delivered pursuant to, or in connection with, the Related Transactions.

          “Release” means any release, threatened release, spill, emission, leaking, pumping,
pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Material in the indoor or outdoor environment, including the
movement of Hazardous Material through or in the air, soil, surface water, ground water or
property.

          “Requisite Lenders” means Lenders having more than 66 2/3% of the Commitments (or,
with respect to any facility for which the Commitment has been terminated, the outstanding
principal amount of the applicable Loans) of all Lenders.

          “Reserves” means, with respect to the Borrowing Base of Borrower (a) reserves
established by Agent from time to time against Eligible Inventory pursuant to Section 5.9,
(b) reserves established pursuant to Section 5.4(d), and (c) such other reserves against
Eligible Accounts, Eligible Inventory or Borrowing Availability of Borrower that Agent may, in its
reasonable credit judgment for reasons relating to any Credit Party, any Credit Party’s business or
industry and/or the Agent’s ability to collect or realize the full value of any Collateral,
establish from time to time. Without limiting the generality of the foregoing, Reserves
established to ensure the payment of accrued Interest Expenses shall be deemed to be a reasonable
exercise of Agent’s credit judgment and Reserves shall include any Hedging Reserve.

Annex A-25

 

          “Restricted Payment” mean, with respect to any Credit Party (a) the declaration or
payment of any dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of Stock; (b) any payment on account of
the purchase, redemption, defeasance, sinking fund or other retirement of such Credit Party’s Stock
or any other payment or distribution made in respect thereof, either directly or indirectly; (c)
any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on
or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar
payment and any claim for rescission with respect to, any Subordinated Debt; (d) any payment made
to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire Stock of such Credit Party now or hereafter outstanding; (e) any
payment of a claim for the rescission of the purchase or sale of, or for material damages arising
from the purchase or sale of, any shares of such Credit Party’s Stock or of a claim for
reimbursement, indemnification or contribution arising out of or related to any such claim for
damages or rescission; (f) any payment, loan, contribution, or other transfer of funds or other
property to any Stockholder of such Credit Party other than payment of compensation in the ordinary
course of business to Stockholders who are employees of such Credit Party; (g) any payment of
management fees (or other fees of a similar nature) by such Credit Party to any Stockholder of such
Credit Party or its Affiliates, (h) any payment of any Earnout Amount (as defined in the BCI
Eclipse Purchase Agreement) or similar payment pursuant to the BCI Eclipse Purchase Agreement, and
(i) any payment of any Performance Payments (as defined in the FUNimation Purchase Agreement) or
similar payment pursuant to the FUNimation Purchase Agreement.

          “Retiree Welfare Plan” means, at any time, a Welfare Plan that provides for continuing
coverage or benefits for any participant or any beneficiary of a participant after such
participant’s termination of employment, other than continuation coverage provided pursuant to
Section 4980B of the IRC and at the sole expense of the participant or the beneficiary of the
participant.

          “Revolving Credit Advance” has the meaning ascribed to it in Section
1.1(a)(i).

          “Revolving Lenders” means, as of any date of determination, Lenders having a Revolving
Loan Commitment.

          “Revolving Loan” means, at any time, the sum of (i) the aggregate amount of Revolving
Credit Advances outstanding to Borrower plus (ii) the aggregate Letter of Credit
Obligations incurred on behalf of Borrower. Unless the context otherwise requires, references to
the outstanding principal balance of the Revolving Loan shall include the outstanding balance of
Letter of Credit Obligations.

          “Revolving Loan Commitment” means (a) as to any Revolving Lender, the aggregate
commitment of such Revolving Lender to make Revolving Credit Advances or incur Letter of Credit
Obligations as set forth on Annex J to the Agreement or in the most recent Assignment
Agreement executed by such Revolving Lender and (b) as to all Revolving Lenders, the aggregate
commitment of all Revolving Lenders to make Revolving Credit Advances or incur Letter of Credit
Obligations, which aggregate commitment shall be Ninety Five Million

Annex A-26

 

Dollars ($95,000,000) on the Closing Date, as such amount may be adjusted, if at all, from
time to time in accordance with the Agreement.

          “Revolving Note” has the meaning ascribed to it in Section 1.1(a)(ii).

          “Second Lien Credit Agreement” means that certain Credit Agreement, dated as of the
date hereof, by and among Borrower, Monroe Capital Advisors, LLC as agent for the lenders
thereunder, and the lenders from time to time party thereto, as amended, restated, supplemented or
otherwise modified in a manner permitted hereby.

          “Second Lien Intercreditor Agreement” means that certain Intercreditor Agreement,
dated as of the date hereof by and among the Borrower, the Guarantors (as defined therein), the
Agent and the Second Lien Agent (as defined therein), as amended, restated, supplemented and
otherwise modified from time to time.

          “Second Lien Loan” means that certain term loan in the original principal amount of
Fifteen Million Dollars ($15,000,000) made to Borrower pursuant to the Second Lien Credit
Agreement.

          “Security Agreements” means that certain Second Amended and Restated Security
Agreement dated as of the Closing Date by and among the Credit Parties signatory thereto and Agent,
on behalf of itself and Lenders together with each joinder agreement thereto by any New Credit
Party, and each other Security Agreement to be entered into by and among Agent, on behalf of itself
and Lenders, and any other Credit Party.

          “Software” means all “software” as such term is defined in the Code, now owned or
hereafter acquired by any Credit Party, other than software embedded in any category of Goods,
including all computer programs and all supporting information provided in connection with a
transaction related to any program.

          “Solvent” means, with respect to any Person on a particular date, that on such date
(a) the fair value of the property of such Person is greater than the total amount of liabilities,
including contingent liabilities, of such Person; (b) the present fair salable value of the assets
of such Person is not less than the amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured; (c) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay
as such debts and liabilities mature; and (d) such Person is not engaged in a business or
transaction, and is not about to engage in a business or transaction, for which such Person’s
property would constitute an unreasonably small capital. The amount of contingent liabilities
(such as litigation, guaranties and pension plan liabilities) at any time shall be computed as the
amount that, in light of all the facts and circumstances existing at the time, represents the
amount that can be reasonably be expected to become an actual or matured liability.

          “SPV” means any special purpose funding vehicle identified as such in a writing by any
Lender to the Agent.

          “Stock” means all shares, options, warrants, general or limited partnership interests,
membership interests or other equivalents (regardless of how designated) of or in a

Annex A-27

 

corporation, partnership, limited liability company or equivalent entity whether voting or
nonvoting, including common stock, preferred stock or any other “equity security” (as such term is
defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934).

          “Stockholder” means, with respect to any Person, each holder of Stock of such Person.

          “Subordinated Debt” means debt which is subordinated to any or all of the
Obligations.”

          “Subsidiary” means, with respect to any Person, (a) any corporation of which an
aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether, at the time, Stock
of any other class or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly, owned legally or
beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which
any such Person has the right to vote or designate the vote of 50% or more of such Stock whether by
proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability
company in which such Person and/or one or more Subsidiaries of such Person shall have an interest
(whether in the form of voting or participation in profits or capital contribution) of more than
50% or of which any such Person is a general partner or may exercise the powers of a general
partner. Unless the context otherwise requires, each reference to a Subsidiary shall be a
reference to a Subsidiary of the Borrower.

          “Supermajority Revolving Lenders” means Lenders having (a) 80% or more of the
Revolving Loan Commitments of all Lenders, or (b) if the Revolving Loan Commitments have been
terminated, 80% or more of the aggregate outstanding amount of the Revolving Loan (with the Swing
Line Loan being attributed to the Lender making such Loan), and Letter of Credit Obligations.

          “Supporting Obligations” means all “supporting obligations” as such term is defined in
the Code, including letters of credit and guaranties issued in support of Accounts, Chattel Paper,
Documents, General Intangibles, Instruments, or Investment Property.

          “Swap Related L/C” means a letter of credit or other credit enhancement provided by GE
Capital to the extent supporting the payment obligations by Borrower under an interest rate
protection or hedging agreement or transaction (including, but not limited to, interest rate swaps,
caps, collars, floors and similar transactions) designed to protect or manage exposure to the
fluctuations in the interest rates applicable to any of the Loans, and which agreement or
transaction Borrower entered into as the result of a specific referral pursuant to which GE
Capital, GE Corporate Financial Services, Inc. or any other Affiliate of GE Capital had arranged
for Borrower to enter into such agreement or transaction. The term includes a Swap Related L/C as
it may be increased from time to time fully to support Borrower’s payment obligations under any and
all such interest rate protection or hedging agreements or transactions.

Annex A-28

 

          “Swap Related Reimbursement Obligation” has the meaning ascribed to it in Section
1.2A.

          “Swing Line Advance” has the meaning ascribed to it in Section 1.1(b)(i).

          “Swing Line Availability” has the meaning ascribed to it in Section 1.1(b)(i).

          “Swing Line Commitment” means, as to the Swing Line Lender, the commitment of the
Swing Line Lender to make Swing Line Advances as set forth on Annex J to the Agreement,
which commitment constitutes a subfacility of the Revolving Loan Commitment of the Swing Line
Lender.

          “Swing Line Lender” means GE Capital.

          “Swing Line Loan” means at any time, the aggregate amount of Swing Line Advances
outstanding to Borrower.

          “Swing Line Note” has the meaning ascribed to it in Section 1.1(b)(ii).

          “Taxes” means taxes, levies, imposts, deductions, Charges or withholdings, and all
liabilities with respect thereto, excluding taxes imposed on or measured by the net income of Agent
or a Lender by the jurisdictions under the laws of which Agent and Lenders are organized or conduct
business or any political subdivision thereof.

          “Termination Date” means the date on which (a) the Loans have been indefeasibly repaid
in full, (b) all other Obligations under the Agreement and the other Loan Documents have been
completely discharged, (c) all Letter of Credit Obligations have been cash collateralized,
cancelled or backed by standby letters of credit in accordance with Annex B, and (d)
Borrower shall not have any further right to borrow any monies under the Agreement.

          “Texas Real Estate Sale Transaction” has the meaning assigned to it in Section
6.8.

          “Title IV Plan” means a Pension Plan (other than a Multiemployer Plan), that is
covered by Title IV of ERISA, and that any Credit Party or ERISA Affiliate maintains, contributes
to or has an obligation to contribute to on behalf of participants who are or were employed by any
of them.

          “Trademark License” means rights under any written agreement now owned or hereafter
acquired by any Credit Party granting any right to use any Trademark.

          “Trademark Security Agreements” means the Trademark Security Agreements made in favor
of Agent, on behalf of Lenders, by each applicable Credit Party.

          “Trademarks” means all of the following now owned or hereafter adopted or acquired by
any Credit Party: (a) all trademarks, trade names, corporate names, business names, trade styles,
service marks, logos, other source or business identifiers, prints and labels on which any of the
foregoing have appeared or appear, designs and general intangibles of like nature

Annex A-29

 

(whether registered or unregistered), all registrations and recordings thereof, and all
applications in connection therewith, including registrations, recordings and applications in the
United States Patent and Trademark Office or in any similar office or agency of the United States,
any state or territory thereof, or any other country or any political subdivision thereof; (b) all
reissues, extensions or renewals thereof; and (c) all goodwill associated with or symbolized by any
of the foregoing.

          “Unfunded Pension Liability” means, at any time, the aggregate amount, if any, of the
sum of (a) the amount by which the present value of all accrued benefits under each Title IV Plan
exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in
accordance with Title IV of ERISA, all determined as of the most recent valuation date for each
such Title IV Plan using the actuarial assumptions for funding purposes in effect under such Title
IV Plan, and (b) for a period of 5 years following a transaction which might reasonably be expected
to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be
avoided by any Credit Party or any ERISA Affiliate as a result of such transaction.

          “Vendor” means a Person who (i) supplies goods to any Credit Party which become
Inventory of such Credit Party or (ii) provides a license to permit a Credit Party to sell specific
goods or for specified use of intellectual property.

          “Vendor Advance Expense” shall mean any expense including write-offs, recoupments,
amortization or similar recognition of expenses relating to a reduction in any Vendor Advance.

          “Vendor Advances” shall mean all prepayments, advances, licensing fees or royalties
(i) paid by one or more Credit Parties to one or more Vendors in respect of goods or Intellectual
Property not yet then provided to a Credit Party and (ii) which are intended to be repaid or earned
in the future upon the sale by a Credit Party of the applicable goods or specified use of
intellectual property.

          “Welfare Plan” means a Plan described in Section 3(i) of ERISA.

          Rules of construction with respect to accounting terms used in the Agreement or the other Loan
Documents shall be as set forth in Annex G. All other undefined terms contained in any of
the Loan Documents shall, unless the context indicates otherwise, have the meanings provided for by
the Code to the extent the same are used or defined therein; in the event that any term is defined
differently in different Articles or Divisions of the Code, the definition contained in Article or
Division 9 shall control. Unless otherwise specified, references in the Agreement or any of the
Appendices to a Section, subsection or clause refer to such Section, subsection or clause as
contained in the Agreement. The words “herein,” “hereof” and “hereunder” and other words of
similar import refer to the Agreement as a whole, including all Annexes, Exhibits and Schedules, as
the same may from time to time be amended, restated, modified or supplemented, and not to any
particular section, subsection or clause contained in the Agreement or any such Annex, Exhibit or
Schedule.

          Wherever from the context it appears appropriate, each term stated in either the singular or
plural shall include the singular and the plural, and pronouns stated in the masculine,

Annex A-30

 

feminine or neuter gender shall include the masculine, feminine and neuter genders. The words
“including”, “includes” and “include” shall be deemed to be followed by the words “without
limitation”; the word “or” is not exclusive; references to Persons include their respective
successors and assigns (to the extent and only to the extent permitted by the Loan Documents) or,
in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons;
and all references to statutes and related regulations shall include any amendments of the same and
any successor statutes and regulations. Whenever any provision in any Loan Document refers to the
knowledge (or an analogous phrase) of any Credit Party, such words are intended to signify that
such Credit Party has actual knowledge or awareness of a particular fact or circumstance or that
such Credit Party, if it had exercised reasonable diligence, would have known or been aware of such
fact or circumstance.

Annex A-31

 

ANNEX B (Section 1.2)

to

CREDIT AGREEMENT

LETTERS OF CREDIT

          (a) Issuance. Subject to the terms and conditions of the Agreement, Agent and
Revolving Lenders agree to incur, from time to time prior to the Commitment Termination Date, upon
the request of Borrower and for Borrower’s account, Letter of Credit Obligations by causing Letters
of Credit to be issued by GE Capital or a Subsidiary thereof or a bank or other legally authorized
Person selected by or acceptable to Agent in its sole discretion (each, an “L/C Issuer”)
for Borrower’s account and guaranteed by Agent; provided, that if the L/C Issuer is a
Revolving Lender, then such Letters of Credit shall not be guaranteed by Agent but rather each
Revolving Lender shall, subject to the terms and conditions hereinafter set forth, purchase (or be
deemed to have purchased) risk participations in all such Letters of Credit issued with the written
consent of Agent, as more fully described in paragraph (b)(ii) below. The aggregate amount of all
such Letter of Credit Obligations shall not at any time exceed the least of (i) Ten Million Dollars
($10,000,000) (the “L/C Sublimit”), (ii) the Maximum Amount less the aggregate outstanding
principal balance of the Revolving Credit Advances and the Swing Line Loan, and (iii) the Borrowing
Base less the aggregate outstanding principal balance of the Revolving Credit Advances and the
Swing Line Loan. No such Letter of Credit shall have an expiry date that is more than one year
following the date of issuance thereof, unless otherwise determined by Agent in its sole
discretion, and neither Agent nor Revolving Lenders shall be under any obligation to incur Letter
of Credit Obligations in respect of, or purchase risk participations in, any Letter of Credit
having an expiry date that is later than the Commitment Termination Date.

          (b)(i) Advances Automatic; Participations. In the event that Agent or any Revolving
Lender shall make any payment on or pursuant to any Letter of Credit Obligation, such payment shall
then be deemed automatically to constitute a Revolving Credit Advance under Section 1.1(a)
of the Agreement regardless of whether a Default or Event of Default has occurred and is continuing
and notwithstanding Borrower’s failure to satisfy the conditions precedent set forth in Section
2, and each Revolving Lender shall be obligated to pay its Pro Rata Share thereof in accordance
with the Agreement. The failure of any Revolving Lender to make available to Agent for Agent’s own
account its Pro Rata Share of any such Revolving Credit Advance or payment by Agent under or in
respect of a Letter of Credit shall not relieve any other Revolving Lender of its obligation
hereunder to make available to Agent its Pro Rata Share thereof, but no Revolving Lender shall be
responsible for the failure of any other Revolving Lender to make available such other Revolving
Lender’s Pro Rata Share of any such payment.

               (ii) If it shall be illegal or unlawful for Borrower to incur Revolving Credit Advances as
contemplated by paragraph (b)(i) above because of an Event of Default described in Sections
8.1(h) or (i) or otherwise or if it shall be illegal or unlawful for any Revolving Lender to be
deemed to have assumed a ratable share of the reimbursement obligations owed to an L/C Issuer, or
if the L/C Issuer is a Revolving Lender, then (i) immediately and without further action
whatsoever, each Revolving Lender shall be deemed to have irrevocably and unconditionally purchased
from Agent (or such L/C Issuer, as the case may be) an undivided interest and participation equal
to such Revolving Lender’s Pro Rata Share

Annex B-1

 

(based on the Revolving Loan Commitments) of the Letter of Credit Obligations in respect of
all Letters of Credit then outstanding and (ii) thereafter, immediately upon issuance of any Letter
of Credit, each Revolving Lender shall be deemed to have irrevocably and unconditionally purchased
from Agent (or such L/C Issuer, as the case may be) an undivided interest and participation in such
Revolving Lender’s Pro Rata Share (based on the Revolving Loan Commitments) of the Letter of Credit
Obligations with respect to such Letter of Credit on the date of such issuance. Each Revolving
Lender shall fund its participation in all payments or disbursements made under the Letters of
Credit in the same manner as provided in the Agreement with respect to Revolving Credit Advances.

          (c) Cash Collateral. (i) If Borrower is required to provide cash collateral for any
Letter of Credit Obligations pursuant to the Agreement prior to the Commitment Termination Date,
Borrower will pay to Agent for the ratable benefit of itself and Revolving Lenders cash or cash
equivalents acceptable to Agent (“Cash Equivalents”) in an amount equal to 110% of the
maximum amount then available to be drawn under each applicable Letter of Credit outstanding. Such
funds or Cash Equivalents shall be held by Agent in a cash collateral account (the “Cash
Collateral Account”) maintained at a bank or financial institution acceptable to Agent. The
Cash Collateral Account shall be in the name of Borrower and shall be pledged to, and subject to
the control of, Agent, for the benefit of Agent and Lenders, in a manner satisfactory to Agent.
Borrower hereby pledges and grants to Agent, on behalf of itself and Lenders, a security interest
in all such funds and Cash Equivalents held in the Cash Collateral Account from time to time and
all proceeds thereof, as security for the payment of all amounts due in respect of the Letter of
Credit Obligations and other Obligations, whether or not then due. The Agreement, including this
Annex B, shall constitute a security agreement under applicable law.

          (ii) If any Letter of Credit Obligations, whether or not then due and payable, shall for any
reason be outstanding on the Commitment Termination Date, Borrower shall either (A) provide cash
collateral therefor in the manner described above, or (B) cause all such Letters of Credit and
guaranties thereof, if any, to be canceled and returned, or (C) deliver a stand-by letter (or
letters) of credit in guarantee of such Letter of Credit Obligations, which stand-by letter (or
letters) of credit shall be of like tenor and duration (plus 30 additional days) as, and in an
amount equal to 110% of the aggregate maximum amount then available to be drawn under, the Letters
of Credit to which such outstanding Letter of Credit Obligations relate and shall be issued by a
Person, and shall be subject to such terms and conditions, as are be satisfactory to Agent in its
sole discretion.

          (iii) From time to time after funds are deposited in the Cash Collateral Account by Borrower,
whether before or after the Commitment Termination Date, Agent may apply such funds or Cash
Equivalents then held in the Cash Collateral Account to the payment of any amounts, and in such
order as Agent may elect, as shall be or shall become due and payable by Borrower to Agent and
Lenders with respect to such Letter of Credit Obligations of Borrower and, upon the satisfaction in
full of all Letter of Credit Obligations of Borrower, to any other Obligations then due and
payable.

          (iv) Neither Borrower nor any Person claiming on behalf of or through Borrower shall have any
right to withdraw any of the funds or Cash Equivalents held in the Cash

Annex B-2

 

Collateral Account, except that upon the termination of all Letter of Credit Obligations and
the payment of all amounts payable by Borrower to Agent and Lenders in respect thereof, any funds
remaining in the Cash Collateral Account shall be applied to other Obligations then due and owing
and upon payment in full of such Obligations, any remaining amount shall be paid to Borrower or as
otherwise required by law. Interest earned on deposits in the Cash Collateral Account shall be for
the account of Agent.

          (d) Fees and Expenses. Borrower agrees to pay to Agent for the benefit of Revolving
Lenders, as compensation to such Lenders for Letter of Credit Obligations incurred hereunder, (i)
all costs and expenses incurred by Agent or any Lender on account of such Letter of Credit
Obligations, and (ii) for each month during which any Letter of Credit Obligation shall remain
outstanding, a fee (the “Letter of Credit Fee”) in an amount equal to the Applicable L/C
Margin multiplied by the maximum amount available from time to time to be drawn under the
applicable Letter of Credit. Such fee shall be paid to Agent for the benefit of the Revolving
Lenders in arrears, on the first day of each month and on the Commitment Termination Date. In
addition, Borrower shall pay to any L/C Issuer, on demand, such fees (including all per annum
fees), charges and expenses of such L/C Issuer in respect of the issuance, negotiation, acceptance,
amendment, transfer and payment of such Letter of Credit or otherwise payable pursuant to the
application and related documentation under which such Letter of Credit is issued.

          (e) Request for Incurrence of Letter of Credit Obligations. Borrower shall give Agent
at least 2 Business Days’ prior written notice requesting the incurrence of any Letter of Credit
Obligation. The notice shall be accompanied by the form of the Letter of Credit (which shall be
acceptable to the L/C Issuer) and a completed Application for Standby Letter of Credit or
Application for Documentary Letter of Credit as applicable in the form Exhibit B-1 or B-2 attached
hereto. Notwithstanding anything contained herein to the contrary, Letter of Credit applications
by Borrower and approvals by Agent and the L/C Issuer may be made and transmitted pursuant to
electronic codes and security measures mutually agreed upon and established by and among Borrower,
Agent and the L/C Issuer.

          (f) Obligation Absolute. The obligation of Borrower to reimburse Agent and Revolving
Lenders for payments made with respect to any Letter of Credit Obligation shall be absolute,
unconditional and irrevocable, without necessity of presentment, demand, protest or other
formalities, and the obligations of each Revolving Lender to make payments to Agent with respect to
Letters of Credit shall be unconditional and irrevocable. Such obligations of Borrower and
Revolving Lenders shall be paid strictly in accordance with the terms hereof under all
circumstances including the following:

     (i) any lack of validity or enforceability of any Letter of Credit or the Agreement or
the other Loan Documents or any other agreement;

     (ii) the existence of any claim, setoff, defense or other right that Borrower or any of
its Affiliates or any Lender may at any time have against a beneficiary or any transferee of
any Letter of Credit (or any Persons or entities for whom any such transferee may be
acting), Agent, any Lender, or any other Person, whether in connection with the Agreement,
the Letter of Credit, the transactions contemplated herein or therein

Annex B-3

 

or any unrelated transaction (including any underlying transaction between Borrower or
any of its Affiliates and the beneficiary for which the Letter of Credit was procured);

     (iii) any draft, demand, certificate or any other document presented under any Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect;

     (iv) payment by Agent (except as otherwise expressly provided in paragraph (g)(ii)(C)
below) or any L/C Issuer under any Letter of Credit or guaranty thereof against presentation
of a demand, draft or certificate or other document that does not comply with the terms of
such Letter of Credit or such guaranty;

     (v) any other circumstance or event whatsoever, that is similar to any of the
foregoing; or

     (vi) the fact that a Default or an Event of Default has occurred and is continuing.

          (g) Indemnification; Nature of Lenders’ Duties. (i) In addition to amounts payable as
elsewhere provided in the Agreement, Borrower hereby agrees to pay and to protect, indemnify, and
save harmless Agent and each Lender from and against any and all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including reasonable attorneys’ fees and allocated
costs of internal counsel) that Agent or any Lender may incur or be subject to as a consequence,
direct or indirect, of (A) the issuance of any Letter of Credit or guaranty thereof, or (B) the
failure of Agent or any Lender seeking indemnification or of any L/C Issuer to honor a demand for
payment under any Letter of Credit or guaranty thereof as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto government or Governmental
Authority, in each case other than to the extent solely as a result of the gross negligence or
willful misconduct of Agent or such Lender (as finally determined by a court of competent
jurisdiction).

          (ii) As between Agent and any Lender and Borrower, Borrower assumes all risks of the acts and
omissions of, or misuse of any Letter of Credit by beneficiaries of any Letter of Credit. In
furtherance and not in limitation of the foregoing, to the fullest extent permitted by law neither
Agent nor any Lender shall be responsible for: (A) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document issued by any party in connection with the application
for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency
of any instrument transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, that may
prove to be invalid or ineffective for any reason; (C) failure of the beneficiary of any Letter of
Credit to comply fully with conditions required in order to demand payment under such Letter of
Credit; provided, that in the case of any payment by Agent under any Letter of Credit or
guaranty thereof, Agent shall be liable to the extent such payment was made solely as a result of
its gross negligence or willful misconduct (as finally determined by a court of competent
jurisdiction) in determining that the demand for payment under such Letter of Credit or guaranty
thereof complies on its face with any applicable requirements for a demand for payment under such

Annex B-4

 

Letter of Credit or guaranty thereof; (D) errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or
not they may be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay
in the transmission or otherwise of any document required in order to make a payment under any
Letter of Credit or guaranty thereof or of the proceeds thereof; (G) the credit of the proceeds of
any drawing under any Letter of Credit or guaranty thereof; and (H) any consequences arising from
causes beyond the control of Agent or any Lender. None of the above shall affect, impair, or
prevent the vesting of any of Agent’s or any Lender’s rights or powers hereunder or under the
Agreement.

          (iii) Nothing contained herein shall be deemed to limit or to expand any waivers, covenants or
indemnities made by Borrower in favor of any L/C Issuer in any letter of credit application,
reimbursement agreement or similar document, instrument or agreement between Borrower and such L/C
Issuer, including an Application and Agreement for Documentary Letter of Credit or a Master
Documentary Agreement and a Master Standby Agreement entered into with Agent.

Annex B-5

 

ANNEX C (Section 1.8)

to

CREDIT AGREEMENT

CASH MANAGEMENT SYSTEM

          Borrower shall, and shall cause its Subsidiaries to, establish and maintain the Cash
Management Systems described below:

          (a) On or before the Closing Date and until the Termination Date, Borrower shall (i) establish
lock boxes (“Lock Boxes”) or, at Agent’s discretion, blocked accounts (“Blocked Accounts”)
at one or more of the banks set forth in Disclosure Schedule (3.19), and shall request in
writing and otherwise take such reasonable steps to ensure that all Account Debtors forward payment
directly to such Lock Boxes, and (ii) deposit and cause its Subsidiaries to deposit or cause to be
deposited promptly, and in any event no later than the first Business Day after the date of receipt
thereof, all cash, checks, drafts or other similar items of payment relating to or constituting
payments made in respect of any and all Collateral (whether or not otherwise delivered to a Lock
Box) into one or more Blocked Accounts in Borrower’s name or any such Subsidiary’s name and at a
bank identified in Disclosure Schedule (3.19) (each, a “Relationship Bank”). On or
before the Closing Date, Borrower shall have established a concentration account in its name (the
“Concentration Account”) (which account may be the same as one of the Blocked Accounts) at
the bank that shall be designated as the Concentration Account bank for Borrower in Disclosure
Schedule (3.19) (the “Concentration Account Bank”) (which bank may be one of the
Relationship Banks) which bank shall be reasonably satisfactory to Agent.

          (b) Borrower may maintain, in its name, an account (each a “Disbursement Account” and
collectively, the “Disbursement Accounts”) at a bank acceptable to Agent into which Agent
shall, from time to time, deposit proceeds of Revolving Credit Advances and Swing Line Advances
made to Borrower pursuant to Section 1.1 for use by Borrower in accordance with the
provisions of Section 1.4.

          (c) On or before the Closing Date (or such later date as Agent shall consent to in writing),
the Concentration Account Bank, each bank where a Disbursement Account is maintained and all other
Relationship Banks, shall have entered into tri-party blocked account agreements with Agent, for
the benefit of itself and Lenders, and Borrower and Subsidiaries thereof, as applicable, in form
and substance reasonably acceptable to Agent, which shall become operative on or prior to the
Closing Date. Each such blocked account agreement shall provide, among other things, that (i) all
items of payment deposited in such account and proceeds thereof deposited in the Concentration
Account are held by such bank as agent or bailee-in-possession for Agent, on behalf of itself and
Lenders, (ii) the bank executing such agreement has no rights of setoff or recoupment or any other
claim against such account, as the case may be, other than for payment of its service fees and
other charges directly related to the administration of such account and for returned checks or
other items of payment, and (iii) from and after the Closing Date (A) with respect to banks at
which a Blocked Account is maintained, if such Blocked Account is not also the Concentration
Account, such bank agrees to forward

Annex C-1

 

immediately all amounts in each Blocked Account to the Concentration Account Bank and to
commence the process of daily sweeps from such Blocked Account into the Concentration Account and
(B) with respect to the Concentration Account Bank, such bank agrees to immediately forward all
amounts received in the Concentration Account to the Collection Account through daily sweeps from
such Concentration Account into the Collection Account. Borrower shall not, and shall not cause or
permit any Subsidiary thereof to, accumulate or maintain cash in Disbursement Accounts or payroll
accounts as of any date of determination in excess of checks outstanding against such accounts as
of that date and amounts necessary to meet minimum balance requirements.

          (d) So long as no Default or Event of Default has occurred and is continuing, Borrower may
amend Disclosure Schedule (3.19) to add or replace a Relationship Bank, Lock Box or Blocked
Account or to replace any Concentration Account or any Disbursement Account; provided, that
(i) Agent shall have consented in writing in advance to the opening of such account or Lock Box
with the relevant bank and (ii) prior to the time of the opening of such account or Lock Box,
Borrower or its Subsidiaries, as applicable, and such bank shall have executed and delivered to
Agent a tri-party blocked account agreement, in form and substance reasonably satisfactory to
Agent. Borrower shall close any of its accounts (and establish replacement accounts in accordance
with the foregoing sentence) promptly and in any event within 30 days following notice from Agent
that the creditworthiness of any bank holding an account is no longer acceptable in Agent’s
reasonable judgment, or as promptly as practicable and in any event within 60 days following notice
from Agent that the operating performance, funds transfer or availability procedures or performance
with respect to accounts or Lock Boxes of the bank holding such accounts or Agent’s liability under
any tri-party blocked account agreement with such bank is no longer acceptable in Agent’s
reasonable judgment.

          (e) The Lock Boxes, Blocked Accounts, Disbursement Accounts and the Concentration Account
shall be cash collateral accounts, with all cash, checks and other similar items of payment in such
accounts securing payment of the Loans and all other Obligations, and in which Borrower and each
Subsidiary thereof shall have granted a Lien to Agent, on behalf of itself and Lenders, pursuant to
the Security Agreement.

          (f) All amounts deposited in the Collection Account shall be deemed received by Agent in
accordance with Section 1.10 and shall be applied (and allocated) by Agent in accordance
with Section 1.11. In no event shall any amount be so applied unless and until such amount
shall have been credited in immediately available funds to the Collection Account.

          (g) Borrower shall and shall cause its Related Persons to (i) hold in trust for Agent, for the
benefit of itself and Lenders, all checks, cash and other items of payment received by Borrower or
any such Related Person, and (ii) within 1 Business Day after receipt by Borrower or any such
Related Person of any checks, cash or other items of payment, deposit the same into a Blocked
Account. Borrower and each Related Person thereof acknowledges and agrees that all cash, checks or
other items of payment constituting proceeds of Collateral are part of the Collateral. All
proceeds of the sale or other disposition of any Collateral, shall be deposited directly into
Blocked Accounts.

Annex C-2

 

ANNEX D (Section 2.1(a))

to

CREDIT AGREEMENT

CLOSING CHECKLIST

[TO BE ATTACHED]

Annex D-1

 

ANNEX E (Section 4.1(a))

to

CREDIT AGREEMENT

FINANCIAL STATEMENTS AND PROJECTIONS — REPORTING

          Borrower shall deliver or cause to be delivered to Agent or to Agent and Lenders, as
indicated, the following:

          (a) Monthly Financials. To Agent and Lenders, within 30 days after the end of each
Fiscal Month (45 days after the end of each Fiscal Month ending on or about March 31, June 30,
September 30 or December 31; provided, however, that with respect to such Fiscal
Months, the Borrower shall deliver to the Agent and the Lenders drafts of the financial statements
otherwise required by this sentence within 30 days after the end of each such Fiscal Month),
financial information regarding Borrower and its Subsidiaries, certified by the Chief Financial
Officer of Borrower, consisting of consolidated and consolidating (i) unaudited balance sheets as
of the close of such Fiscal Month and the related statements of income and cash flows for that
portion of the Fiscal Year ending as of the close of such Fiscal Month and (ii) unaudited
statements of income and cash flows for such Fiscal Month, setting forth in comparative form the
figures for the corresponding period in the prior year and the figures contained in the Projections
for such Fiscal Year, all prepared in accordance with GAAP (subject to normal year-end
adjustments). Such financial information shall be accompanied by (A) if such month is the last
month of a Fiscal Quarter, a statement in reasonable detail (each, a “Compliance
Certificate”) showing the calculations used in determining compliance with each Financial
Covenant that is tested for a period ending on the last day of such Fiscal Quarter and (B) the
certification of the Chief Financial Officer of Borrower that (i) such financial information
presents fairly in accordance with GAAP (subject to normal year-end adjustments) the financial
position and results of operations of Borrower and its Subsidiaries, on a consolidated and
consolidating basis, in each case as at the end of such Fiscal Month and for that portion of the
Fiscal Year then ended and (ii) any other information presented is true, correct and complete in
all material respects and that there was no Default or Event of Default in existence as of such
time or, if a Default or Event of Default shall have occurred and be continuing, describing the
nature thereof and all efforts undertaken to cure such Default or Event of Default.

          (b) Operating Plan. To Agent and Lenders, as soon as available, but not later than 30
days before the end of each Fiscal Year, an annual proposed operating plan for Borrower for the
following Fiscal Year (and when available, any subsequent updates thereto approved by the Board of
Directors of Borrower), which for the following Fiscal Year, (i) includes a statement of all of the
material assumptions on which such plan is based, (ii) includes monthly balance sheets and a
monthly budget for the following year and (iii) integrates sales, gross profits, operating
expenses, operating profit, cash flow projections and Borrowing Availability projections, all
prepared on the same basis and in similar detail as that on which operating results are reported
(and in the case of cash flow projections, representing management’s good faith estimates of future
financial performance based on historical performance), and including plans for personnel, Capital
Expenditures and facilities.

Annex E-1

 

          (c) Annual Audited Financials. To Agent and Lenders, within 75 days after the end of
each Fiscal Year, audited Financial Statements for Borrower and its Subsidiaries on a consolidated
and (unaudited) consolidating basis, consisting of balance sheets and statements of income and
retained earnings and cash flows, setting forth in comparative form in each case the figures for
the previous Fiscal Year, which Financial Statements shall be prepared in accordance with GAAP and
certified without qualification, by an independent certified public accounting firm of national
standing or otherwise acceptable to Agent. Such Financial Statements shall be accompanied by (i) a
statement prepared in reasonable detail showing the calculations used in determining compliance
with each of the Financial Covenants, and (ii) the certification of the Chief Executive Officer or
Chief Financial Officer of Borrower that all such Financial Statements present fairly in accordance
with GAAP the financial position, results of operations and statements of cash flows of Borrower
and its Subsidiaries on a consolidated and consolidating basis, as at the end of such Fiscal Year
and for the period then ended, and that there was no Default or Event of Default in existence as of
such time or, if a Default or Event of Default has occurred and is continuing, describing the
nature thereof and all efforts undertaken to cure such Default or Event of Default.

          (d) Management Letters. To Agent and Lenders, within 5 Business Days after receipt
thereof by any Credit Party, copies of all management letters, exception reports or similar letters
or reports received by such Credit Party from its independent certified public accountants.

          (e) Default Notices. To Agent and Lenders, as soon as practicable, and in any event
within 5 Business Days after an executive officer of Borrower has actual knowledge of the existence
of any Default, Event of Default or other event that has had a Material Adverse Effect, telephonic
or telecopied notice specifying the nature of such default or event of default or other event,
including the anticipated effect thereof, which notice, if given telephonically, shall be promptly
confirmed in writing on the next Business Day.

          (f) SEC Filings and Press Releases. To Agent and Lenders, promptly upon their
becoming available, copies of: (i) all Financial Statements, reports, notices and proxy statements
made publicly available by any Credit Party to its security holders; (ii) all regular and periodic
reports and all registration statements and prospectuses, if any, filed by any Credit Party with
any securities exchange or with the Securities and Exchange Commission or any governmental or
private regulatory authority; and (iii) all press releases and other statements made available by
any Credit Party to the public concerning material changes or developments in the business of any
such Person.

          (g) Equity Notices. To Agent, as soon as practicable, copies of all material written
notices given or received by any Credit Party with respect to any Stock of such Person.

          (h) Supplemental Schedules. To Agent, supplemental disclosures, if any, required by
Section 5.6.

          (i) Litigation. To Agent in writing, promptly upon learning thereof, notice of any
Litigation commenced or threatened against any Credit Party that (i) seeks damages in excess of
$100,000, (ii) seeks injunctive relief, (iii) is asserted or instituted against any Plan, its
fiduciaries or its assets or against any Credit Party or ERISA Affiliate in connection with any

Annex E-2

 

Plan, (iv) alleges criminal misconduct by any Credit Party, (v) alleges the violation of any
law regarding, or seeks remedies in connection with, any Environmental Liabilities; or (vi)
involves any product recall. In addition, within 15 days after the end of each Fiscal Quarter, the
Borrower shall provide the Agent with a summary of all litigation set forth on Disclosure
Schedule 3.13 or for which the Agent is otherwise to be notified pursuant to this clause (i).

          (j) Insurance Notices. To Agent, disclosure of losses or casualties required by
Section 5.4.

          (k) Lease Default Notices. To Agent, within 2 Business Days after receipt thereof,
copies of (i) any and all default notices received under or with respect to any leased location or
public warehouse where Collateral is located, and (ii) such other notices or documents as Agent may
reasonably request.

          (l) Lease Amendments. To Agent, within 2 Business Days after receipt thereof, copies
of all material amendments to real estate leases.

          (m) Vendor Advances Disclosure Schedule. To Agent, not later than forty five (45)
days after the end of each Fiscal Quarter a schedule, in form and with such detail as is
satisfactory to the Agent listing (i) all new Vendor Advances made by Credit Parties, reductions to
any Vendor Advances, write-off payments made with respect to any Vendor Advances and net monthly
closing balances of Vendor Advances by each Vendor and in the aggregate, in each case, on a
month-by-month basis during such Fiscal Quarter and (ii) all outstanding Vendor Advances made by
Credit Parties as of the end of such Fiscal Quarter.

          (n) Agreements relating to Vendor Advances, Supply Agreements, Purchase Agreements and
Customer Agreements. To Agent, within 10 Business Days after receipt thereof, copies of (i)
all amendments to any material agreements relating to Vendor Advances, material supply agreements,
material purchase agreements and material customer agreements (ii) any new material agreement
relating to Vendor Advances, material supply agreement, material purchase agreement and material
customer agreement.

          (o) Second Lien Notices. To Agent, as soon as practicable, copies of all written
notices provided or received by a Credit Party under or with respect to the Second Lien Credit
Agreement and related documents.

          (p) Other Documents. To Agent and Lenders, such other financial and other information
respecting any Credit Party’s business or financial condition as Agent or any Lender shall, from
time to time, reasonably request.

Annex E-3

 

ANNEX F (Section 4.1(b))

to

CREDIT AGREEMENT

COLLATERAL REPORTS

          Borrower shall deliver or cause to be delivered the following:

          (a) To Agent, upon its request, and in any event no less frequently than five (5) Business
Days after the end of each Fiscal Month (together with a copy of all or any part of the following
reports requested by any Lender in writing after the Closing Date), each of the following reports,
each of which shall be prepared by the Borrower as of the last day of the immediately preceding
Fiscal Month or the date two (2) days prior to the date of any such request:

     (i) a Borrowing Base Certificate with respect to Borrower, accompanied by such
supporting detail and documentation as shall be requested by Agent in its reasonable
discretion (and the Borrowing Base Certificate delivered with respect to the last Fiscal
Month of each Fiscal Quarter shall set forth in reasonable detail the basis for the
continuance of, or any change in, the Applicable Margins pursuant to Section 1.5
hereof);

     (ii) with respect to Borrower, a summary of Inventory and a perpetual Inventory report,
in each case by location and type in each case accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable discretion;

     (iii) with respect to Borrower, a monthly trial balance showing Accounts outstanding
aged from invoice date as follows: 1 to 30 days, 31 to 60 days, 61 to 90 days and 91 days
or more, accompanied by such supporting detail and documentation as shall be requested by
Agent in its reasonable discretion; and

     (iv) an aging of accounts payable;

          (b) To Agent, at the time of delivery of each of the monthly Financial Statements delivered
pursuant to Annex E:

     (i) a reconciliation of the most recent Borrowing Base, general ledger and month-end
Accounts and Inventory reports of Borrower to Borrower’s general ledger and monthly
Financial Statements delivered pursuant to such Annex E, in each case accompanied by
such supporting detail and documentation as shall be requested by Agent in its reasonable
discretion;

     (ii) a reconciliation of the perpetual inventory by location to Borrower’s most recent
Borrowing Base Certificate, general ledger and monthly Financial Statements delivered
pursuant to Annex E, in each case accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable discretion;

Annex F-1

 

     (iii) an aging of accounts payable and a reconciliation of that accounts payable aging
to Borrower’s general ledger and monthly Financial Statements delivered pursuant to
Annex E, in each case accompanied by such supporting detail and documentation as
shall be requested by Agent in its reasonable discretion; and

     (iv) a reconciliation of the outstanding Loans as set forth in the monthly Loan Account
statement provided by Agent to Borrower’s general ledger and monthly Financial Statements
delivered pursuant to Annex E, in each case accompanied by such supporting detail
and documentation as shall be requested by Agent in its reasonable discretion;

     (v) a “roll forward” report with respect to Accounts in form satisfactory to Agent;

     (vi) a reconciliation of Vendor Advances to Borrower’s general ledger and monthly
Financial Statements delivered pursuant to Annex E, in each case accompanied by such
supporting detail and documentation as shall be requested by Agent in its reasonable
discretion;

     (vi) copies of the regular monthly bank statements provided to Borrower with respect to
the Eligible Investment Account;

          (c) To Agent, at the time of delivery of each of the annual Financial Statements delivered
pursuant to Annex E, (i) a listing of government contracts of Borrower subject to the
Federal Assignment of Claims Act of 1940; and (ii) a list of any applications for the registration
of any Patent, Trademark or Copyright filed by any Credit Party with the United States Patent and
Trademark Office, the United States Copyright Office or any similar office or agency in the prior
Fiscal Quarter;

          (d) Borrower, at its own expense, shall deliver to Agent the results of each physical
verification, if any, that Borrower or any of its Subsidiaries may in their discretion have made,
or caused any other Person to have made on their behalf, of all or any portion of their Inventory
(and, if a Default or an Event of Default has occurred and be continuing, Borrower shall, upon the
request of Agent, conduct, and deliver the results of, such physical verifications as Agent may
require);

          (e) Borrower, at its own expense shall deliver to Agent, if requested by Agent, not more
frequently than three times each year, an appraisal of the Inventory of Credit Parties, prepared by
an appraiser acceptable to Agent, and Borrower, at its own expense, shall deliver to Agent such
appraisals of its assets as Agent may request at any time after the occurrence and during the
continuance of an Event of Default, such appraisals to be conducted by an appraiser, and in form
and substance reasonably satisfactory to Agent; and

          (f) Such other reports, statements and reconciliations with respect to the Borrowing Base or
Collateral or Obligations of any or all Credit Parties as Agent shall from time to time request in
its reasonable discretion.

Annex F-2

 

ANNEX G (Section 6.10)

to

CREDIT AGREEMENT

FINANCIAL COVENANTS

          Borrower 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:

          (a) Maximum Capital Expenditures. Borrower and its Subsidiaries on a consolidated
basis shall not make Capital Expenditures during the following periods that exceed in the aggregate
the amounts set forth opposite each of such periods:

	 	 	 	 	 
	Period	 	Maximum Capital Expenditures per Period
	Fiscal Year ending on or about March 31, 2007
	 	$	7,900,000	 
	Fiscal Year ending on or about March 31, 2008
	 	$	9,500,000	 
	Fiscal Year ending on or about March 31, 2009
	 	 	 	 
	and each Fiscal Year ending thereafter
	 	$	3,000,000	 

          (b) Minimum Fixed Charge Coverage Ratio. Borrower and its Subsidiaries shall have on
a consolidated basis, as of the last day of the Fiscal Quarter ending on June 30, 2007 and as of
the last day of each Fiscal Quarter thereafter, for the 12 month period then ended, a ratio (the
“Fixed Charge Coverage Ratio”) of (A) the sum of (i) EBITDA plus (ii) the aggregate
of all Vendor Advance Expenses for such period, plus (iii) interest income received during
such period minus (iii) Capital Expenditures during such period (other than Capital
Expenditures financed other than with the proceeds of Loans), minus (iv) income taxes paid
in cash during such period, minus (v) the aggregate of all Vendor Advances made during such
period to (B) the sum of, without duplication, (i) the aggregate of all Interest Expense paid or
accrued during such period, plus (ii) scheduled payments of principal with respect to
Indebtedness during such period (other than scheduled principal payments made by Borrower during
such period with respect to Term Loan B (as defined and under the Existing Credit Agreement)
pursuant to the Existing Credit Agreement), plus, (iii) all Restricted Payments made by a
Credit Party during such period (other than Restricted Payments (a) made to another Credit Party or
(b) which have caused EBITDA to be reduced for such period) of at least the ratio set forth below
opposite such Fiscal Quarter:

	 	 	 
	Fiscal Quarter Ending	 	Ratio
	 
	June 30, 2007
	 	0.90 :1
	September 30, 2007
	 	0.90 :1
	December 31, 2007
	 	0.90 :1
	March 31, 2008
	 	1.10 :1
	June 30, 2008 and each Fiscal Quarter ending thereafter
	 	1.50:1

Annex G-1

 

          (c) Indebtedness to EBITDA. Borrower and its Subsidiaries shall have on a
consolidated basis, as of the last day of each Fiscal Quarter a Leverage Ratio of not greater than
the ratio set forth below opposite such Fiscal Quarter:

	 	 	 
	Fiscal Quarter Ending	 	Ratio
	 
	June 30, 2007
	 	3.25:1
	September 30, 2007
	 	3.00:1
	December 31, 2007
	 	3.00:1
	March 31, 2008
	 	2.75:1
	June 30, 2008
	 	2.75:1
	September 30, 2008
	 	2.50:1
	December 31, 2008
	 	2.50:1
	March 31, 2009 and each Fiscal Quarter ending thereafter
	 	2.25:1

          (d) Minimum EBITDA. Borrower and its Subsidiaries shall have on a consolidated basis,
as of the last day of the Fiscal Quarter ending on June 30 , 2007 and as of the last day of each
Fiscal Quarter thereafter, for the 12 month period then ended, EBITDA of at least the amount set
forth below opposite such Fiscal Quarter:

	 	 	 	 	 
	Fiscal Quarter Ending	 	Amount
	 
	June 30, 2007
	 	$	32,000,000	 
	September 30, 2007
	 	$	32,000,000	 
	December 31, 2007
	 	$	34,000,000	 
	 
	 	 	 	 
	March 31, 2008
	 	$	34,000,000	 
	 
	 	 	 	 
	June 30, 2008
	 	$	35,000,000	 
	September 30, 2008
	 	$	35,000,000	 
	December 31, 2008
	 	$	36,000,000	 
	March 31, 2009
	 	$	36,000,000	 
	June 30, 2009
	 	$	37,000,000	 
	September 30, 2009
	 	$	37,000,000	 
	December 31, 2009 and each Fiscal Quarter ending thereafter
	 	$	38,000,000	 

          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

Annex G-2

 

covenants, standards or terms used in the Agreement or any other Loan Document, then Borrower,
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 Borrower’s and its 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), (ii) changes in accounting
principles concurred in by 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. If Agent, Borrower 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, Borrower and Requisite Lenders cannot agree upon the required
amendments within 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.

Annex G-3

 

ANNEX H (Section 9.9(a))

to

CREDIT AGREEMENT

LENDERS’ WIRE TRANSFER INFORMATION

	 	 	 	 	 
	Name:

	 	General Electric Capital Corporation

	Bank:

	 	Deutsche Bank Trust Company Americas

	 

	 	New York, New York

	ABA #:

	 	021001033	 
	Account #:

	 	50232854	 
	Account Name:

	 	GECC/CAF Depository

	Reference:

	 	CFN5947

Annex H-1

 

 

ANNEX I (Section 11.10)

to

CREDIT AGREEMENT

NOTICE ADDRESSES

	 	 	 
	(A)

	 	If to Agent or GE Capital, at

General Electric Capital Corporation

500 West Monroe Street

12th Floor

Chicago, Illinois 60661

Attention: Navarre Account Manager

Telecopier No.: (312) 463-3855

Telephone No.: (312) 441-6119
	 
	 	 
	 

	 	with copies to:
	 
	 	 
	 

	 	Latham & Watkins

5800 Sears Tower

Chicago, Illinois 60606

Attention: Jeffrey G. Moran

Telecopier No.: 312-993-9767

Telephone No.: 312-876-7700
	 
	 	 
	 

	 	and
	 
	 	 
	 

	 	General Electric Capital Corporation

401 Merritt 7

Norwalk CT 06851

Attention: Corporate Counsel-Commercial Finance

Telecopier No.: (203) 956-4001

Telephone No.: 203-229-1800
	 
	 	 
	(B)

	 	If to Borrower or any Credit Party, at
	 

	 	Navarre Corporation

7400 49th Avenue North

New Hope, MN 55428

Attention: CFO

Telecopier No.: 763-504-1107

Telephone No.: 763-450-2406

Annex I-1

 

ANNEX J (from Annex A — Commitments definition)

to

CREDIT AGREEMENT

Lenders:

General Electric Capital Corporation:

Revolving Loan Commitment

(including a Swing Line Commitment

of $5,000,000)

$95,000,000

Annex J-1

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